<p>A consequence of the extraordinary times that we live in has led to almost every section, including state governments, to clamour for help from the Central government. Invariably, limited resources mean that there is a need for judicious use of available resources. </p>.<p>The present crisis is very different from ones that we have seen. It requires concurrent demand and supply-side interventions. The crisis has created problems related to solvency which will be made worse by liquidity problems – especially in the middle and lower levels of the economic pyramid. Hence, there is a need for the government to urgently support sectors which employ a large number of people with a specific focus on supporting self-employed and smaller businesses which mostly hire family labour. </p>.<p>Such support would make survival easy and increase the probability of restarting the consumption cycle and help the debt repayment cycle recover faster than attempting to bail out larger companies or only those in the organised sector. </p>.<p><strong>Fund economic activity </strong></p>.<p>It would be economically useful if government support goes to specific sectors related to the Micro, Small and Medium sector (MSMEs), agriculture and transportation sector in the next round. Invariably, this support has to be in conjunction with support for the banking sector and Non Banking Financial Companies (NBFCs). </p>.<p>MSMEs as a generic category with all its diversity accounted for 30.3 percent of the GDP in 2018-19 and about 45 percent of manufacturing across 6.3 crore units in 2016-17 employing around 11 crore people and nearly half of them located in rural areas. Interestingly, there were only 3.18 crore accounts with total outstanding credit to MSMEs pegged at Rs 4.78 lakh crores by the end of February 2020. Ideally, it would be useful for the government to support companies with a paid-up capital of less than Rs 5 crore. This may be expanded gradually to those companies with a capital of less than Rs 10 crore. </p>.<p>Agriculture and allied activities is another large employer – 54.6 percent of India’s total workforce and in 2018-19 accounted it for 16 percent of Gross Value Added (GVA). The targeted priority sector lending (PSL) to agriculture in 2019-20 was Rs 13.5 lakh crore. However, there are only about 2.36 crore Kisan Credit Card (KCC) accounts which comprise of individual cultivating households whose outstanding crop loan total was Rs 4.136 lakh crore in March 2019. It is safe to assume that the rest of the loans have either been diverted or have gone to commercial entities. </p>.<p>The other important sector which provides large scale employment is the transportation services, which according to NSS 74th Round are mostly (97.4 percent) individuals. Government data indicates that approximately 11 crore goods vehicles have been registered in the country since 2001 but probably only about 60 percent are operational due to various reasons. RBI data indicates that outstanding credit to transport operators of all hues at the end of February 2020 was Rs 1.42 lakh crore. However, these figures reveal only a part of the story since most trucks on the roads are financed by NBFCs who in turn borrow from the banks.</p>.<p><strong>Suggested support</strong></p>.<p>It is likely that the onset of the new agricultural season will lead to hardship because of issues related to lack of market access (due to lockdown) and the need to raise money for inputs for the new season. The preferred option will be to convert at least the outstanding crop loans against KCC accounts to term loans that are repayable over three to five years. The best support for MSMEs will be if the Central and State governments and the public sector organisations clear outstanding due for goods and services procured in the past. In many cases, this single measure will enable businesses to survive periods varying from one to three months. In the case of MSMEs and transporters, a good starting point of support is the RBI and the banks offering borrowers an additional grace period of 15 days for the outstanding EMIs preferably through fresh agreements with borrowers. Providing an additional working capital for MSMEs and other businesses may make an essential difference between survival and close of these businesses. Any closure of businesses will only increase unemployment and further aggravate the problems in the economy including additional problems for the financial sector. </p>.<p><br /><em>(S Ananth is an independent researcher based in Andhra Pradesh. Views are personal) </em></p>.<p><em>Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH. </em></p>
<p>A consequence of the extraordinary times that we live in has led to almost every section, including state governments, to clamour for help from the Central government. Invariably, limited resources mean that there is a need for judicious use of available resources. </p>.<p>The present crisis is very different from ones that we have seen. It requires concurrent demand and supply-side interventions. The crisis has created problems related to solvency which will be made worse by liquidity problems – especially in the middle and lower levels of the economic pyramid. Hence, there is a need for the government to urgently support sectors which employ a large number of people with a specific focus on supporting self-employed and smaller businesses which mostly hire family labour. </p>.<p>Such support would make survival easy and increase the probability of restarting the consumption cycle and help the debt repayment cycle recover faster than attempting to bail out larger companies or only those in the organised sector. </p>.<p><strong>Fund economic activity </strong></p>.<p>It would be economically useful if government support goes to specific sectors related to the Micro, Small and Medium sector (MSMEs), agriculture and transportation sector in the next round. Invariably, this support has to be in conjunction with support for the banking sector and Non Banking Financial Companies (NBFCs). </p>.<p>MSMEs as a generic category with all its diversity accounted for 30.3 percent of the GDP in 2018-19 and about 45 percent of manufacturing across 6.3 crore units in 2016-17 employing around 11 crore people and nearly half of them located in rural areas. Interestingly, there were only 3.18 crore accounts with total outstanding credit to MSMEs pegged at Rs 4.78 lakh crores by the end of February 2020. Ideally, it would be useful for the government to support companies with a paid-up capital of less than Rs 5 crore. This may be expanded gradually to those companies with a capital of less than Rs 10 crore. </p>.<p>Agriculture and allied activities is another large employer – 54.6 percent of India’s total workforce and in 2018-19 accounted it for 16 percent of Gross Value Added (GVA). The targeted priority sector lending (PSL) to agriculture in 2019-20 was Rs 13.5 lakh crore. However, there are only about 2.36 crore Kisan Credit Card (KCC) accounts which comprise of individual cultivating households whose outstanding crop loan total was Rs 4.136 lakh crore in March 2019. It is safe to assume that the rest of the loans have either been diverted or have gone to commercial entities. </p>.<p>The other important sector which provides large scale employment is the transportation services, which according to NSS 74th Round are mostly (97.4 percent) individuals. Government data indicates that approximately 11 crore goods vehicles have been registered in the country since 2001 but probably only about 60 percent are operational due to various reasons. RBI data indicates that outstanding credit to transport operators of all hues at the end of February 2020 was Rs 1.42 lakh crore. However, these figures reveal only a part of the story since most trucks on the roads are financed by NBFCs who in turn borrow from the banks.</p>.<p><strong>Suggested support</strong></p>.<p>It is likely that the onset of the new agricultural season will lead to hardship because of issues related to lack of market access (due to lockdown) and the need to raise money for inputs for the new season. The preferred option will be to convert at least the outstanding crop loans against KCC accounts to term loans that are repayable over three to five years. The best support for MSMEs will be if the Central and State governments and the public sector organisations clear outstanding due for goods and services procured in the past. In many cases, this single measure will enable businesses to survive periods varying from one to three months. In the case of MSMEs and transporters, a good starting point of support is the RBI and the banks offering borrowers an additional grace period of 15 days for the outstanding EMIs preferably through fresh agreements with borrowers. Providing an additional working capital for MSMEs and other businesses may make an essential difference between survival and close of these businesses. Any closure of businesses will only increase unemployment and further aggravate the problems in the economy including additional problems for the financial sector. </p>.<p><br /><em>(S Ananth is an independent researcher based in Andhra Pradesh. Views are personal) </em></p>.<p><em>Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH. </em></p>