All things Money Thread


The businessman who battled Ambani, Tata and lived to tell the tale

May 10, 2020 2:29 PM

Bombay Dyeing Chairman Nusli Wadia was once engaged in corporate battles with Reliance founder Dhirubhai Ambani and Tata Sons Chairman Emeritus Ratan Tata.

New Delhi: Business rivalries are common and when in the same industry, businessmen often collide. Almost everyone knows about the rivalry between Apple co-founder Steve Jobs and Microsoft founder Bill Gates. India has also seen its fair share of business rivalries over the years.

There is one man in India who battled with business giants like Dhirubhai Ambani and Ratan Tata and lived to tell the tale. Bombay Dyeing Chairman Nusli Wadia was once engaged in corporate battles with Reliance founder Dhirubhai Ambani and Tata Sons Chairman Emeritus Ratan Tata.

Wadia vs Ambani: The most celebrated battle in Indian corporate history

Wadia's Bombay Dyeing was one of the textile kings during the pre-Ambani era. The corporate battle between Wadia and Ambani began when both looked at the polyester industry for growth. What started as a conflict later turned into covert warfare. The Wadia vs Ambani corporate was termed by media as 'the ancient regime locking horns with the nouveau riche'.

Wadia lost the war to Ambani partly because of making some bad choices with his polyester intermediates. For instance, he chose to produce dimethyl terephthalate (DMT) when Dhirubhai Ambani chose purified terephthalic acid (PTA). PTA turned out to be a more efficient intermediate in the manufacture of polyester.

In 2009, Wadia said he had no rivalry with the Ambani, debunking the perception the two business families were fierce adversaries. "I've no rivalry with him (Dhirubhai Ambani)... I'm just saying the rivalry is now at different levels... with different people... different issues," Wadia said in an interview when asked about the old rivalry between him and the late founder of the Reliance business empire.

Wadia vs Tata: From frirends to foes

The Tata-Wadia corporate relationship has gone through several phases. Wadia has been friends with Ratan Tata since childhood. In fact, he used to consider JRD Tata, as his godfather and mentor. Not many people know that it was JRD Tata who had helped Wadia when Nusli wanted to acquire control of Bombay Dyeing.

Wadia, also known as a corporate samurai, guided Ratan Tata during the latter’s initial years as Tata group chairman. The relationship between Wadia and Tata turned sour when Wadia decided to sue Ratan Tata. When the Mistry-Tata conflict was at its weak, Wadia backed Mistry and as a result, he was removed as from the position of Tata Motors' independent director.

In 2016, Wadia filed a defamation case against Ratan Tata and Tata Group claiming that he was unfairly ousted from the Tata Motors as he never entered the dispute unless he felt wrong. An industrialist familiar with both the business groups was quoted in an HT report saying, "In fact, Wadia was an informal adviser to (Ratan) Tata when he (Tata) took on these mighty stalwarts and ousted them. It is ironical that Wadia and Tata are now fighting."

For those who are not aware, earlier this year, Wadia, who presides over a biscuits-to-aviation empire, withdrew the criminal defamation suit against Tata Sons and its board members and executives, including Ratan Tata. In doing so, he let go a potential Rs 3,000 crore that he had sought in reputational damages. In a 2009 interview with ET Now, when asked about fellow industrialist Ratan Tata, Wadia said, "Tata is a very dear friend... he is a friend, a family..."

It is worth mentioning that Wadia is known for his ability to fight as was displayed in his corporate battles in the with tycoons including Dhirubhai Ambani, Ratan Tata and Rajan Pillai of Brittania.



Vikram Chandra on Central govt extending lockdown till May 31st

•May 17, 2020

Hindustan Times

2.15M subscribers

The Centre has announced that the nationwide lockdown will be extended till May 31st. As per the new guidelines, shops and offices will reopen while air travel, metro and malls will remain closed Meanwhile Finance Minister, Nirmala Sitharaman, announced her final tranche of economic package that focussed among other things on the privatisation of public sector enterprises. The FM's elaborate relief package that was announced over a period of 5 days focussed on liquidity support with little burden on the exchequer.

Big Daddy

Super User
This serves one purpose very shrewdly.
Only that matters !
Jumla !

This time Jumla is Atamanirbhar= Free Markets. America is going to own Indian business whether people like it or not because so-called Atamanirbhar has led India into bankruptcy. Modi;s jumla this time around is Atamanirhar=Disinvestment and privatization. Well, private money will come from American investors. If people in India had known that the truth always wins then they would not have gone for state investments after independence in the first place. Capitalism and free markets is the truth. No matter how much anyone runs away from it, they will be pulled back towards it.


Big Daddy

Super User
Capitalism always wins! Modi realized that if he makes companies pay their employees then when lockdown ends then there won't be any companies left. So, he pulls back the order. Another Jumla.



*Narendra Modi govt has failed India in its hour of need — both economy and people*

May 20, 2020 4:17 PM


It’s time for plain speak. Another day of yet another peak of Covid-positive cases, another spate of reports about the plight of migrant workers on the roads and inside trucks, another day in office for imperious Finance Minister Nirmala Sitharaman bulldozing her way through hard questions about the economy that can no longer be set aside. Two months into this unprecedented health and economic crisis, it is time to assess the Narendra Modi government’s response to this disaster.

Let us not be unfair to the government. I have supported Prime Minister Modi when he first announced the lockdown, while noting that its preparation, timing and communication left much to be desired. The PM was decisive when a hard call had to be taken. Indecision or further delay could have landed us in a worse state than we are. In retrospect, we now know that our response was already delayed, but it would be unfair to indict the government on that basis. Global knowledge and awareness at that time did not warrant such a response. On balance, we reacted faster than most other countries.

It would also be unfair to blame the Modi government for all the mess that we face today. A largely unanticipated pandemic is bound to create havoc, even in the best of places. It is bound to be worse in a country like India, given the weak public health fundamentals and fragile response systems. An indictment of the Modi government must be careful about limiting itself to what could have been anticipated, what could have been achieved in our conditions. And it must leave room for genuine mistakes. Faced with a crisis of this kind, the best of leaders with the purest intentions will make erroneous calls. They must be criticised, but not indicted for bona fide errors of judgement.

Sadly, even after making all these allowances, it is hard to escape the conclusion that Narendra Modi government has failed India in its hour of need. The government has been clueless about controlling the health crisis, incompetent in handling its economic consequence and insensitive in dealing with the humanitarian crisis.

A failing health model

Let us begin with the health crisis. We must not blame PM Modi for his early decisions in pandemic management. We cannot indict him for erring on the side of caution because he heard (as all global leaders did) conflicting forecasts about the progress of the pandemic. But we must ask some questions nevertheless: why did the government not listen to alternative voices about more testing at an early stage? Why did the PM not try to learn from and replicate the Kerala model? Did he allow political envy to trump national interest? Why did he not come down heavily against his supporters trying to communalise the pandemic? Once it became clear that the lockdown was not ‘breaking the chain’ or flattening the curve, why did he persist with the lockdown as the sole remedy? Did he allow his ego and self-image to trump rational course correction? And finally, why is no senior functionary (not even a minister, let alone the head of the government, as is the norm in many countries) responding to the media’s questions on the pandemic? What is the future strategy? Is there something that the government wishes to hide?

All these questions do not admit of easy answers and leave the country with the impression of a government that is lost but does not know how to admit it or ask for help.

Misplaced economic priorities

On the economic front, let us allow for the fiscal constraints that the government faces at this moment, even though it is largely responsible for this situation due to untimely waiver to corporates and inflation of revenue projections. Still, we must ask why has the Modi government not done anything to stimulate demand (despite pleas from every economist who matters)? Why the continuous pumping of liquidity despite the fact that banks have failed to use the extra liquidity made available in March? Why has the government not addressed what the industrialists, businessmen, farmers and labourers were actually asking for? Why has the government made no attempt to raise additional revenue (despite many sensible suggestions) to meet this crisis? Why use this crisis to push through a number of policy changes on labour law, agriculture, environment and investment that have nothing to do with the cause or solution to the current crisis? And, why not share the real economic situation with the country? Why dress up the “packages”, that too in such amateurish ways, so as to somehow match the magical 20-lakh crore figure?

These questions lead us to a sad answer: the economic response of the fifth-largest economy facing its worst recession and joblessness is being shaped by a bunch of too-clever-by-half economists and packaged by an ignorant and arrogant political leadership. More than saving the economy, the leaders are focused on saving themselves and their wealthy friends.

Humanitarian crisis

Finally, let’s turn to the Modi government’s handling of the humanitarian crisis made visible by the migrant workers who have taken to the streets. Again, let us grant that given our size and deep inequalities, some degree of distress was inevitable. But we must ask: Did the government even try to anticipate this distress and plan to alleviate it when announcing the lockdown? Why was the government surprised by the scale of the problem of the migrants (eight crore, as Sitharaman admitted in her press conference)?

Why were there no special arrangements for food and income of the stranded workers for the first 50 days of the lockdown? What else did the government expect jobless, food-less and hopeless workers to do, except walk back? Why do we not get a report of this kind from any other country in the world, even African countries much poorer than us? And once the government discovered, within the first week of the lockdown, the plight of the migrant workers, what did it do to address the crisis, except law and order advisories?

Why was the decision to start Shramik trains delayed so much and taken when it was actually riskier? Why the insistence on the fares for distress evacuation? Why did it take the Ministry of Home Affairs six weeks to issue a simple advisory about humanitarian support to the migrants on the road?

Insensitive would be too mild a word to characterise this shameful handling of the worst national-level humanitarian crisis. To call the Modi government heartless displays credulity. As India goes for a free fall, the top political functionaries are focused on political intrigue, blame-game and public relations. India’s worst health, economic and humanitarian crisis is being handled by undoubtedly the most callous and perhaps the most incompetent government.



FDI shifting from China to India? 3 reasons why it's a joke!
By Debashis Basu
May 20, 2020 10:44 IST

'The belief that FDI will shift from China appears to be a strategy of politicians to keep the media busy, chasing irrelevant news to ward off pressure and questions about the government's plans to deal with COVID,' observes Debashis Basu.


Illustration: Dominic Xavier/
On April 28, while discussing the COVID-19 situation with chief ministers, Prime Minister Narendra Damodardas Modi reportedly made the strange claim that many companies would exit China, and that India should be ready to attract investment by them.
After all, India has abundant manpower, skill, and an improved infrastructure, he said.
Soon, Union Minister Nitin Gadkari told a business channel: 'In the whole world, there is a hatred for China and the Chinese economy... this is a blessing in disguise... an opportunity for India and Indian investors and particularly the MSME (micro, small, and medium enterprises)... an opportunity for India and for foreign investment.'
A subsequent news report claimed: 'India has stepped up its game to attract investments from companies considering shifting from China.'
Invest India, a government arm to promote and facilitate global investment in the country, has already drawn up a list of close to 1,000 global companies for making investment pitches.
Another news item said India was developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China -- an area of 461,589 hectares has been identified across the country.


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The Assam government announced that it was planning to woo multinational companies willing to shift base from China, to set up production facilities in the state.
The orchestra is building up to a crescendo.
Suddenly BJP-ruled Uttar Pradesh and Madhya Pradesh suspended almost dozens of labour laws, barring a few, for the next four years.
Since businessmen complain about onerous labour laws and that the 'inspector raj' flourishing under them hinders growth, the government believes suspending labour laws would attract billions of dollars.
Will it?
I would be surprised if there is even a tiny bump-up in foreign investment leaving China and coming into India, following COVID. Here are my reasons:
Anyone really leaving China?
Dr Subramanian Swamy, an economist and a China expert, points out that countries are not like kirana shops, offering the same products at marginally different prices, which may encourage buyers to shift from one to the other.
These decisions are not impulsive and not event-driven, and are far more complex.
Not surprisingly, when the American Chamber of Commerce in China did a survey in March, they found that more than 70 per cent of companies said they had no plans to relocate production and supply chain operations or sourcing outside China due to COVID-19.
The whole premise of foreigners leaving China in droves is false. What is the reason?
Foreign companies first went to China for massive supply chain efficiencies, labour productivity, and world-class infrastructure.
They are there also for the huge domestic market.
Not only does an epidemic not change that, China has actually reinforced its image of efficiency by the way it controlled COVID-19.
Alan Beebe, president of AmCham China, reminds us: 'China appears ahead of the global curve when it comes to restarting the economy following months of lockdown, and many of the reasons why companies are in China in the first place still hold true today.'
Businesses leaving China for India to get all excited? Not much evidence.
In fact, it is impossible for large interlinked businesses like autos to just get up and relocate themselves.
And even if some businesses leave China, why will they come to India?
India is unattractive for foreigners: In 2018, India dropped out of the top 10 destinations for foreign direct investment (on the AT Kearney FDI Confidence Index for the first time since 2015, when Southeast Asian economies enjoyed an FDI increase of 11 per cent (in 2018).
Then the data released by the Department for Promotion of Industry and Internal Trade last year revealed FDI in India declined in 2018-19, for the first time in six years.
No, India is not attractive by itself to foreigners.
There are many reasons for this -- all equally important.
It is not just land availability or stringent labour laws.
It is red tape, extortion, retrospective amendments, capricious changes in rules, tax terrorism, poor labour productivity, maddening delays at the ports, sovereign risk, and so on.
India is unattractive to even locals: Well, all this discussion about FDI is a joke because it is well known that even Indian businessmen who have a choice don't want to invest much in India.
Domestic investment has been sluggish for the past six years, as reflected in the capital goods sector.
This is because domestic demand has been weak, there is overcapacity, and public investment is low.
Hence, there is no incentive for domestic businesses to invest more.
India is, in any case, suffering from drought in private investment.
All three points, especially the last two, are well known.
So where did the belief that FDI will shift from China as well as the actions of BJP-ruled states spring from?
This appears to be a strategy of politicians to keep the media busy, chasing irrelevant news to ward off pressure and questions about the government's plans to deal with COVID.
It started with the prime minister telling chief ministers about the shift of FDI, which is supposedly an opportunity.
There was no basis for this. As if on cue, BJP-ruled states then jumped in and started making similar noises.
There is a delicious irony here we shouldn't miss.
The prime minister was quite happy to take credit for the FDI numbers in 2014-2015.
Then, when the numbers sagged, FDI dropped off the list of achievements.

Now, it is the states that are encouraged to attract FDI that is supposedly fleeing China even as various Union ministries will strew with thorns this path of attracting more FDI.

FDI shifting from China to India? 3 reasons why it's a joke!


New FDI policy may hurt India's start-up dream
By A K Bhattacharya
May 06, 2020 18:57 IST

'As much as $4 billion in India's start-up companies has come from Chinese funds.'
'Government policy must not remain indifferent to the problems India's start-up ventures are likely to face after the change in FDI rules,' says A K Bhattacharya.


Illustration: Uttam Ghosh/

A few days ago, the Union government took two important economic policy decisions in the wake of the COVID-19 outbreak.
A closer look at both the decisions showed that their common target was foreign investment in India.
One decision could have a long-term bearing on India’s foreign investment space, while the other would have a temporary implication, but its impact on foreign investors in certain sectors would be no less significant.
The first decision was an amendment to an order of April 15 that, among other things, allowed e-commerce companies to resume supplies of non-essential goods from April 20 as part of the phased withdrawal of the national lockdown.

But four days later, on April 19, the government clarified that the relaxation was withdrawn.
The Confederation of All India Traders, which represents the physical retail sector, thanked the government and welcomed the decision.
What did the government achieve by the rollback?
If the purpose of the earlier order was to gradually withdraw the lockdown, allowing e-commerce companies to resume supplies of goods was a sensible move.
But what perhaps came in the way was the fact that most of these e-commerce companies were subsidiaries of foreign companies and CAIT was deeply upset that while physical stores would remain shut, the foreign-owned e-commerce companies would resume supplies.
The sequence of events has left the e-commerce giants in no doubt that they have a hostile policy environment to deal with while doing business in India.
There is also no denying the adverse impact such decisions will have on India's foreign direct investment policy environment.
The second decision, taken on April 18, mandated that all FDI from countries with which India had a land border would be subjected to specific and prior approval from the government.
The notification explained that it was aimed at 'curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic'.
Remember that already foreign investment proposals from Pakistan and Bangladesh were subject to specific approvals of the Indian government.
Thus, the new order essentially impacted investment flows from Bhutan, Nepal, Afghanistan, Myanmar and China.
But cumulative FDI flows from all these countries, except China, were negligible in the last two decades -- none from Bhutan, $80,000 from Bangladesh, $2.44 million from Afghanistan, $3.25 million from Nepal and $8.97 million from Myanmar.
For China, the amount of FDI inflows in this period was about $2.34 billion, accounting for just half a per cent of India's total cumulative foreign investments of about $457 billion.
So, what was the concern over FDI from a country that was so little in the last 20 years?
There are two possible reasons.
One, it was a decision prompted by strategic considerations.
Already, Australia, Germany, Italy and Spain had taken steps to subject Chinese investments in their countries to greater scrutiny.
India also wanted to take similar steps against China.
Two, the official FDI flows from China may look very small, but there are reports that huge amount of FDI come into India from countries other than China, but whose beneficial ownership resides with Chinese nationals or in China.
Hence, the industry ministry notification clarified that all foreign investments whose beneficial ownership was in China would also be subjected to specific approvals.
According to one estimate, an investment of as much as $4 billion in India's start-up companies has come from Chinese funds, which are present in as many as 18 of the 30 unicorns (a start-up venture with a valuation of over $ 1 billion) in India.
If foreign fund flows to these start-up companies slow down because of the new procedural tightening, the government's grand Start-up India initiative to encourage innovation and entrepreneurship is likely to suffer.
While strategic interests are of paramount importance for the government, no less critical should be the financial needs of the start-up sector that had just begun flowering in this country.
Government policy, therefore, must not remain indifferent to the problems that India's start-up ventures are likely to face in the wake of a change in FDI rules.
A fast-track mechanism should be created within the government system for considering and expeditiously clearing all FDI proposals coming in from China for all ventures, in particular the start-up companies, provided these are not aimed at acquiring or taking over existing companies.
It can be nobody's case that India does not need foreign capital, particularly for ventures that help create jobs in the country.
If there are concerns over investments from China from a strategic perspective, these should be addressed.

But the government should simultaneously take steps to minimise any sudden disruptive impact on existing start-up companies, in particular, which are critically dependent on the next tranche of foreign investment, at least till such time they can find alternative sources of funds.
After many years of gradual and slow reforms in India's FDI policy, discretion is once again trying to reclaim its space in decision making, using the excuse of the threats arising out of the COVID-19 outbreak and China's growing dominance.
This is a trend that needs to be closely monitored and reversed.

New FDI policy may hurt India's start-up dream


How India's economy can deal with the COVID-19 crisis
By Anup Roy and Indivjal Dhasmana
April 21, 2020 19:42 IST

'India's sizeable foreign exchange reserves should serve as a buffer.'

Illustration: Dominic Xavier/

'It is too early to assess the potential longer-term impact, but the debt repayment capacity of borrowers may weaken and risks to banks's asset quality could arise if the economic fallout of the pandemic gets protracted,' Ranil Salgado, India Mission Chief at the International Monetary Fund, tells Anup Roy and Indivjal Dhasmana.

With COVID-19 causing a global recession, will India still be the bright spot in the world that IMF generally describes the country as?
The economic impact of COVID-19 is expected to be substantial, but recovery should take hold once the virus has been contained.
A gradual recovery is expected in FY2021/22 (7.4 per cent growth), supported by monetary easing and some targeted fiscal measures, as well as favourable terms of trade from lower oil prices.

Any advice for India on the extent to which it should widen fiscal deficit? Should it go for deficit monetisation with the RBI?
The immediate priority is to take all steps needed to address the health needs of the country, including by boosting health care spending.
It could also include extending the lockdown as needed.
In addition, we believe further measures could be taken on fiscal, monetary, and financial sector policies in the near term.

In the near term on fiscal policy, additional support is needed, including on health care, for small and medium-sized firms, and vulnerable households, beyond the fiscal stimulus package already announced.

This could require rationalisation of some non-priority expenditures.

After the COVID-19 shock recedes, though, substantial new measures will be needed over the medium term to bring the deficit and debt back towards the central government's medium-term targets (3 per cent and 40 per cent as a share of GDP).
Committing now to credible and clearly defined medium-term measures, along with increasing fiscal transparency could help the government finance some of its short-term needs by increasing investor confidence and lowering borrowing costs.
Monetary policy should maintain a strong easing bias to mitigate any sharp COVID-19-related slowdown and support the recovery.

What would be the likely impact of the pandemic on the banking system?
The lockdown is critical in containing the spread of the virus, but it is also having a significant impact on households (especially low-income) and corporate through the loss of income and slowdown in economic activity.
The loan moratorium will provide relief to borrowers whose cash-flow has come under stress due to the pandemic, but could also constrain liquidity in the financial system.
It is too early to assess the potential longer-term impact, but the debt repayment capacity of borrowers may weaken and risks to banks's asset quality could arise if the economic fallout of the pandemic gets protracted.
In this regard, we take note of the progress prior to the outbreak in addressing banks' balance sheet weaknesses and improving their capital positions.

Is the RBI's foreign exchange reserves enough to provide an adequate backstop if there is a financial slowdown?
India's foreign exchange reserve levels are assessed to be adequate for precautionary purposes, according to various criteria.
The official FX reserves are at around $475 billion (16 per cent of GDP). Short-term debt, plus the projected current account deficit for 2020/21, is about 25 per cent of the official FX reserves.
India's exchange rate flexibility and sizeable FX reserves should serve as buffers.
India's real effective exchange rate has remained relatively stable vis-a-vis other emerging markets currencies.

Does that indicate that volatility in USD-INR exchange rate is in the offing?
Intensification of the external risks, including a sharper-than-expected and a more prolonged global slowdown, and heightened risk aversion could lead to further capital outflows and FX market pressures in emerging markets, including India.
However, India has strong foreign exchange reserves buffers, and exchange rate flexibility should continue to play the role of a shock absorber while avoiding excessive volatilities.

Do you expect the outbreak to move some productions away from China? How should India approach this to further its 'Make in India"' initiative?
The outbreak is now global.
To benefit from the secular trends in global supply chains (GVCs), looking beyond the outbreak, creating an ecosystem for GVCs participation along with deeper backward linkages is critical.

Reducing tariffs and non-tariff barriers, while minimising trade policy uncertainty, would help.
Furthermore, energy, logistics, port facilities, and customs will need to be aligned to attract foreign companies to locate in India.

How India's economy can deal with the COVID-19 crisis


Super User
There is one man in India who battled with business giants like Dhirubhai Ambani and Ratan Tata and lived to tell the tale. Bombay Dyeing Chairman Nusli Wadia was once engaged in corporate battles with Reliance founder Dhirubhai Ambani and Tata Sons Chairman Emeritus Ratan Tata.
Actually Nusli is grandson of a most hated man in India

Nusli was born into a Parsi family in Bombay. He is the son of businessman Neville Wadia and Dina Wadia. His maternal grandfather Muhammad Ali Jinnah was the founder of Pakistan.


After the Lockdown Relief Package, What Comes Next for the Indian Economy?
The core issue of the state acting to generate demand as the lockdown eases will, however, not go away. It is increasingly likely that some sectoral relief packages will be required in the coming months.

After the Lockdown Relief Package, What Comes Next for the Indian Economy?

Shops reopen in Navi Mumbai's Panvel on May 24. Photo: PTI

Ajay Shankar

Ajay Shankar


In his address to the nation on May 12, Prime Minister Narendra Modi announced a relief package of Rs 20 lakh crore, six weeks into the national lockdown. At 10% of GDP, and of the same order as that of the relief package of the US, Modi appeared to have finally taken the big decision that was the need of the hour.
The cautious mindset committed to containing the fiscal deficit within the government seemed to have been finally set aside. After all, a consensus had emerged among prominent economists and commentators that a large relief package was the need of the hour. Even monetising the deficit was fine to most as long as it was for a short period and this was made clear at the outset.
Relief measures were, in fact, announced in the developed countries at the same time as the lockdowns were imposed. In a radical shift, conservative governments jettisoned their long standing commitment to a minimalist role of the state and fiscal prudence and assumed the responsibility of using public money for payment to workers and to keep enterprises going.
Rishi Sunak, the Indian-origin UK Chancellor of the Exchequer, put it well:
“This is not a time for ideology and orthodoxy…We will support jobs, we will support incomes and we will support business…”
In the US, about half of the relief package is for payment to workers, directly if they are unemployed, and through firms if they retain their workers.

Most of the other half is for direct support to enterprises, state governments and municipal authorities. As a result though these economies are contracting, ordinary people are being able to sustain themselves. There is public discussion on the adequacy of the health care response and the extent of lockdown required, but not of the relief measures.
Also watch: India Faces a Major Economic Catastrophe, PMO Can’t Handle By Itself, Says Raghuram Rajan
We had these examples before us and needed to adopt an equivalent approach. Most of our workers, including migrant workers, in the urban economies are either casual workers or are self employed. They needed state support through payments to subsist till their livelihoods returned with the easing of the lockdown and not the pittance that is currently being given.
A reasonable benchmark for payment to workers who lost their livelihoods would be the prevailing minimum wage. This is as affordable in India as the equivalent relief to workers has been elsewhere. The monthly expenditure on this would have been about Rs 1 lakh crore, approximately 0.5% of the GDP. With this India would not be having the unique distinction of causing so much avoidable hardship and hunger to so many.
The poignant images of the poor from the metros walking with their children and belongings to their villages would weigh heavily for a long time on the nation’s conscience.

Migrants travelling from Gurgaon to reach their native place Bulandshahr being stopped at Delhi- UP border, in New Delhi, Tuesday, May 19, 2020. Photo: PTI

The mass exodus to rural India with the state, finally driven to facilitating it, has other unintended adverse consequences. Many are carrying infection to villages in the weaker states of India where the capacity to test, quarantine and treat is inadequate. The benefit of containment from the prolonged lockdown is being partially undone specially when the total number of cases are still rising. Workers are now leaving in larger numbers in buses and trains.
The absence of workers would make restoration of economic activity that much more difficult. It is still not too late to give adequate relief to urban workers and prevent their exodus. This should be done immediately. The absence of ‘lists’ is a difficulty of such a clerical nature that it should never come in the way of governments doing what they have to do. As a classical fiscal stimulus, this would also moderate the collapse in aggregate demand, economic activity and government’s tax revenues.
Enterprises are in deep trouble; no revenues as yet for most, continuing fixed costs and depleting reserves. Survival is the issue for most. Imposing pay cuts and laying off better paid regular employees has begun to happen. This would gain momentum in the coming weeks and months.

A wave of bankruptcies is imminent. The daunting challenge is to revive the economy as much as possible in the coming quarters. Faster recovery would lower the decline in tax revenues and the increase in the fiscal deficit. This only strengthens the case for a fiscal stimulus. The expectation was that the Finance Minister’s series of announcements would give a plausible road map and hope for early recovery. This has been belied.
To begin with, the arithmetic has turned out to be problematic. The RBI had been infusing additional liquidity into the financial system. To include this quantum now as over 60% of the Rs 20 lakh crore relief package has needlessly undermined credibility. The direct fiscal stimulus is around 1.5 % of GDP.
The positives in the Finance Minister’s announcements only buy some time. Bankruptcy proceedings have been kept in abeyance till the next financial year. Loan guarantees of over Rs 3 lakh crores for MSMEs without collateral is the most substantial and welcome part of the relief package.

This should enable SMEs to borrow to cover their fixed costs and survive in the short run. Getting banks to actually lend with no credible revenue streams to be able to repay debt, even if there is a government guarantee and no need for collateral, may still be a challenge in the present circumstances. Government may still need to push this administratively with the public sector banks. But this at best enables survival and does nothing for recovery.
In the series of announcements of the Finance Minister there are a large number of well sounding small ticket items cutting across the spectrum. Strong on rhetoric, they have modest implications and could well be part of a Budget speech. Then there are a large number of ‘reform’ announcements. These are a surprise. So many items on the wish lists of so many for so long have suddenly become government decisions.

Without going into their merits and possible benefits, there can be no doubt that these have implications only for the medium and long term and none for the present crisis of a sinking economy. One can only hope that this focus on reforms and a new India is not the result of an internal acceptance that nothing more can be done for the present except to wait and see. If this is so, this is indeed unfortunate and unnecessary.

The core issue of the state acting to generate demand as the lockdown eases will, however, not go away. The case for an immediate larger fiscal stimulus rests on the fact that only the government through its actions and expenditures can now create additional demand. Where can government expenditure, tax or other policy interventions generate additional demand with the maximum multiplier effect?

Here are some illustrative options:
> Increasing hospital bed capacity across the country on a war footing and making good the neglect of decades.
> The government providing a 50% GST rebate for the trade in of any BS 1,2,3 and 4 vehicle and the purchase of an equivalent new one. The traded in vehicle is physically scrapped. This would amount to a 10% reduction in price for the buyer who trades in his old vehicle and would generate demand for the auto sector with its positive backward linkages. There would be no budgetary expenditure. 50% GST would also come in instead of none. Further, government could finance the replacement of all old buses and trucks with government and municipal agencies. Air quality, a critical public good, would improve substantially.
>The completion cost of all the incomplete housing projects with developers in distress has been estimated at about Rs 1.75 lakh crores. A take over of all these projects, government guaranteed bank financing for completion, and immediate recommencement of work with completion targeted in 12-18 months would generate employment and demand for cement , paint, electrical fittings etc. This would amount to a fiscal stimulus of 1.75% of GDP.
> By announcing an attractive feed in tariff at which Distribution Companies would buy solar power up to 1 MW from decentralised small units in rural India, something announced in the FM’s Budget speech, there would be a surge in private investment enhancing farmers incomes. By doing so, the Distribution Companies would actually save money as their cost of delivery with conventional power is much higher today. With 6 lakh villages, there is a potential of 6 lakh MW of solar power.
> Getting industrial investment into India from global supply chains seeking some diversification from China would have a realistic chance only if the state invested with great speed in creating large industrial parks with quality infrastructure, including rental housing for workers, along with expressway connectivity to the National Highway network and on to ports and airports.

The government has a large menu of choices which it can begin seeing only if it starts thinking out of the box . It needs to focus on possible results in this financial year and think of achieving a critical mass in whatever it attempts and ignore fiscal deficit concerns till recovery commences. Even after best efforts, some sectoral relief packages may be unavoidable in the coming months. The alternative to doing nothing more now is much greater economic distress. Job losses would hit the middle classes in increasing numbers. The fiscal deficit would balloon as tax revenues, which have collapsed, would not rise. Greater human misery that seems imminent is avoidable.

Ajay Shankar was Secretary, Department of Industrial Policy and Promotion (DIPP) in the government of India. He was part of the core team which worked out the 2008 stimulus package for India.

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