Hope monetary and fiscal stimulus will keep India's growth above 0%: World Bank
'World Bank working with govt to support economic stabilisation around MSMEs'
|, ET Now
Last Updated: May 15, 2020, 04.53 PM IST
Demand has to come back and it will come back slowly. It is not going to come back overnight, says Junaid Ahmad, Country Director, World Bank.
Last time when we spoke, you said there will be many programmes that the World Bank will look to fund for India. But the aid this time is coming in after the massive migrant crisis that we saw in the country. What will be the constituents of this $1-billion aid, the help that is being provided for the social sector programme?
Let me remind you of the logic of what is happening here. The health intervention as a result of Covid around the world has resulted in very unique interventions which are social distancing and the slowdown of the economy. Very rarely do you see governments around the world slowing down the economy in order to solve a health issue. This is what COVID has done. But because you are slowing down the economics of a country, you face a dilemma of lives versus livelihoods and no government in the world is willing to accept that tradeoff and to support the poor and the vulnerable during this slowdown social protection interventions have now become very dominant.
India too has engaged in social protection to be a bridge for the poor and the vulnerable between the time that health intervention has slowed down the economy and hopefully a revival that should be coming in the weeks or months ahead. The social protection is sequenced in that sense. Its nature is exactly what you have talked about. Around the world, Covid has revealed the fault lines in our economic, governance and social systems.
In the west, the incidence of Covid has really been in minority communities with a lot of fatality there. In South Asia, the impact of Covid has been on the urban worker, the migrant worker, the workers in the unorganised sector who do not traditionally have access to social protection.
What the Government of India has done and what we are supporting is pivoting of the government’s social protection system which is largely a rural based one into incorporating migrants and into incorporating the unorganised worker in the urban area. It is also one that is beginning to look at stronger relationships between the centre and the state in terms of responding to the local condition.
So what this social protection system is doing is really one of pivoting and creating a platform which fills that fault line that Covid has revealed, where migrants may have been left out, unorganised workers may have been left out and strengthening of the response of state governments in India’s federalism. It is a watershed moment because India is truly making its social protection system a pan-national one and not simply for the folks in rural areas.
Just yesterday we saw the government announcing one leg of the package which focussed on migrants, which focussed on providing one nation one ration card as well and ensuring that some of those linkages with respect to various social security programmes can be figured out in the long term. Having said that, what in the World Bank’s view will be the future challenges?
What you are seeing today is first the pivot of making in effect a social protection system that was largely rural to one that is national. To shift from one type of approach to another, requires quite a bit of strengthening of implementation, strengthening of how you identify the recipients, ensuring that urban systems, migrants are able to get access to food, cash grants, ensuring portability of the system, ensuring the different schemes because there are about 400 plus schemes that underpin the Government of India’s social protection system to coordinate them.
One area of coordination is using NDMA which has a window on state disaster response funds which usually gets a scheme based support to make it linked to a social protection system whereas national disasters hit such as a pandemic that their resources that are available for state governments to use to respond to their local condition. So quite a bit of changes are going to happen which the Government of India is already beginning to make, where you are having connections between one system to the other.
But I have to tell you that this is something that the Government of India builds on its strength and its strength is it has a very comprehensive PDS system. It has a system of Jan Dhan, of Aadhaar, of over 300 million bank accounts predominantly in the hands of women that can get cash transfer. It has a MGNREGA also so that as people move between urban and rural, the urban and the rural systems can kick in. So by building on these strengths, India is able to move towards a pan national system.
We are given to understand that this is not the end of it, that another aid is in the works and this one is going to be for the small and medium enterprises coming right after the announcements that we saw two days ago by the finance minister.
She has in fact not just changed the definition of small and medium enterprises in India but also has said that there will be collateral free loans that will be given and PSUs mostly will now be looking at clearing the dues of small and medium enterprises in the next 45 days.
The big concern for small and medium enterprises has always been the liquidity issue. How are you telling the government to address some of the liquidity issues mostly in the government run companies or government tenders that the MSMEs are facing?
First, it is important to recognise the strategy here. It starts off with moves for social protection and then moves towards the third component which is economic stabilisation. MSMEs are central to that third component. Logically, the overall programme is one of the most comprehensive focus on the impact of COVID.
As for MSMEs, you are absolutely right and government recognises this that both RBI and government has created quite a bit of liquidity in the market, the challenge now is to take that liquidity down to the retail level in the hands of MSME and for that the government is beginning to look at different transmission mechanisms. It is going to be a combination of banks, of NBFCs, of housing banks, the retail structure of intermediation that currently exists in India needs to be leveraged. And to leverage it, which is critical and what the government has announced is the de-risking of the problems that MSMEs show.
In that de-risking, you are going to be able to bring in greater intermediation and movement of the liquidity from the wholesale into the retail. But I have to add that one more area. Even as the government puts in the liquidity, the biggest liquidity is in capital markets and a lot of these guarantee and de-risking mechanisms are aimed at bringing capital markets into the story.
This is going to be a very big storyline of how the intermediation functions and how to link the guarantee systems into intermediation. The World Bank is currently working with the government to actually support this third phase economic stabilisation around MSMEs.
The aim of course, is to create world class small and medium enterprises and firms here in India as well. We have done significantly well on the World Bank’s ease of doing business report. Do you believe that the stage is set for the next set of reforms as well? What do you make of the kind of announcements that have been made so far?
What the government is saying is that the interventions that the government is making is not just an emergency relief intervention, but also using the crisis to open up the storyline for a reformed economy, an economy that can lift off on the basis of the intervention.
The social protection system is not only about putting in more resources into social protection. The government of India through the Garib Kalyan Yojana has announced $23-24 billion injection into the social protection system.
It is also improving the functioning of the social protection system. So clearly, there is a focus on reforms. Similarly, for MSMEs, it is not only about delivering liquidity but improving the intermediation efforts. The intermediations will require de-risking which means that the government of India will have to improve its guarantee systems.
These guarantee systems are not short-term measures but are there to provide long term support to the economy. So both on social protection as well as on the MSMEs, the intention is not only to provide a response to the current crisis but to begin and support a reform process that continues to improve the systems that support India.
In the case of MSMEs, there is a delicate balance that the government of India needs to undertake which is stabilisation with sustainability. You could always give stabilisation by handing out grants to MSMEs but that would not ensure sustainability so the use of credit markets and guarantees are done precisely to ensure that stabilisation is matched with future sustainability.
That way, the economic responses to the emergency are aligned with future reforms for the economy.
RBI is infusing as much as Rs 8 lakh crore liquidity into the market. But if there is no demand, then what will you do with all that liquidity that the banks are flush with? The government is also expanding its borrowing programme. A large part of it is being seen to offset the loss in revenues. How do you see that panning out vis-à-vis the fact that nothing is being done to put money in the hands of people and without that there will be no demand creation?
The Covid crisis has created a major economic issue for countries. There has to be a supply response and there has to be a demand response and the challenge is figuring out how to match the two. In the case of India, what the social protection system is putting cash in the hands of citizens, the whole bank account system. The delivery of resources through the banking system not only provides cash to help people stabilise their context but begin to have some money that they can use for investment also but let us be very clear that right now the focus is on stabilisation.
The focus is on social protection and the economic revival that is coming is the one that is going to give the impetus on the demand side. The whole debate about how to move from a strict lockdown to an incremental opening of the economy and adaptive removal of the lockdown,will provide the demand side impetus that everyone is looking for.
It is a fine balance and it is a balance in which governments around the world -- not only in India -- are trying to figure out how to protect the vulnerable and the poor, stabilising economic assets as in the MSME and slowly bringing them into an economic revival. Countries around the world have given up the hope that it is a V-shape story line of a rapid decline and a rapid increase.
Everyone is getting ready for a gradual increase and precisely because demand has to come back and it will come back slowly. It is not going to come back overnight. It is a tricky balance, there is no blue print but it is one that will require both the supply side and the demand side intervention.
A lot of global agencies, brokerages are pegging India growth for FY21 at close to 0%.This is going to be a big worry for an emerging economy like India. But once the kind of stimulus that the government is talking about gets put in place, how do you see the recovery happening? When do you see India getting back to 6-7% growth trajectory?
I wish I had an answer for that question. What we need to focus on is what measures are being taken by the government actually taking and as I said, the measures of health, intervention measures of social protection, measures of economic stabilisation are exactly the right arenas to engage in. Within these arenas, the government is going to learn about its impact adjust and keeping this adjustment going is going to feed into the growth path.
By the way, every single country in the world is facing this dilemma of growth rates falling. United States, Europe, growth rates are in the negatives. We are hoping that the emerging countries will be able to keep their growth rates slightly in the positive. That is going to be very important for global rates to come through. We are talking about Brazil, India, Indonesia,, Turkey. Today these countries are a very important part of the global engine. I am hoping that 10% of GDP monetary and fiscal interventions will provide a platform that keeps India above the zero percent in terms of growth. The world needs it and India needs it.
Commenting feature is disabled in your country/region.