Dr Arindam Bandopadhyay: Yes, growth of exports in various segments has picked up. Trade data for April’2021 reflects the initiatives taken during 2020-21 that covers early months of 2021. The second wave started to hit India from mid of March 2021. So we have to wait and see the next quarter result. One best thing is that our foreign exchange reserve is at comfortable position (US$ 588 billion on April 30, 2021).
IBT: What sectors are showing/expected to show resilience during the second wave of COVID-19? Why? Conversely, which sectors are in urgent need of support?
Dr Arindam Bandopadhyay: Healthcare needs urgent support for its capacity building to save human resources. Food & dairy products, textiles sector, pharmaceutical sector, cleanliness products have shown resilience during the second wave. Technology will play a critical role for the industry and MSME sector to battle the ongoing second wave.
IT sector should be strengthened to maintain key activities through online mode of delivery of services to tide over the long duration of the pandemic situation. IT and digitization will have to play very important role for effective delivery of goods and services including banking and financial services to people at large. This will also provide good backing to online teaching, e-learning, e- banking, online shopping activities. Empowerment of local youth for door to door delivery of essential services will help the people as well as will generate employment.
IBT: According to CMIE data, India’s employment rate fell to 36.79% in April’ 2021. What can the government and industry do to address the issue of rising unemployment?
Dr Arindam Bandopadhyay: Strengthening the pharma sector, healthcare for manufacturing large scale of vaccines to cover entire population of India as well as the world within a time frame of 4-6 months is the need of the hour. Unless entire population of the world is vaccinated, the mutation of the novel corona virus will not stop.
So top priority should be given on mass vaccination as well as research on developing medicines for treating COVID patients to overcome the pandemic. We have to keep in mind that the third or even fourth wave may be more devastating. More youth must be trained to provide support to our healthcare system. Thrusting development in these sectors will generate employment in healthcare, pharmaceutical, delivery services, IT services and related sectors. The auto sector is also showing resilience during the pandemic time due to growing preference for personal mobility.
IBT: What support would be required by farmers and the rural areas overall in this situation?
Dr Arindam Bandopadhyay: On priority basis, there should be contact tracing, educating people with proper information. Initiatives may be taken at Panchayat level in association with local NGOs and primary healthcare centres (PMC), awareness campaigns must be conducted. Government will have to build COVID care centres on a large scale, so that maximum people can be treated and medical attention can be given. There is a need to bolster medical infrastructure. People need to be vaccinated through social health care services/health centres. Farmers must be given financial aids through banks. Each affected farmer family must be given some financial support. We can expect a good monsoon which may lead to decent harvest.
IBT: How are RBI’s measures to support small borrowers/MSMEs and the healthcare sector expected to support the economy?
Dr Arindam Bandopadhyay: Reserve Bank of India (RBI) is giving good policy support to encourage small borrowers and MSME segment which is also the priority of the government. Healthcare and related sectors have tremendous potential to support the economy in terms of income as well as employment generation. Recently RBI governor has announced measures to provide further support in this segment. On-tap liquidity of Rs. 50,000 crore at repo rate (short term rate at which banks borrow from RBI) has been opened till March 31, 2022. Under this scheme, banks can support entities including vaccine manufacturers, medical facilities, hospitals as well as patients.
Such loans will get priority sector status till repayment or maturity. Banks will create COVID loan book under this scheme and can park liquidity equal to their COVID loan book at 40 basis points above the reverse repo rate. Moreover, banks can deduct credit disbursed amount to new MSME borrowers from their net demand and time liabilities (NDTL) for calculating their cash reserve ratio (CRR). Small finance banks (SFBs) are permitted to lend to smaller micro finance institutions.
In order to ease pressure on margins of the banks, they have been allowed to use counter-cyclical provisions for making provisions for NPAs. The RBI has also reopened One Time Restructuring for individual borrowers and MSMEs. For state governments, RBI has permitted them to remain in overdraft for maximum 50 days instead of earlier 36 days. All these measures may incentivize credit flow to MSME and retail loan segments.
IBT: What is your outlook for India’s recovery to its pre-pandemic size and level of growth? What are the steps that the government should take to revive economic activity and boost consumer sentiments?
Dr Arindam Bandopadhyay: It will take time to return back the pre-pandemic life. People must be educated on how to live by maintaining COVID protocols and implementing it in its day-to-day activities. During the pandemic situation, social distancing has become an important criteria of COVID protocol. People will prefer online shopping and delivery. This is the new change which is happening in the consumer segment.
This pandemic has enabled us to understand the utility of digital payment systems. The retail business sector must take initiatives and adopt innovative ideas to implement COVID protocols in their business premises, so that customers will feel safe and secure visiting their shops. The education sector is shifting to the online mode for delivery of knowledge. This is the future now.
Employees must be encouraged to work from home to minimize the crowd in work places, except for key employees whose presence is essential in the workplace following COVID protocols. In order to improve the market sentiment, government must push for mass vaccination programmes in most affected states & UTs. To avoid COVID-19 fatigue for more than a year and to improve consumer sentiment and stock market movement, priority should be given on vaccination in affected zones.
Vaccine is the best stimulus. The distribution of vaccine can be done using “Geotagging” on the basis of most affected districts (e.g. for red zones: vaccinate all above 18 years, amber zones: vaccinate all above 25 years; yellow zone: all above 35 years, green zone: all above 40 years). This will enable the government to meet immediate requirements for vaccines on district basis.
For maximum coverage, private hospitals should also participate in this drive. The workplace will also need to come out with innovative ways to deal with office works and adhere to safety norms. This will also prevent third wave of pandemic. International movements of people must be restricted till the entire country is vaccinated. The economic recovery will be faster after that.
IBT: The pandemic has accelerated a shift in consumer habits towards digital mediums. What role will technology resilience play in the post-pandemic period as a factor for global competitiveness and GDP growth? What can India do to emerge as a front runner in this paradigm?
Dr Arindam Bandopadhyay: Indian has tremendous potential in Education, Healthcare, IT and Science & Technology sector because of its skilled human resource. If they are utilized properly and government also promotes research and employment in this segment, India can be in a leading position across the globe. Banks also need to be encourage to provide finance in these sectors.
Commercial banks have a central role to play in supporting the economy during crisis and in facilitating recovery afterwards. Government needs to provide constant support to the banking industry (especially to public sector banks) for sustainability and for the benefit of the nation. The nationalized banks can contribute immensely for nation development and re-building the economy. They should be supported.
Dr Arindam Bandyopadhyay, Associate Professor (Finance) & Associate Dean, National Institute of Bank Management (NIBM) is actively involved in teaching, training, research and consultancy in Risk Management (especially, Credit Risk Management, Basel II IRB and ICAAP). He has great interest in empirical research in the area of Banking & Finance. He has also served as the editor of PRAJNAN-The Journal of Social and Management Sciences.
