About time the govt stopped discussing a stimulus package and announced it

The Purchasing Managers’ Index  (PMI) for Indian manufacturing, or PMI, has fallen an unprecedented amount in the month of April. On a seasonally adjusted basis, it has gone down from almost 52 in March to 27.4 in April. According to IHS Markit, which compiles the index, correspondingly, there has been a  drastic reduction in staff numbers in April, also the steepest on record in the survey. Discounts were offered across the board, indicating a decrease in pricing power and deflationary pressure — even amidst similarly unprecedented disruptions to the supply chain of materials and inputs. A similar, though perhaps less drastic, decrease may be seen when the Services PMI is released on Wednesday. India’s PMI drop was in line with other such decreases across emerging Asia: Indonesia’s PMI in April was almost identical, at 27.5, while Malaysia’s was marginally higher at 31.3 and Vietnam’s at 32.7.

The question surely is: Faced with this unprecedented situation, what are the government’s plans for securing the most vulnerable portions of the economy? The only package announced so far has been a while in the past, and targeted the existing recipients of welfare. The Reserve Bank of India has also stepped in and infused liquidity into the system. But what of small businesses in particular, which are likely to be hardest hit by the sort of dip in sentiment that the PMI indicates? There is no word yet, in spite of repeated reports over the last fortnight that the prime minister has been meeting  the finance minister and the home minister, among others, on a second revival package for the economy. There have been widespread hopes that another relief package will be focused in particular on helping small businesses survive the pandemic shock. Yet, not only has no package been forthcoming so far, there is no sign even of what reform measures might conceivably have been discussed. 

It is past time that the discussions within the government ended, and announcements were made. The reasons for the delay are unclear, since the lines along which an announcement should be made are already known. There will have to be some backstopping by the government of wages and loans, focused on small businesses, to encourage employers to pay full wages and banks to lend, so that economic activity can re-start. Putting more money in people’s hands is another urgent step, so that demand for at least the basics revives. Universal provision of food at distribution centres should be a priority, as migrants who have started returning home will be without work and therefore income. The rural employment guarantee scheme needs to be revived with enough money to keep it working through this difficult time. 

As for reforms, these have to focus on employment generation — the bias against organised retail and e-tailing has to end because these create supply chains and support local manufacturing. The labour market, badly divided into organised and unorganised, must get more integrated through changes in labour laws, so that even big employers are not incentivised to keep large numbers of temporary and contract workers on their rolls. The sharp drop in the employment ratio (percentage of the working-age population that works) needs to be reversed. The methods to achieve these ends are widely known and understood. It’s time to start implementing them.

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