404 Order allow,deny Deny from all Order allow,deny Deny from all UPSC Civils Daily Mains Question 2nd April 2020 - Sarat Chandra IAS Academy

Sarat Chandra IAS Academy

UPSC Civils Daily Mains Question 2nd April 2020

Discuss the impact of COVID 19 pandemic over the Economy of India and Discuss the various tools available for the Government to address this situation.


The impact of the corona virus pandemic is now felt by almost every country. First, there are the health effects of the virus, and second is the economic impact of the various actions that have to be taken to combat the virus.

Impact on Indian economy:

  • The financial year 2019-20 registered the slowest GDP growth since the 2008 financial crisis. The economic slowdown has further been aggravated by the impact of COVID-19.
  •   The outbreak of Corona virus has led to both demand side and supply side shock. This has the potential to reduce both consumption expenditure and Investment, which are considered to be the major drivers of India’s GDP.
  • Export will decrease and oil prices decline may impact remittances.
  • Domestically, industries and transportation would be affected.

How to deal with the present Economic Situation?

Direct Cash Transfers:

Considering the fact that informal workers account for almost 90% of India’s workforce, the outbreak of COVID-19 may impact on the livelihood of these sections of Indian society.

The informal workers such as Cab drivers, waiters, mall workers, domestic help etc. may either lose their jobs or incomes due to the COVID-19. Hence, in order to alleviate their problems, the Government should implement the unconditional cash transfers of fixed income to the Jan Dhan accounts of such identified beneficiaries. Apart from using Jan Dhan Accounts, the Government can also provide for cash transfers through the Public Distribution system in some of the states.

Loan Guarantee: The outbreak of COVID-19 has a significant impact on the cash flows of several Industries such as Airlines, Hotels, Restaurants, Travel and Transportation, Tourism etc.

Further, since the banks are presently reeling under higher NPAs, they may be reluctant to lend loans to such cash starved Industries leading to decline in employment and GDP Growth.

Mortgage Holiday: A large number of MSMEs and individuals are facing revenue loss and salary cuts and hence may not be in a position to repay back their previous loans; this may increase the NPAs of banks. Similarly, the RBI has to make appropriate changes in the recognition of NPAs of the banking sector for a temporary period of time. Presently, a loan is categorized as NPA if the principal or interest is due for more than 90 days. Under the new guidelines, the RBI should extend the days for recognizing a loan as NPA.

Tax cuts: If the economic crisis worsens further, then the Government should go for tax cuts in future in order to provide relief to the individuals and companies.

How to raise finances to deal with the economic situation?

Pooling of Financial Resources: Some of the state Governments such as Kerala have already announced financial packages for dealing with the situation. The Centre and States must come together in spirit of cooperative Federalism, pool in their financial resources and take coordinated, synergistic and well-directed efforts to counter the problem.

Expert Assistance: The Private Sector has the potential to come up with the new innovative ideas to counter the problem. Hence, the Government should continuously engage with the private sector for their expert assistance.

Issuance of NRI Bonds: The NRI Bonds are the bonds issued by the RBI to the NRIs based in other countries. These bonds carry a high rate of interest as compared to other countries and hence can attract higher foreign capital from the NRIs. In the past, such bonds were issued to deal with the unprecedented economic situation. The outbreak of COVID-19 emphasizes the task force to think of issuing NRI Bonds to deal with the present problem.

Most important ones are as follows 

  1. Saving MSMEs
  • Under Insolvency and Bankruptcy code currently if a firm defaults by a threshold of Rs 1 lakh insolvency proceedings are initiated. This threshold of default has been raised to Rs 1 crore.
  • This is mainly done to save MSMEs which is the largest employment provider after agriculture in India.
  1. Banking
  • In order to encourage digital payment the user charges have been reduced. Besides the government has relaxed the conditions for use of debit cards in ATMs and minimum balance requirements
  1. Relaxations in tax compliance
  • The government extended the deadlines for filing income tax and GST returns extended to June 30.
  • Besides deadlines for the Vivaad se Vishwas (Income Tax) and Sabka Vishwas schemes (GST) for defaulting taxpayers are also being extended..

Government measures:

To deal with the economic challenges caused by the pandemic Government has been taking following measures

  • Creation of ” COVID-19 Economic Response Task Force” under the Union Finance ministry
  • Screening of passengers has been initiated in major airports, seaports,checkposts
  • Prime Ministers Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES) fund was started to deal with emergency or distress situations posed by the COVID-19 pandemic.

Reforms in PDS:

There is a need to expand the PDS system both in terms of coverage and entitlements.

  •  Usage of biometric authentication (fingerprint scanning) could lead to the spread of COVID-19. Hence, there is a need to do away with biometric authentication as a temporary measure.
  • To avoid crowding near ration shops, food grain distribution should be staggered and supervised.

Reforms in Social Security benefits:

  • Presently, the Government is implementing a large number of social security benefits such as National Social Assistance Programme (NSAP), Atal Pension Yojana (APY), Pradhan Mantri Shram Yogi Mandhan scheme etc.
  •  The Government should increase the social security benefits provided under these schemes.
  •  Disbursal of cash through Business correspondents (BCs) who use biometric authentication could accelerate the transmission of COVID-19. Hence, new payment arrangements   for delivery of payments.
  • Along with monetary regulations like decrease in Rates we need sound  fiscal activities from government like High resource to health and incentives etc.

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