While We Fight COVID-19 Together, Let’s Share the Pain Equitably
COVID-19 has been the world’s greatest leveller. It removed distinctions between the rich and the poor—people and nations. Many world leaders had to be quarantined for exposureto, or have tested positive for, the virus. A week before the crisis blew up, European nations were confident that their healthcare systems were fully prepared and ‘sleepwalked’ into the crisis, says Reuters. They are now scrambling for protective gear, while the death toll runs into tens of thousands.
 
India’s hard lock-down is looking like a good decision; but the benefit will be squandered away if COVID-19 cases mount rapidly. Even more damaging will be the failure to deal with the economic aftermath. We are already lagging far behind most nations in the steps taken to mitigate economic hardship. The measures announced so far are paltry and most are just about to kick in, in April. 
 
Although Indians are fully with the government in fighting the virus, there isn’t enough sensitivity about the fact that the poor, who are the largest section of the population, are suffering the most.
 
Our lop-sided response is probably because our decision-makers, as privileged government employees, are taken care of. In fact, the Cabinet cleared a 4% hike in dearness allowance for them as late as on 18th March.
 
The only government employees exposed to COVID-19 hardship are providers of essential services, municipal workers, healthcare workers, police, fire brigade and civil defence personnel, bankers and those with utilities companies. 
 
Almost everybody else is grappling with job losses, deep pay-cuts, loss of income and livelihoods and inability to pay back loans and credit card dues. The prospects for MSMEs (micro, small and medium enterprises) look bleak in the face of a looming economic recession. Most businesses will take some knock, while the clock keeps ticking on mandatory expenses such as office rentals, services and wage bills. 
 
Acuité Ratings and Research has estimated that the 21-day lockdown will result in a loss of GDP (gross domestic product) of almost US$ 98 billion (equivalent) to the Indian economy, with transport, hotels, restaurants and real estate taking the brunt of the impact. In this context, let us examine a few decisions over the past week, in India and abroad. 
 
Moratorium: Last Friday, the Reserve Bank of India (RBI) announced a three-month moratorium on payment of interest and assured that credit records will not be impacted by the delayed payment and companies that avail of the leeway will not be declared defaulters. In a country with low financial literacy, this concession, although positive, is a pittance and has only unleashed worrying confusion among individual borrowers. 
 
Questions on social media indicate that people believe they have an interest waiver or subvention. That is not true. This is worrying for those with credit card dues and loans that will compound at a very high rate and, eventually, lead to a default. Mortgage borrowers would find their repayment period extended significantly. The saving grace is that the moratorium is not automatic; so most people weigh their options before selecting it. 
 
Selective Benevolence: Taking advantage of the COVID-19 lockdown, the government slashed the interest paid on small savings such as public provident fund (PPF), kisan vikas patra (KVP) and national savings certificates (NSC) by 70bps-140bps (basis points). Banks have also been cutting interest on terms deposits. This is especially hard on senior citizens who live on interest income and have been hit by the failure of cooperative banks and non-banking finance companies in the past couple of years. 
 
Now, contrast the treatment of ordinary savers with the government’s benevolence to toll collection agencies on our national highways. The ministry of road transport & highways (MoRTH) asked the National Highways Authority of India (NHAI) to suspend toll collections across the country till 14 April 2020 due to the 21-day lock-down period. 
 
Most of us saw this as a move to save the country some money. It required the intrepid journalist and activist, Pravin Wategaonkar, to point out that this notification, in fact, protects toll companies and allows them to seek compensation that will run into hundreds of crores of rupees. 
 
In a letter to the prime minister (PM), Mr Wategoankar says, “Due to the lock-down there is there is no regular traffic on road. Even on toll booths, there is almost no, or very less, waiting period for paying toll. In addition, ambulances that are out on the road are already exempted from the tolls. In the absence of regular traffic, if toll is suspended, then the contractors get a right to claim compensation for the losses. This at a time, when other businesses are absorbing losses and the government's move will allow contactors to earn money. This is violation of Article 14 read with Article 19(1)."
 
That toll operators will seek compensation is not mere conjecture. The Maharashtra government had proposed to pay Rs145 crore for the 24 days suspension of toll during the demonetisation period; multiply that by toll collection nationally and understand the extent of the give-away. 
 
At a time when businesses are suffering crippling losses and the PM is urging small employers to keep paying salaries without any compensation or tax-break, why this special dispensation for toll-operators who continue to collect tolls primarily in cash?
 
Tax Opportunism: On the very day that PM Modi announced the 21-day lock-down, our finance minister obtained an authorisation for a future hike of Rs8 each in excise duty on petrol and diesel as Parliament passed the Finance Bill, 2020. We are fortunate that oil prices have crashed and the government is saving plenty of foreign exchange.
 
We have been spared a duty hike on oil prices so far; but there will be no respite from tax harassment, whether or not businesses survive the present crisis. Just as people were feeling relieved at the tax deadline being shifted by three months came media reports that the central board of direct taxes wanted its officers to chase ‘large taxpayers’ on telephone or email from home, to follow up on dues and file daily reports. 
 
The Income-tax Officers Association has objected to this order and asked for ‘a humane approach’ at a time when the country was battling a pandemic. This ‘humane approach’ is not for the large taxpayers whose businesses have taken an irreparable beating; they argue that it is ‘inhuman’ for tax officers to chase up tax payments when they are comfortably locked-down at home without having to worry about their own salaries.
 
Global Action
In contrast, countries around the world are going all out to help mitigate the damage caused by the lock-down or to ensure the burden is shared equitably. Canadian PM Justin Trudeau’s stimulus package included a special deal for small businesses that, he acknowledges, are the backbone of Canada’s economy, just as they are of ours.
 
While Indian lenders were allowed to slash interest rates on small savings, here’s what the Prudential Regulatory Authority (PRA) of UK did. It forced banks to scrap dividends (£8 billion, estimates The Guardian) and share buyback plans for 2019 and 2020, thus ensuring that they are forced to conserve money during the pandemic. It also made it clear that there will be no ‘cash bonuses to senior staff’ including all ‘material risk-takers’ and sought an unambiguous assurance with regard to the accrual, payment and vesting of variable remuneration. Bank of England has issued a similar warning to insurance companies. 
 
The manner in which PRA ensured joint action and compliance by all banks is significant. Chief executive officer (CEO) Sam Woods’ letter to banks said, “Please confirm by 20.00 today whether or not your group is ready to agree to this request. The PRA stands ready to consider use of our supervisory powers should your group not agree to take such action.” That is not all; the letter included a draft of the possible statement to be issued by banks, including a ‘draft text of a PRA statement’ that would be issued, depending on the bank’s decision.
 
 
Given the terrible performance of India’s banking sector and the Yes Bank debacle, we would have liked to see RBI cracking the whip in a similar manner on banks, whose bad loans are repeatedly paid up by the exchequer in the form of ‘recapitalisation’. This hasn't happened so far.
 
While the COVID-19 storm was brewing, the Indian government was busy trying to enforce the Citizenship Amendment Act (CAA) and National Population Register (NPR). When COVID became a pandemic, it announced a national lock-down, which turned out to be a decision without adequate preparation. There was no warning, no preparedness. It unleashed panic among the migrant labourers who started a mad rush towards their homes. The lock-down had affected delivery channels, snapping the link between farmers and consumers and leading to massive losses. 
 
Will the initial blunders teach the government to become more sensitive to people and ensure that the most vulnerable sections of our population are protected and the pain is evenly shared? We aren’t seeing any signs of it, as yet.
 
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    COMMENTS

    kushal1948

    2 months ago

    According to news reports published on 7 April 2020 , scientists have found a trial drug that effectively blocks the cellular door SARS-CoV.2 uses to infect its hosts . This is expected to provide a potential treatment for the Coronavirus. An European company is likely to test the drug soon. The study , published in the journal Cell , provides news insights into SARS-CoV-2 , the virus that causes COVID-19. In this context , it may be relevant for readers to know this Vedic astrology writer’s predictive opinion. Last year 2019 , during October to December , this writer had covered India , Singapore , Japan , Italy , Canada , Ireland and the U.S.A. for purpose of yearly 2020 predictive alerts , separately for each country. One major predictive alert , common to all the aforesaid countries , had covered the period of about three and a half months from mid-March to June in 2020. It looked to be a period testing ‘ patience’ and ‘ perseverance’ of the people through a variety of major worrisome concerns. In some cases , it was specified to be relating to health woes or health hazards involving digestive system , nervous system , sex , respiratory system in the body and the like. But beyond June , from July to October , in 2020 , this writer had predicted of ‘ change of weather’ or at least a time that could address the woes of the immediate past. So reading in between the lines , it can be said that some effective drug or remedy can arrive by mid or towards last week of June 2020 to provide some relief during July to September , 2020 , to some good extent. But the need to be alert does not come to a stop here. Complacency can have tendency of re-appearance during October- December 2020. So continued vigilance may pay some dividends. One more alert prediction here for exercising more care and appropriate strategy. A period of nearly one and a half month from mid-April to 31 May in 2021 , particularly last eleven days of May 2021 would call for more alertness and appropriate strategy. In the absence of alertness and appropriate strategy , COVID-19 can re-emerge with greater strength and mischief in vulnerable most parts of the world. The planetary impact appears to be prone to suggest another reading covering mid-April to 31 May in the coming year 2021 - full-fledged war somewhere , could even be something most dreaded WW3 besides crisis in economy , trade and food sectors. For more precision as regards countries which may likely get involved, this writer has in mind to go into further details while figuring out yearly predictive alerts for some countries towards September -October 2020 , covering 2021.

    kiranb100

    2 months ago

    This compensation to Toll operators is an eye opener! What fixed cost does this business have - is it only the interest on loans which is also likely to get the benefit of moratorium? If my understanding is correct, it is the last business that needs such support! If they lose a month's toll collection, they can always be allowed to collect toll for an extra month after their contract gets over.

    ganeshjohnson

    2 months ago

    It is HIGH time the governments started listening to rational, logical and free-minded industrialists like Rajiv Bajaj who says: It is TIME to OPEN UP the economy, let the senior citizens stay indoors, and LET the young people power the economy by going on about their lives. You need to save LIVES, but you also need to save LIVELIHOODS. Contrary to what people may think, real courage will be on display when the government starts opening up the economy using clever containment, testing and distancing tactics, and not by just shutting everything off and sitting at home.

    gcmbinty.37

    2 months ago

    There is another class of senior citizens who are living all alone in rented accommodation, and not getting support from their children in these hard days of coronavirus who used to help their parents earlier due to break in the circulation of the money - they (the earning hands in the children) used to get from their employers or from those for whom they have been working on contract basis or the professionals. This break in the cycle of the cash flow has badly affected the senior citizens. On the top of it the landlords have in certain cases point blank refused to forego at least one month rent and be one in the cycle of money flow. In Delhi the landlords have passed on the benefit in the free supply of water and eletricity to the tenants, which has badly affected the senior citizens or the young ones living alone on Paying Guest accommodation.

    The RBI, the State Governments and the Central Government (in the Home Ministry, Finance Ministry are humbly requested to please do something for this middle and lower middle class of senior citizens. I shall feel obliged to receive any communication from these authorities through this channel of Moneylife or my mobile Nr 9910338312, or, on my email ID: [email protected]
    Thanks

    yerramr

    2 months ago

    Without undermining the efforts thus far; for example, Kerala, Tamil Nadu governments have announced relief packages for the MSMEs and Industry in general worthy to follow. We should demand from the Government an exemplary Emergency Relief Package like the one announced by Canada and UK. Excepting the 10% of MSME units producing masks, ventilators and gloves and pharmaceuticals all other units have little turnover to look for and the labor is already at the begging end. This is the time to announce: a special Fund to protect all the existing accounts with Banks and NBFCs and FIs; allow them a state guaranteed -Covid Credit Guarantee: for up to Rs.100lakhs with no collaterals for additional loans to restart; banks, NBFCs to rework on the working capital; offer loans at interest at no more than 9% for all categories as the RBI has since reduced the policy rates substantially; and the moratorium announced should be reviewed and fitted into the new measures.

    ganeshjohnson

    2 months ago

    Surely the banging of plates AND the upcoming lighting of diyas compensates for all of that?!

    REPLY

    Meenal Mamdani

    In Reply to ganeshjohnson 2 months ago

    I assume that is a satire, because of the exclamation points.
    The money spent on this extravaganza would have fed millions of people.
    Even though I was not a Modi supporter I wished him well as he seemed focused on economic reforms. I turned a blind eye to his egregious human rights record re minorities believing that if economic prospects for India improved and economic reforms were put in place, at least we would be on the path for a brighter future for India.
    I can see now that this was a mirage.
    Modi wanted to make India a theocratic Hindu state and to do this he adopted the guise of an economic reformer to bring the neutral voters on board. Now he has the mandate to do as he pleases for 5 years and his true aims are being manifested.
    We were hoodwinked.

    rohishetty

    In Reply to ganeshjohnson 2 months ago

    Reminds me of the old Tortoise coil ad: kachva jalao, machar bhagao.
    So now: diya jalao, virus bhagao.

    Let's hope the government does much more for the millions of poor Indian families affected by the lockdown ASAP.

    Indian Economy to lose USD4.64 bn daily during Lock-down: Acuite
    The ongoing disruption caused by the spread of COVID-19 will have a significant economic consequence with estimates suggesting that every single day of the 21-day nationwide lockdown will cost the Indian economy almost USD4.64 billion, Acuite Ratings & Research has said in its latest report.
     
    The single-day loss number will translate into a GDP loss of almost $98 billion during 21-day lockdown, the credit rating agency said.
     
    "We have employed multiple methods to assess real GDP estimates for Q1 of FY21 and believe that there is a significant risk that it may contract up to 5%-6% as compared with a pre-Covid growth estimate of 5%," Sankar Chakraborti, CEO, Acuite Ratings & Research, said.
     
    In such a lockdown scenario, the most severely impacted sectors are transport, hotel, restaurant and real estate activities. According to Acuite, there would be around 50% GVA (gross value added) loss in these sectors, which account for around 22% in overall GVA, in Q1 of FY21.
     
    On the other hand, services expected to see enhanced activities during this crisis are communication, broadcasting and healthcare; however, at 3.5%, these sectors have a small contribution in the overall GVA. 
     
    The impact of the lockdown is also fairly severe on industrial activities, which are set to witness significant contraction in Q1 except in the pharmaceutical, gas and electricity and medical devices which account for around 5% of GVA.
     
    Unlike the services sector, the industry, however can manage demand to some extent with inventory drawdowns until the resumption of production.
     
    Karan Mehrishi, Lead Economist of the rating agency, said: "The agricultural sector, which accounts for 15% of GVA, is nonetheless, expected to see continuing activity even in the lockdown period; however, the allied activities are partly impacted as livestock and fisheries are experiencing mute demand due to the Covid-19 concerns."
     
    Acuite said it would take at least 2-3 months to restore the industry supply chain even if the lockdown is limited to 21 days; there are also further risks of local lockdown in different regions in India, depending on the extent of the outbreak and partial disruption in economic activities till H1FY19 is a realistic scenario.
     
    It is estimated that the second quarter may show a moderately positive growth of just under 3% on the back of the expected normalization process and some pent-up demand although it is also linked to the intensity of the pandemic.
     
    On the positive side, a quick recovery in the domestic economic activities is likely in H2, which may in turn benefit from the increased fiscal and monetary measures along with lower global oil prices.
     
    "We, therefore, believe that the average H2 GDP expansion may be in the vicinity of 6.5%. Overall, a likely contraction in Q1 followed by a modest growth in Q2 will clearly have a severe impact on India's economic trajectory that has already been under the effect of a prolonged slowdown," the report said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    How To Cope With Post-COVID-19 Disruption
    Post-pandemic prediction can’t be a soothsayer’s job. Preparing the economy from a tremendous shock and staying indoors for a month in some states or longer, as the rate of spread of COVID-19 hit persons accelerates, is the biggest challenge. 
     
    India is not a city state like Singapore or a financial hub like Hong Kong. The optimists expect the lockdown to be lifted by the 14th April while the less optimistic put it to the end of April. We need to think of the strategies and actions phased over short, medium and long term with matching resources right now. These should be both sectoral and geographical specific. 
     
    While we are the leading global pharmaceuticals suppliers, the low and inefficient health sector management with historically low outlays suddenly got a wake-up call with the spread of COVID-19 and the need for public health systems to step up their capabilities. Yet, India has responded remarkably well to this call, to the greatest consternation of the rest of the world. 
     
    The country, with a diversity unparalleled anywhere in the world, is the biggest challenge and opportunity to the governments. Diversity has the capacity to cross hold risks across segments and has an innate resilience when calamity befalls. It also provides scope for innovation as people think more actively under pressure than in leisure. For example, there have been more webinars during the past one month than during the past six months. There have also been more video conferences and skype calls as people started working from home. This may gradually turn out as the new order of functioning.
     
    One of my nieces from Bengaluru tells me that as the director of a Union government organisation, working from home became a true challenge for her as deliverables came to rest with her rather than with other members of her team. Even the forgotten kitchen started demanding her time, with children demanding newer tastes and new dishes. This is making her work for 14 hours instead of the usual seven hours in office. There is a whole paradigm shift in the work environment, not just for her but for many like her— with no gender discrimination. 
     
    What would be the future like? Very many organisations could find new economies of scale in a combination of work from home and work at office. More factories will have to think of reworking their supply chains that have been thoroughly disrupted due to the coronavirus. The small enterprises manufacturing gloves, sanitisers, masks and medical emergency kits to combat the coronavirus will face near extinction.  They should expect this to happen and therefore prepare now itself to re-engineer their processes to manufacture newer products and find new markets. They will notice that institutions and persons that were after them during their need will turn away their faces and are likely to even hold up their bills in their search for finding cash margins for fresh initiatives. 
     
    Our country will have to reinvent itself in workspaces and relationships like never before. In this process, at the micro level, enterprises will re-engineer their production and processes and search for new markets. 
     
    Amid a supply driven crisis, unrest, dwindled resources of every kind, as also eroded markets, the micro, small and medium enterprises (MSMEs) will require sustainable process consultants to rescue them at affordable costs. Here, the governments, in looking at the sovereign dues and the banks looking at the stuck balance sheets of MSMEs, should learn the art of turn-around management or seek the help of experts in turn-around management.
     
    Every nation will be on the horizon of uncertainty. Risk mapping will be difficult. Everyone has been a loser. Non-performing loans will surge unless the thresholds change. Indian regulators need not wait for the world to guide them. They can guide the world. Blue Cross Blue Shield Association (BCBS) has already provided for applying thresholds for the small and medium enterprises (SME) sector as per the needs of the country. The time for action is now. The threshold should move to a 180 day horizon till December 2020, subject to a review after six months. This will automatically provide for higher leverage in lending for the MSME sector, the nerve wire of national production that has been contributing 35% of gross domestic product (GDP), 45% of exports and employing 112million persons.
     
    The poor and daily wage earners, the hawkers, the wayside eateries, many disabled, contract workers – both skilled and unskilled, need government subsidies, even salary buffers, supplies and cash to meet their daily needs for at least three more months until the industries and enterprises are ready to re-employ them.
     
    Fiscal responsibility under these circumstances of both the State and Union governments, already hit by the lowest ever tax returns, requires out-of-the-box thinking to meet the situation. Several relief funds of the CMs and the PM, private donors and even CSR funding, even amid the near 10% hit on most corporate balance sheets, would be inadequate for the revival of the economy. It may take at least nine months to one year to come to a new normal which would be far less than what we had in the slowing economy. 
     
    Even if people have cash in their hands, which itself is doubtful, they will not get the goods and services as the cycle of slowdown-lock-down- slowdown of the economy will generate supply-driven inflation. Scarcity stares in all areas. 
     
    Courage is the watchword. In times of distress people display amazing unity while immediately after normalcy is restored the same set of people will most likely diverge. While the demand to lift the lock-down in toto will surface with more vigour than now, it would be prudent to stagger it, to restore the efficiency of the health sector infrastructure, doctors, nurses, para-medical staff, on the one hand, and to ensure that the wheels of production get back to normalcy gradually, on the other. Second, the discipline enforced should be redirected to finance, transport and manufacturing sectors.
     
    The focus of trade will suddenly demand new protectionism, new direction of investments, newer regional allies in trade and new relationships. The denuded investor firms and the huge number of corporates off-loading the bonds in the markets for liquidity are bound to put pressure on the financial sector. This recession is very unlike the 2008 or even 1930 and it will be a prolonged one and will be widely spread across 200 nations of the globe. 
     
    Banks are system driven and not enterprise driven. Unless the instructions are fed to the system, the concessions do not take effect. In several banks, even the usual half-yearly reviews of several accounts on a regular basis did not take place. The disaster today is extraordinary and requires extraordinary speed of action post the new normal. 
     
    At a time when the demand for credit is at the lowest level due to several manufacturing and trading enterprises shutting their shops due to the lockdown and are seeing the future as more uncertain than now, liquidity doors have been kept open by the Reserve Bank of India (RBI) as though that was the problem area that required urgent attention. Even during the past six months RBI has been extremely accommodative to banks both in respect of capital buffer and liquidity commitments. But credit did not move to a higher zone in non-food segments. 
     
    “These capital and liquidity buffers are designed to support the economy in adverse situations,” as the Fed said in a statement. Fed’s other hope is exactly what India incorporated is looking for: less rigidity from the banks in extending the required debt, post pandemic. COVID-19 has caused serious disruption to global supply chains and has a huge impact on financial markets and trade ecosystem. It is important to retain the customers and governments post-pandemic must help them rebuild their lost supply chains to operate sustainably.
     
    India’s biggest advantage is its demographics and therefore, the future needs to be addressed with alacrity so that entrepreneurship will not be governed by the hoary past but a bright future. 
     
    (The author is an economist and risk management specialist. The views are personal.) 
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    COMMENTS

    Ramesh Popat

    2 months ago

    everything will be taken care of to the extent possible. emergency like situation handled so far in the best possible way. damages will be shared by all.

    aksdubai

    2 months ago

    loved reading this article. GOI has been releasing tranches of relief+support measures both monetary & fiscal...but essentially this problem is an Healthcare one. Distancing + enforcing Hygiene will possibly contain the contagion as the World figures out a Vaccine (still a year away in best case scenario). While the current relief measures are about less than 2% of GDP, its a good policy to drip feed the relief measures upto 5% of GDP and not fire all your arsenal in one go - remember we still have a long road ahead before we are rid off this virus menace.

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