By Satish Singh
Modi government is completing 2 years of its second term on 30 May 2021. The Modi government removed Article 370 in the first year, enacted laws against triple talaq and introduced the Citizenship Amendment Act (CAA). In this context, the first year can be considered as a year of some amount of achievement, but the year 2020 completely devasted by the corona virus. At the same time, the year 2021 is also proving to be a challenging year for the government due to be second wave of corona virus.
Since March 2020, the corona pandemic had started spreading in India, to overcome this, a nationwide lockdown was imposed in the last week of March 2020, which led to the loss of jobs for many people. Simultaneously, the economy also collapsed. However, due to the policies adopted by the Modi government, the economy suffered less than expected.
During the first wave of Corona virus, the government gave a total relief of Rs.29.87 lakh crore to Micro, Small and Medium Enterprises (MSMEs), Corporates, middle class & common people, which was 15 percent of GDP. Several steps were also taken to provide relief to the housing sector. Seventy percent of the country’s population and 43 percent of the employment are still in the agricultural sector. Therefore, many benefits were given to farmers. Five kilograms of wheat or rice and one kilogram of gram per family were given free to migrant laborers for 2 months without Ration card, which benefited about 8 crore migrant laborers. During the first wave of Corona pandemic, the government transferred Rs.500 in the Jan Dhan accounts of 20.5 crore women for 3 months, so that they cannot face livelihood problem during Corona Period.
The wheel of development was not moving until June 2020 due to the nationwide lockdown & fear from Corona pandemic, but onwards months the economic activities have started, which got momentum in the month of August & September. Exports grew by 5.27 percent in September, with electronic and engineering goods were playing an important role. Exports of engineering goods and electronic goods grew by 3.73 percent and 0.04 percent respectively, while exports of medicines and pharmaceutical products grew by 24.36 percent. However, the exports of jewellery registered a decline of 24.66 percent. In the first 6 months of 2020, exports were down by 21.43 percent to $ 125.06 billion, but in September the total exports stood at $ 27.65 billion as against $ 26.02 billion in the same period of the previous fiscal.
Imports declined 19.60 percent to $ 30.31 billion in September. In the same month of 2019, it stood at $ 37.69 billion. India’s trade deficit was reduced to $ 2.92 billion in September due to increase in exports and decrease in imports. Goods and Services Tax (GST) collection, electricity consumption, auto sales etc. increased in September as compared to April. Fuel consumption also increased due to increasing economic activity. GST collection increased 3 times in September compared to April. The total GST collection in September was Rs 95.48 thousand crore, which was 10.4 percent more than the month of August. In August, the GST recovery was 86.44 thousand crore rupees.
By December, the economy was almost back on track. Even though there was a contraction of 23.9 percent in the gross domestic product (GDP) in the first quarter of the FY 2020-21, the GDP turned positive in the third quarter of the same financial year, but from February 2021, the second wave of corona pandemic started spreading, but it was in the initial stage. Therefore, the GST collection stood at Rs.1.24 lakh crore in March, the highest ever collection. The GST collection for the sixth consecutive month exceeded Rs.1 lakh crore in FY 2020-21, while the GST collection for the fourth consecutive month was more than Rs.1.1 lakh crore. The GST collection crossed the Rs.1 lakh crore mark in the seventh month of FY 2020-21. The GST collection has been more than Rs.1.1 lakh crore six times since the implementation of GST. With the GST collection at Rs.1.24 lakh crore in March, the total direct tax collection estimated to be higher than the revised estimate of FY 2020-21 and the fiscal deficit to be lower than the revised estimate of FY 2020-21 by 9.5 percent, but in present circumstances, it will not be achieved.
On May 5, 2021, the Reserve Bank announced a series of measures to help traders overcome the difficulties posed by the second wave of the Corona pandemic, among which it is most important to give the option of debt restructuring back to businessmen again. The companies under this scheme, will make terms of payment of financial liabilities easier. However, the number of companies opting for debt restructuring may be quite low, as so far, the impact of the pandemic is limited to certain areas. The CRISIL works to give ratings to about 6,800 mid-sized companies. According to this agency, retail, hospitality, vehicle dealerships, tourism, real estate sector companies etc. will have the highest impact of the pandemic. On the other hand, there will be no significant impact of the pandemic on companies in the fields of chemicals, medicine, dairy, information, and technology and FMCG.
The Reserve Bank will announce an auction of Rs 10,000 crore for Small Finance Banks (SFBs) every month under a Special Long Term Repo Operation (SLTRO). With the help of this scheme, the negative effects of the pandemic will be reduced. The Reserve Bank has also announced a corona pandemic package of Rs 50,000 crore on 5 May, aimed at providing funds to vaccine-making companies, medical device suppliers, hospitals and patients receiving treatment for the disease. 50,000 crore rupees emergency healthcare loans will be provided by banks by March 31, 2022, which can be repaid in 3 years. These will be classified as primary sector loans. Banks do not have to maintain cash reserve ratio or statutory liquidity ratio for primary sector loans and this loan is available at a discounted rate. For this, banks can raise money at the repo rate. Under this, loans can be given to vaccine manufacturers, importers and suppliers of vaccine and priority medical equipment, hospitals, dispensaries, pathology labs, oxygen and ventilator manufacturers and suppliers, and importers of Covid medicines and logistics firms and patients for treatment. Banks can give these loans directly or through intermediaries and for this they have to open a Covid loan account.
To strengthen the rural economy, more and more loans are being given by banks to the needy people under the Pradhan Mantri Mudra Yojana, because millions of people must lose their jobs due to Corona virus. Under the Pradhan Mantri Garib Kalyan Yojana, a loan of 20 lakh rupees to self-help groups run by women is being distributed extensively by banks, so that more people become self-reliant and provide employment to others.
Regulatory guidelines for Asset Reconstruction Companies (ARCs) were issued in the year 2003. As per the latest data, the Reserve Bank of India has 28 ARCs registered, but has not been able to deliver the expected results in the direction of reducing non-performing asset (NPA), because the gross non-performing assets (GNPA) of all Scheduled Commercial Banks (ASCBs) amounted to Rs 0.68 lakh crore in the year 2003, which increased 13 times to Rs 9 lakh crore in March 2020. Therefore, the government has established a bad bank. The government had announced regarding this in the budget presented for the financial year 2021-22. Further action is being taken in this direction and it is believed that through this NPA will be controlled to a great extent.
As of December 2020, the recovery under the Indian Insolvency and Bankruptcy Code (IBC) was 39.80 percent, amounting to Rs1.97 lakh crore, while the total claim amount was Rs 4.96 lakh crore. This figure shows that banks are also successful in reducing their NPAs through IBC. To increase liquidity in NBFCs, the Reserve Bank has allowed banks to classify lending to NBFCs (excluding MFIs) as Priority Sector Lending (PSL) till September 30, 2021. Though, the lending should not be more than 5 percent of the total PSL. This loan will also be given to MSME, housing, agriculture etc.
In the last few years, the central government has provided funds of about Rs.3,50,000 crore to various public sector banks to comply with regulatory conditions and to accelerate economic activity. In this sequence, the government has also approved the formation of four banks by merging 10 banks. Privatization of two public sector banks has also been announced, so that the available resources can be used in a better way.
It can be said that the government has taken several corrective steps to deal with the crisis arising out of the Corona pandemic, including the relief package. The government has also started taking corrective steps to deal with the negative impact on the economy due to the second wave of Corona pandemic, which is not expected to have much negative impact on the economy.
(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)