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COVID-19 | The economy needs a reboot and more needs to be done.


Date: 10-04-2020
Subject: COVID-19 | The economy needs a reboot and more needs to be done
Jyoti Singh Rathore

COVID-19 has hit the world at large, the deadly virus not only costing human lives but also devastating and crippling the economy.

Amid the outbreak, the 21-day lockdown is a wise action, but what it’ll be like for industries, especially MSMEs, is being contemplated. It is becoming a cause of concern for the industry at large, and those who were prepared might sail through, while others will have to find a way out.

According to the latest annual report of Ministry of Micro, Small and Medium Enterprises, MSMEs — which are seen as the backbone of the economy, account for 29.8 percent of GDP, and also add millions of jobs annually — are in a huge crisis. While the government has taken certain steps proactively to ensure minimal real time effect, the long-term adverse impact on the economy is inevitable. The question is how to minimise the effect.

The manufacturing segment in MSMEs, which are worst hit, needs to be protected and supported to minimise, and even revive from the damage caused by the pandemic. It is a monumental challenge that would require the collective effort of both industry and government.

The lockdown has brought the supply chain in the manufacturing sector to a grinding halt. At this point in time, demand is likely to soar, while supply will be extremely weak. As free trade is curtailed, raw materials will likely be in short supply. It will take time to get the industries up and running in time to meet the global post-pandemic demand. As per Barclays, India’s 21-day lockdown could bring its GDP from 4.5 percent (earlier estimated) to 2.5 percent.

Challenges before the manufacturing industry

Social distancing has meant the delay in deliveries are likely to disrupt the businesses that operate on the just-in-time (JIT) or limited inventory basis. Across the country, the lockdown has resulted in labour shortages, which in turn has added to the limited availability of transportation facilities.

Major sectors which are suffering are chemicals, automobiles, textile, steel industry, etc. This puts before us the harsh reality that many jobs will be cut and many companies will go out of business. The International Labour Organization (ILO) estimates that COVID-19 will destroy up to 25 million jobs. According to the United Nations Conference on Trade and Development (UNCTAD), it will likely cost the global economy between $1-2 trillion this year itself.

Measures by the government

The government, which is monitoring the situation and meeting with stakeholders, has announced many relief measures to save the economy. The government has exempted companies from a COO (Certificate of Origin) under all trade agreements for claiming preferential duties. It will be charged later with a retrospective effect. Exemptions have been made for certain documentations, such as the RCMC (Registration Cum Membership Certificate) if they expired by March 31, till September 30. The Foreign Trade Policy 2015- 20 has been extended till March 31, 2021. Under the Advance License and EPCG schemes, the export obligation period, which was expiring between February 1 and July 31, has been extended by six months. The government has also decided to not impose any container detention charges till April 14.

More needs to be done

There are more steps the government can take to relieve the pressure off the industry. It should roll out sops for MSMEs that manufacture locally. It should invest more on the online infrastructure, and encourage small business to meet this demand. Such a move would help in cutting import costs. To boost exports, the government can allot subsidised warehouses and sort the supply chain roadblocks.

On the logistics side, vehicles carrying essential supplies can have a free pass at check posts and toll plazas. The government can also consider passing on the benefits of the fall in crude price to the consumer. In the same vein, subsidies or tax deductions can be made to salaries paid to drivers and a higher deduction for capital expenditure on commercial vehicle, etc.

On the international front, it is the need of the hour to talk about trade balance with major trading partners and also possibly lower trade barriers.

In all, this is an opportune moment to focus and boost the Make in India programme. The pandemic has taught us the pitfalls of depending on other countries to meet our essential supplies. It is a good time to become self-sufficient in vital areas.

Source:- moneycontrol.com

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