By Gyan Pathak
The way our Prime Minister has been constantly emphasizing on giving greater role to the private sector day in and day out with certain follow up actions is one of the most dangerous things of the recent times. It has become particularly hazardous at this juncture when the Indian economy is reeling under the COVID-19 induced unprecedented crisis, causing the very survival of many enterprises, both in private and public sector at stake. The immediate task in hand is to save the economy from destruction, and thereby to save the people and the jobs.
The drift in attention from this immediate task is not defendable at this moment of crisis, because one hardly can deny the contribution of both the public and private sector in our economy. However, both of them have been suffering great disruptions in their operation, and many of them have just become unviable. When the private sector itself needs help to survive, putting all the eggs in the private sector basket, is not more than daydreaming. Any action of dismantling or weakening the public sector at this moment is like sabotaging the public sector.
We don’t exactly need to get rid of the public sector since they are greatly contributing in the Indian economy and in the quality job market of the country. They supported our large population even during the corona virus pandemic. When the tax revenue of the country have been severely impacted, the government got large amount of revenue as contribution from the public sector which enabled the government to spend all they could to buffer households and firms against the economic scaring associated with the pandemic.
Revenue from the private sector was almost negligible because the lockdown had stopped the economic wheel of the country. GST revenue greatly suffered because there were almost no economic activities. The state governments could not get their revenue share in time, and the states were ultimately compelled to get institutional or market loans for even continuing their day-to-day work including handling the corona crisis. The public sector actually came to our rescue from this unprecedented crisis. Sabotaging or dismantling the public sector is thus not desirable. In the light of the newly acquired experience of the last one year of the crisis, the public sector rather deserves to be strengthened.
Now let us see, what happened to the private sector during the pandemic. Barring the essential activities like medicine, food processing, etc, all the private sector enterprises stopped functioning. The government has urged the private sector not to deprive the workers of their salaries, but it was not heard. Many of the private sector managements showed their inability to pay the salaries because their source of income dried up, and their tax and loan liabilities did not permit them to give financial help to its own workers. Workers were to forego their jobs, and millions of them could not return even after one year of the crisis.
Unemployment shoot up to the level of around 11 per cent in June 2020 and the whole job market remained volatile. The unemployment rate stood around 9.5 per cent in December. In January 2021, unemployment rate was down 6.5 per cent. Volatility in job market was further created by the new labour codes, rules, and government’s not taking sufficient interest in labour welfare. The volatility in unemployment and employment suggests that millions of workers and getting new jobs a month and millions of them are losing the next month. It also means that even the private sector has become instable in several ways.
There is thus a clear case of providing the required support to the private sector even for their survival. The vaccine drive is promising, but it would take months of time to inoculate the whole population. However, the wave of new infections through hundred of coronavirus variants means that the full recovery could take years. Since India is a middle income group country, it has not sufficient amount of money to fully support all the private enterprises in their struggle to survive. MSMEs and the informal sector needs particular support in terms of access to finance as well as incentives. In the past phases of economic response, the government felt serious handicap of lack of money, and therefore, in their panic response devised such mechanisms to support which in themselves proved obstacle in the way to their financial access.
Now the government need to deal with the corporate distress, repair, and reallocation for the very survival of many of them. India cannot continue the response that it made during the first phase focusing on containment of COVID-19. The country does not have enough money to that and survive without the economic activities. They necessity of use of regional lockdowns and limiting commercial activities to lower the virus caseload to the point of testing, tracking, and isolation is looming large due to rising infection from the new coronavirus variants. If rebound commences, it would derail our effort of supporting the Corporates as well as MSMEs.
The economic activities are just reaching the point of a rebound with lifting restriction and picking up mobilities. It’s time to watch and tread carefully, but not an opportune time to depend on only private sector. Government actually should go for strengthening the public sector while making plans for reinvigorating the private sector as a response to the present crisis they are in. It is all the more important because India have not been able to provide significant relief to households and small enterprises, and therefore their economic woes along with their workers are most likely to extend further.
Government would soon need not only to focus on preserving private firms with viable post-pandemic business model with restructuring their balance sheets so that they do not stand in the way of their operation. We will also have to revisit the bankruptcy system and laws to ensure that they can handle the load as support and moratoria end to avoid many viable firms being liquidated, as Raghuram Rajan has warned in his most recent ADBI paper. Private sector also need a new plan to support their borrowing, especially the start-ups and riskier mid-sized firms. Not only that the government need to ensure a mechanism to invest in corporate equity where it is critical to corporate survival.
In this scenario, when private sector itself is seriously ill and needs support, dreaming them to be rescuer of the Indian economy especially the public sector, is misplaced. (IPA Service)