Post Diwali sentiment boosters


The win in Bihar for the BJP- JD(U) combine, presages continue strength to the NDA at the center and a potential spread across more states. This is a source of anxiety for those who miss the more lassiez faire approach of previous governments, where the “dharma of coalitions” restricted strong-arm action on any front.

This sullen view of the NDA victory is small-minded. Consider that more women – young and not so young – voted for the BJP than for any other party (Lokniti-CSDS). When women come out in droves to vote for a male-dominated, monkish party of bachelors – the monks are clearly doing something right. 

The Prime Minister’s trademark homespun manner of indexing “development” – bringing drinking water to homes, building pucca houses and toilets and gifting a free cooking gas connection to poor households – has gone down well with women because it is they, who have, thus far, borne the burden of accessing these basic utility services with little help from recalcitrant publicly owned utilities or their menfolk.

The BJP came in as the second largest party – a whisker behind the Yadav dominated RLD – and way ahead of its partner the JD (U) possibly marking a future “Saffron spread” across East India.

BJP’s governance prowess is improving. Guile and joined-up strategic thinking have replaced hysteria in managing China. Moving quickly to dominate the heights on the north and the south bank of the Pangong Tso diluted China’s strategic gains from ingress into Indian territory around the lake – a least-cost, decisive move signaling resolve and capacity to push back, far removed from the humiliating massacre of Indian border troops at Galwan in June. The subsequent, orchestrated use of international fora to assert the narrative of unwarranted Chinese aggression, aligns with the growing distrust of Emperor Xi’s China – a trope that the new American administration will find tough to jettison.

Back home, managing the health and economic impact of the pandemic improved by the day.  The government stood firm, not to follow the easy course and bust fiscal discipline. Expectedly, 6.6% of GDP -the highest fiscal deficit (FD) under the UPA, remains the budgetary Laxman Rekha.  This narrows additional net budgetary borrowing this fiscal to just Rs 3 trillion on top of the FD of Rs 9 trillion till end September. 

Last year’s budget was marred by significant off- budget transactions using public sector borrowings and higher outstanding payables on government account. Keeping payables low this year can re-establish budgetary integrity, enhance the natural flow of finance to government contractors and demonstrate good budgetary practice.

“Spend and grow” Economists term fiscal abstinence, intemperate and untimely in a slowdown. But set against inexplicably high inflation, already at 7.3% (versus a max target of 6%) abandoning fiscal restraint is futile unless the broken transmission mechanism for injecting liquidity into the hands of borrowers is mended. Lending rates remain persistently high. Commercial lending and consumption loans come at a real cost of 4 to 7% over inflation! 

A bad option to restart lending would be to revert to the pre-Raghuram Rajan practice of ever-greening bad debts. A better option is to strategically recapitalize banks and selected NBFCs for low interest, marginal cost (3% over Repo Rate) loans to flow to SMEs and retail business to kickstart business expansion, investment and employment. 

Uncharacteristically, the BJP government courted political risks by freeing farmers from compulsorily selling their produce only at the government mandis (markets). Alternative, more efficient private market systems mechanisms will take time to emerge. The wholesalers (adhtias) will fight back. But offering better terms to farmers is their only option to ward-off external competition. 

Pronab Sen, India’s best known, public interest statistician, notes that more efficient trade finance can enhance the scale and reduce the costs for Agri-goods intermediaries and reduce the default risk for lenders. Authentic, real-time digital verification of hypothecated stocks held by traders, possibly using block-chain, is an innovation waiting to happen.  

Finally, the government did well to ramp up temporary employment programs for the low skilled bottom 40% of workers. Free cereals and lentils for the dislocated and poor and cash handouts for farmers provide the much needed “healing touch”, which the women of Bihar so appreciated. 

The high-skilled, top 20% of the workforce in the formal private and inflation-indexed public employment are structurally insulated from the economic slowdown. Large corporates have the resources to survive and employ those critical for the bottom line. 

It is the 40% of the work force just below, with fossil-skills, who need assistance. Support staff in offices, mid-level accountants, lawyers, salespersons, technicians and bankers are most likely to face unemployment, lowered or stagnant wages – the consequences of the inevitable economic restructuring. 

Offering succor and assistance to mid-level staff, dislocated by corporate drives to boost preserve bottom lines – as is happening already- is a new area for public policy. The richer economies are subsidizing employment retention by companies. This is a humane approach but far too costly for an inefficient, unreformed economy like India, with low tax revenues (barely 16% of GDP). 

We cannot afford to hold back market adjustments. But we do have a duty to protect the hapless individuals caught in the economic storm. House rent alone is 25% of monthly income. A displaced employee should at least be able to retain the roof over her head and pay electricity, water and gas bills while she looks around for proliferating, part-time options. 

The government should consider a liberal, guaranteed monthly income scheme (much like a low level government job) which offers 2% above the Repo Rate or 1% over inflation whichever is higher, up to an amount of Rs 50,000- per month, into which the savings of dislocated employees could be channeled. Counseling, support groups and talent re-location services to handhold the transition plus closely monitored timely and full payment of terminal benefits, will be other measures to mitigate the individual trauma of efficiency enhancing economic adjustments to the bulging middle of our labor force profile.

No one knows better than the prime Minister, that sentiment is the key driver for resilience and loyalty. Its time to redeem our pledge to the hitherto ignored, 40 million hapless, mostly middle-aged workers with fossilized skills, by saving them from near-certain future severe, psychological and economic deprivation.

DISCLAIMER : Views expressed above are the author’s own.

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