The Covid-19 pandemic is going to change many things and create a new normal. Lifestyles will change, people will become more health conscious, masks and hand sanitizers will become part of routine life. What more is in store? As a citizen, one must evaluate the upcoming opportunities and challenges.
It is said that that industry dynamics might turn favourable to India. Media reports state that in the coming days, India might get big opportunities to attract investors. Approximately 1000 foreign firms are viewing India as an alternate manufacturing hub, and 300 of them are already actively pursuing proposals. This is an optimistic scenario based on India’s resilience to the pandemic so far, its young population, and availability of manpower at all levels, all of which might drive growth for a lot of industries.
Ideally, the West would be the source of capital and the East, an investment hub. In the East, India looks like a bright option compared to other countries. The Government of India has enthusiastically come up with schemes such as Start-up India, National Skill Development Mission and Make in India, and Indian youth has responded well. In the 4-5 years since these schemes were launched, the number of start-ups has increased.
However, every business has its own gestation period, and just when some of these new businesses were settling, the pandemic struck, demotivating them at a very initial stage.
The government has the upfront task of coming up with a stimulus to start-ups and MSMEs (Micro, Small and Medium Enterprises) which will play a crucial role in reviving the economy.
The government has already announced one such stimulus; it has parked a package of Rs. 50000 crores with NABARD, SIDBI and NHB for agricultural and rural development, MSME, and housing sectors, respectively. Industries can avail of funds through SIDBI, which has received Rs 15000 crores. However, MSMEs are expecting stimulus in different forms, which will result in greater ease of doing business.
One of the issues MSMEs face in day-to-day operations is managing cash flow, for which they borrow money from banks and incur borrowing costs. The Reserve Bank of India, from time to time, tries to reduce interest rates by deductions in repo rate.
Consequently, banks and NBFCs are expected to reduce interest rates while lending money to borrowers, however, banks especially are not able to reduce interest rates drastically as the receiving interest rates on savings and FDs are handsome in India.
India’s tax system is among the most complicated ones in the world. While the GST is a welcome step to come at par with developed countries, it is not enough. Lax laws and provisions make it difficult to operate at times leading to litigation, and diversion of a handful of resources to the latter.
The government is expected to tackle these issues in order to form an environment conducive for the bounce back of start-ups and MSMEs. In the coming years, a good proportion of liquidity along with the plan is important.
India is not the only option for investors; many other countries are looking to attract foreign firms. India has its strengths, but also needs to address many challenges if it is to convert proposals of foreign firms into actual functioning in the country.
I believe this is the time for India to reset the entire system. This is the best opportunity in the last few decades to grab a share of the global market. Once this opportunity is lost, it will be lost forever.
Despite the aspiration of hosting foreign firms in India, one needs to understand that agriculture and MSMEs are the backbone of Indian economy. This mixed economy has always been a blessing for us; in times of recession, agriculture has helped India sustain domestically and proved to be a self-sustainable mechanism for India, while MSMEs contribute 7% of India’s GDP and account for 45% of India’s total manufacturing output and 40% of our exports.
More than 50% of the Indian work force is employed in agriculture and it contributes 17-18% to country’s GDP. India’s arable land area of 159.7 million hectares (394.6 million acres) is the second largest in the world, after the United States. India is among the top three global producers of many crops, including wheat, rice, pulses, cotton, peanuts, fruits, and vegetables. Hence, the government must give a boost to agriculture.
To bring agriculture out of the traditional market structure, it must create a chain from big corporates to farmers. Corporates can provide the cold storages, warehouses, and other required infrastructure which India currently lacks. India must turn agriculture into a powerful business and integration of the corporate sector with agriculture is the need of the hour.
Considering the overall contribution of MSMEs, they have been overlooked compared to the organised sector. MSMEs need to raise finance through exchanges, just like listed companies raise through stock markets. India desperately needs to reform and boost MSME stock exchanges. While they exist, they do not function well in practice due to IPO procedures and neither entrepreneurs nor investors find it feasible to purchase the minimum lot size prescribed.
Government must further bifurcate MSMEs into khadi, fishing, rural, urban etc. and govern each sub-sector independently. India must work on the PPP (public-private partnership) model more practically and focus on export enhancement and import substitution as well.
One of the major issues highlighted often and even during this pandemic of regional disparity. It is mostly the tier-1 and tier-2 cities such as Mumbai, Delhi, Pune, Ahmedabad, and others which are affected by the pandemic, especially in areas which have a high density of population. People living in such areas are mostly migrants, and hence are affected most.
We must plan to develop tier-3 cities across India. Decentralisation is the need of the hour as it will reduce the burden of big, overloaded cities. Recent news reports state that due to the pandemic, population in rural India has increased by 7%. India needs to create industrial clusters in non-urban areas and develop tier-3 cities in order to generate local employment.
Implementing measures on these issues is indeed a time-consuming exercise, but the time has come for the government to think around them and start taking required steps, to reset the country’s settings. This is an opportunity to show the world a different India, an opportunity that must be taken as the famous phrase goes – “blessing in disguise”, though only time will tell if Covid-19 turns out to be a boon or curse for India Inc.
The views and opinions expressed in the article are those of the authors and do not necessarily reflect the official policy or position of The Tilak Chronicle and TTC Media Pvt Ltd.