Thursday, June 17, 2021

Need to scale up reform

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By Satish Singh

Due to the Corona pandemic, financial crisis has arisen in front of the borrowers of the bank. For this reason, in a public interest litigation (PIL) filed in the Supreme Court, it has been said that all financial institutions should provide the facility of interest free moratorium on term loans, deposit of loan instalment & interest should be stopped for 6 months or give relief till the situation becomes normal, because, due to lockdown, the income of daily labourers has been affected. Therefore, strict action should not be taken against the daily labourers till 6 months who have taken loans from the banks, the property mortgaged in the bank should not be auctioned by the bank till 6 months, any loan account should not be declared Non-Performing Asset (NPA) till 6 months, the tenure of the new restructuring plan should be made borrower friendly etc.

In the March of this year, the Supreme Court had ordered that banks should not charge compound interest on loan accounts of those borrowers who had availed the moratorium facility during the period from March 2020 to August 2020. The court had said that those banks which have recovered compound interest; return the excess recovered interest amount to the borrowers immediately. It means, the banks should recover simple interest on such accounts. The court also said that if the bank does not repay the compound interest, it should be adjusted in the loan accounts of such borrowers.

The Reserve Bank of India has recently approved the implementation of a new restructuring plan in view of the second wave of the Corona pandemic. Individuals and Micro, Small, Medium Enterprises (MSMEs), having borrowings up to Rs.25 crore in banks, who have earlier not availed the restructuring scheme and whose loan account was classified as standard asset as on March 31, 2021, can opt for the new restructuring scheme.

The second wave of corona virus is also having an adverse effect on the stock market. According to depository data, foreign institutional investors (FIIs) sold shares worth Rs.6,370 crore between May 1 and 21. However, they have also invested Rs.1,926 crore in the bond market. Thus, the net selling by FIIs has been Rs.4,444 crore.

After a large number of people lost their jobs in May 2020, the job market was strengthening from the last quarter of the year 2020 to the month of March 2021, but from April 2021, the job market situation again started weakening like last year. According to a study by the Center for Economic Data and Analysis (CEDA) and the Center for Monitoring Indian Economy (CMIE), employment opportunities in the construction sector fell by almost half during the last financial year compared to the last five years. During the financial year 2020-21, employment opportunities in this sector have decreased by 32 percent on a yearly basis. Apart from this, employment opportunities have also reduced sharply in the real estate and construction sector. CEDA and CMIE in their study included agriculture, mining, manufacturing, real estate and construction, financial services, non-financial services and administrative services etc., which generate 99 percent of the employment.

Except the chemical industry, all sub-sectors of the manufacturing sector have been in decline for a long time. These sectors, which contributes 17 per cent to the Gross Domestic Product (GDP), had 5.1 crore workers in the financial year 2016-17, which declined by 46 percent by the financial year 2020-21.

In numbers, it came down to 2.73 crores. Similarly, in the real estate and construction sector, about 6.9 crore workers were employed in the financial year 2016-17, but their number declined by almost 5.37 crore in the financial year 2020-21. According to CEDA and CMIE study, the number of workers working in agriculture has increased from 14.56 million to 15.18 million in the last 5 years, thereby increasing the sector’s share of employment from 36 percent to 40 percent.

Employment in the agriculture sector has been growing for the last two years and it grew by 1.7 per cent during the financial year 2019-20 as compared to 4.1 per cent in 2020-21. This means that workers coming out of the manufacturing, non-financial services, mining, real estate and construction sectors are moving to agriculture sector for their livelihood. The number of workers in the largest non-financial service sector increased from 11.97 crores to 12.77 crores in 5 years, but in the financial year 2020-21, due to the corona pandemic, there was a significant decline on a yearly basis.

According to CMIE, the unemployment level in the country has remained high for a few weeks. It jumped to a 9-year high of 14.45 percent in the week ended March 16. Unemployment is already high in urban areas, with unemployment doubling on a weekly basis in rural areas. Due to this, the unemployment level jumped sharply to slightly below 17.51 percent from the June 7 of the last year.

According to the government, the Goods and Services Tax (GST) collection in June 2021 may be less than Rs.1 lakh crore due to slowdown in economic activity owing to the second wave of coronavirus. Despite this, as per the provisions at the time of implementation of GST, this year the Centre may have to transfer compensation to the states around Rs.2.5 to 3 lakh crore. In such a situation, like last year, this time also the government may have to borrow from the market to compensate the states. It is understood that the Centre will not make up for the entire shortfall and will only make up for the shortfall due to GST implementation through market borrowings. To compensate for the shortfall in GST collection, the states can be given the facility of borrowing like last year. At the time of implementation of GST in July 2017, the tax collections of the states were projected to grow by 14 per cent annually and if it falls, it was promised to compensate till 5 years. That is why a cess was introduced in the GST framework, which is levied on 28 per cent tax category goods such as vehicles, cigarettes, carbonated beverages, etc.

The reduction in e-way bill issuance in April 2021 and May 2021 indicates that revenue collection in May 2021 may be around 30 per cent lower than in April and may be less than Rs.1 lakh crore in June. Economic activity is slow in industrialized states, but with the reduction in the cases of infection of coronavirus, production & demand may start picking up from July, leading to higher tax collections in the coming months. According to experts, the outbreak of the second wave of the corona virus in the country may reach its lowest level in the month of June. This will compel the state governments to open the local lockdown in phased manner. It is presuming that industrialized states like Karnataka, Maharashtra and Tamil Nadu will unlock the lockdown in the second fortnight of the June. Due to this, percent of tax collection will improve in these states in incoming days.

It is clear from the above analysis that the second wave of corona virus will have less adverse effect on the economy than the year 2020, but it will definitely curb the improvement in the economy, which will reduce employment generation, economic activities etc. Therefore, it is necessary to accelerate the pace of vaccination across the country. Today, by the help of vaccination, the corona pandemic may be controlled. The vaccination process will also help in reducing the fear of corona virus from the minds of people which will lead to increase the economic activities across the country.

(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at and

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