Need to re-orient policy mix to rebuild economy in post-Covid world: Finmin

Ministry asserts India is on V-shape recovery path from Q2 onwards; says GDP plummeted most because of severest lockdown measures taken against pandemic

The finance ministry has cautioned that the country will have to re-orient its policy matrix to reconstruct the economy and build resilience for an uncertain future in the post-Covid world. Specific attention must be paid to skilling, healthcare, agrarian supply chains, factor markets, infrastructure, information and communications technology (ICT), start-ups and financial inclusion to achieve this end.

In its monthly economic report for August, the department of economic affairs (DEA) under the ministry asserted that the economy is on a V-shape recovery path from the second quarter of the current financial year onwards, as the country starts unlocking after a 23.9 per cent contraction in the first quarter. It attributed its assessment to tractor sales, fertiliser sales, steel consumption and prodution, cement production, power consumption, e-way bills, highway toll collections, GST collections and digital transactions, among other data after June. 

It said India's economy contracted the most compared to the advanced world due to the severest lockdown measures announced by the government, due to which Covid-19 casualties have been one of the lowest here than elsewhere.

DEA said the world after Covid will be different with structural changes in production, consumption and work patterns.

In this connection, it called for specific attention to the areas cited above and said progress there will sustainably boost economic growth in the years to come.

Agriculture

The department said agriculture has emerged as a silver lining in the current scenario. It is the only sector that grew by 3.4 per cent in the first quarter of 2020-21, whereas every other sector contracted pulling down the gross domestic product by little less than one-fourth.

The report said policy priority towards building efficient and sustainable agrarian supply chains for a persistent increase in farmer incomes has got reinforced more now than ever before. Such a dynamic shift towards promoting deregulation and liberalisation of the farm sector is already underway with the government announcing landmark reforms.

Factor market and infrastructure

DEA said the fundamental change in the world order also invokes realignment in the conventional perceptions on efficiency versus resilience of the manufacturing sector. Deep-seated and wide-ranging structural reforms in land, legal, labour and capital markets to reverse the slowdown in manufacturing and to boost risk appetite are pertinent in this regard. This warrants fast-tracking of the existing Government initiatives in the factor market space.

The government has also provided a necessary push to targeted mega infrastructure projects as part of the National Infrastructure Pipeline to reignite the manufacturing sector. The recent MSME related reforms to build an Atma Nirbhar Bharat hold great potential for transforming India’s manufacturing trajectory, it added.

ICT

With Covid-19 necessitating business closures and pushing footfalls drastically below normal levels, the services sector continues to be the worst-hit with demand plummeting across the globe, it said.

With the services sector being the biggest employer in the nation, building sufficient flexibility for organisations for the duration of the pandemic response and beyond is paramount for India’s eventual economic recovery.

Leveraging India’s ICT revolution and upscaling Digital India at an unrivalled pace is essential for lending much-needed resilience to the service sector. Unlocking India’s entrepreneurial energies as part of Capitalising on India’s ‘Start-up India’ efforts and holistic expansion of this ecosystem across all services sectors is key to unlocking entrepreneurial energies and quickening economic revival, the report said.

Strengthening an AtmaNirbhar’s Bharat position in global value chains:

The report said to pivot and strengthen India’s position in emerging global value chains amid changing trade dynamics, re-aligning policy incentives in favour of labour intensive export sectors is a pressing need. In addition, India needs to anchor its strengths in the area of generic drugs and pharma exports and regain its market share in active pharmaceutical ingredients (APIs).

Given the nature of Covid-19 that the world is fighting, the inability of even one country to address the shortages of vaccine will have huge negative externalities for the entire world. India can emerge as a forerunner in supporting easy, affordable and equitable access to the Covid vaccine as and when it is available to administer, DEA said.

Digital finance

The digital payment infrastructure created as part of JAM trinity has enabled a timely and targeted fiscal relief response to the pandemic, the department said adding going forward, wide-spread deployment of online and offline digital payment acceptance infrastructure, particularly in remote areas, is key to unleashing the true potential of financial inclusion in an increasingly digitized post-covid world. In a world witnessing a paradigm shift in consumer behavior, expanding the digital retail space may emerge as a critical nudge to gradually regain the pre-Covid-19 consumption momentum, it said.

Skilling

In the face of unprecedented pandemic induced job losses, the employer-employee relationship also demands structural changes, the report said. Moving away from fixed job roles, and engendering role flexibility in the workforce will enable businesses to better meet post-pandemic challenges. Skilling, upskilling and reskilling of the labour force is pre-eminent to enable it to be better-prepared and adaptive to the changing business environment, it said.

Preventive health care ecosystem

The department said India’s multipronged health response to the COVID-19 crisis ranging from social distancing to aggressive test-track-treat strategies has provided a necessary foundation for future disease preparedness. Relentless efforts towards building a preventive health care ecosystem will also provide the much needed stimulus to economic activity by creating

more employment and mitigating labour productivity losses, it said. This will help diminish the starkness of “lives vs livelihoods” dilemma that we face today, it added.