FY 2020-21 An Anomaly

I hope Govt of India and Finance Ministry incentivize consumer spending. The scary thing of this economic pandemic is that the upper middleclass will realize the broader economic damage and how it will impact businesses and jobs. So they will immediately put a break on any long term (say 1 year) discretionary spending ( say like painting of the apartment, or that new gym membership, or that family vacation or buying new items for the house, or a car upgrade, and yes, electronics) Also, the lockdown will make them realize how much they spend on outside food, or how they over spend on unnecessary items, so those will also see cuts – at least in the near term.

The thing is that the upper middleclass in India is a fairly new phenomenon and they still remember the hardships that their parents had to go thru to make a decent living, so they can immediately revert to the frugal lifestyle to protect their future. But this break will choke the money from trickling down. The lower middleclass anyways don’t have much discretionary spending, but instead the lockdown will erode atleast to some extent their savings and with offices, shops, workshops (read SMES) shut, they will see loss of income in the near terms which will also stop with their spending. Once again stopping the flow of cash in the market. Also, the economic discipline of the upper class will also impact their revenues, cut down on the work orders, etc…

Which finally leaves the lower classes. With less footfalls to malls, restaurants, cutting down on vacations, shopping, these people will see the most devastating impact. No amount of govt DBT will make any reasonable difference to them. They will not be able to afford cost of living in the metros and in the near term migrate back to the hometowns to battle this storm. (on a positive note, the monsoon forecast for this year is for it to be a normal) so they may get employment in the agricultural sector.

So, to summarize, the key for the government is to keep the money flowing, or for the money to trickle down to the lower classes. They have to maybe rethink GST rates for this FY as a one off. I think governments all over have to treat this year as a anomaly and throw the rule book out for a year, do a write-off basically. The government has to incentivize consumer spending like never before. Give tax breaks so that more money remains in the hands of the consumers, so that they can then spend it back and keep the money flowing. Making loans cheaper is a dicy option, as banks are very cautious in giving out loans. The Govt’s only aim should be to keep the jobs, all jobs, both in organized as well as the unorganized sector. The only comfort they can take it that this devastation is a global thing, not a country specific, or an industry specific. Time to ignore, GDP, fiscal deficit and all the other fancy economic terms that only make sense to Moody’s or Standard & Poor’s of the world.

This is an economic catastrophe. There is not rule book for this. Rules have to be written on a new book.

I finally leave with a quote from Einstein –

We can’t solve problems by using the same kind of thinking we used when we created them.

And similarly, to find a way out from this pandemic, we have to raise the level of our thinking. We don’t need to find a pattern in it and try to fit a solution from the past. Time to rethink – reimagine!