Being Atmanirbhar and the Demand and Supply Sides of our Economy

Image Source: India TV News

Indian economy was already struggling before being hit by the global pandemic. Like every other country, India is fighting its war against covid-19. Social distancing, use of masks and sanitizers have become the new normal for us all. Severe lockdown imposed right at the onset of pandemic has been seen as firing in the bush before the game had entered it. Unfortunately, it has severely damaged our already ailing economy. Trying to convert the crisis into an opportunity, PM Modi   rightly called Indians to strive to become aatmanirbhar. To achieve this end, the Modi Government, announced a 20 lakh  crore  stimulus package which was about 10% of the GDP. This economic stimulus aimed to boost the economy and sustain growth.

Besides, the Government introduced a massive tax cut in corporate taxes, made big and suspicious looking disinvestment announcements like the privatization of the railways, set in labour code reforms, introduced insolvency and bankruptcy code and put into motion consolidation measures of the public sector banks. While several of these  good works only  tried to provide stimulus to the supply side of the economy, the demand side remained  weak as  job losses continued to gain momentum,  prices kept skyrocketing and health infrastructure began to look inadequate since the infection of covid-19  went on the rampage across the country. Besides, the Government passed the farmer's bills much to the disappointment of the farming community across the country which took to protest even under the threat of the coronavirus.

The Government has rightly formed an economic task force to handle the corona pandemic and announced a 1.7 crore financial package but  unfortunately remained opaque about the PM Cares Fund as it kept it outside the ambit of the right to information. Although, the demand side of the economy has been put among the  five pillars to sustain growth in the vision towards aatmanirbhar Bharat , so far there has been little or no work done to raise demand by strengthening  the buying capacity of the people by putting money in their hands.

It appears that the relief to the poor and the migrants came only in the shape of free food grains, cheaper loans and affordable housing. One finds MGNEREGA as the only silver lining in otherwise lackluster response to the poor of our country. There have been several demands to increase the number of its days   in a year so that MGNEREGA can truly make a difference in the life of the rural poor. The financial distress of the pandemic has also produced sizable urban poor that need urgent attention and assistance.

Again the Government has strengthened the supply side of the economy by raising the threshold of default under the IBC 2016 to 1 crore (from the existing threshold of 1 lakh). This will by and large delay the insolvency proceedings against the MSMEs but will not condone their loans. This means MSMEs will have to work with that grinding stone on their neck. This may not be good for them and they will not be healthy sites of production as well as employment.

The delay in the evacuation of the migrants as well as the cost of the same taken from them saw several of the migrants walking towards their homes. This led to thousands of distressing stories and hundreds of horrifying deaths. It seems that the Government is actively responsible for this humanitarian disaster. Indians stranded abroad were successfully broad home through the Vande Bharat Mission. Although several of them complained about the way they had to undergo quarantine on arrival, by and large it was a successful mission to fly back Indians from distant lands to the safety of their families.

Several of the measures taken by the Government appear to be done in the best of intentions. The chief among them is the suspension of the MPLAD funds for two years and the reduction of 30% remuneration of the MPs   and the DA of the central Government employees for a year. Although much could be done to cut down other Government expenses on other areas to handle the pandemic condition in our country, it seems that the Government seems to be not interested in closing its fiscal gap.

Several critiques of the Government do link the sinking economy not just to the global pandemic but the inefficiencies and lack of economic expertise in the Modi Government. The Modi Government’s economic vision is unfortunately trapped in a belief that  only strengthens the supply side and thinks  that the invisible hand like mechanism in the economy will take care of its ills. We can see it again in the new economic stimulus package, Aatamanirbhar package 3.0 announced on 12th October 2020. Such adamant fixation to one wheel of the economy smacks of nothing short of being   infected by the virus of incompetence.

Countries like the UK and USA have put money in the hands of the citizens during this unprecedented time, while India seems to be still unable to make up its mind. Studies have shown that one and five dollars both physical bills and digital amount are exchanged on an average more than three times a day whereas  the legal tenders of Rs. 100 and Rs. 50 are said to be exchanged less than 80 times in  a year in our country. An economy remains truly healthy only when the maximum number of citizens constantly keeps the legal tenders to purchase goods and services. If only we strengthen the supply side without creating demand by enhancing the buying capacity of the people, we are actually cutting the branch on which we are sitting.

This is why several economists as well as leaders of oppositions are calling for the infusion of the stimulus by direct handling of cash in the hands of the people. By pushing the one dimensional economic policies, the Government is investing in a post-dated cheque drawn on a failing bank. While strengthening the supply side, the Government has to also create demand by putting direct cash in the hands of the poor. It seems that the Government  is not ready to bite the bullet and not willing to give the wealth of the people in the hands of the people. Such a refusal may have its costs. The way our political economy is handled today, there are very real dangers that we might descend into the Hobbsian nightmare  of chaos and conflict.

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