70% of India’s economy hit by lockdown, 10 crore jobless, says Subhash Chandra Garg

"The 21-day lockdown would hit 70 per cent of India’s economy but has already rendered at least 10 crore workers of the mining, construction, manufacturing and services sectors jobless, who need financial support of at least Rs 2,000 per month for the next three months," a former topmost secretary of the finance ministry, who took voluntary retirement last year, said on Monday.

Former Economic Affairs Secretary Subhash Chandra Garg, who has headed the most important revenue department for a long period in the Modi government, said the state government revenues have taken a major hit during the crisis and that their revenue shortfall during the course of a year might go up to Rs 2,00,000 crore.

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He suggested that the Centre should immediately release the share of central taxes to them in instalments to keep their finances running.

“The state governments’ revenues have suffered massively. The Government of India should release the held-up amount of approximately Rs 30,000 crore of GST compensation. It should also release the instalment of Rs 56,000 crores of the states’ share in central taxes on due date April 15.

“The states should be provided additional borrowing limits to cover up the shortfall in their tax revenues for the year 2020-21,” Garg said in his blogpost.

The Centre may need to borrow 2-2.5% of GDP or about Rs. 4-5 lakh crore additionally for these expenditures. It seems necessary and advisable that the Centre borrows this directly from the RBI instead of borrowing from the market. FRBM Act should be amended to enable this.

“All of the support that businesses, workers and other entities require at the time of crisis might be of the order of Rs 4-5 lakh crore or about 2-2.5% of GDP. It is worth doing it this way,” Garg said.

There are lakhs of self-employed and small businesses which do not receive credit from the banks. These are supported by non-banks, micro-finance institutions and informal sector. Most of these businesses borrow against collateral or at very high rates of interest. Their capacity to provide additional collateral or bear very high rate of interest is severely impaired by the economic lockdown.

“There are three kinds of borrowers who need credit support. First, the normal customers of banks and non-banks who have credit lines or loans or investment in their bonds. Second, the financiers. The non-banks depend on the banks and mutual funds for raising resources to provide loans.

And, the third, the self-employed businesses and small businesses. With their capacity to borrow from traditional sources- non-banks, micro-finance institutions and informal sector- hugely compromised,” he said, adding if banks do not provide them the lifeline of credit, a good number of them will go belly-up.