The Coronavirus pandemic has plagued the economy of India. As a developing country, India fights numerous cases of unemployment daily. The announcement of the 21-day lockdown by the Prime Minister of India, Narendra Modi has been both a boon and bane.
It is bound to destroy the livelihoods of many who are daily wage earners. The virus which spread like wildfire has left 40 million citizens without a job. Semi-skilled labourers and those under the MGNREGA programme are facing the backlash since the shutdowns.
The Reserve Bank of India had introduced new measures to curb the overall impact on the economy. The short term goals achieved may not help in the progression of the economy in the long run. India will suffer from a set of downfalls owing to the weak GDP and lockdown measures. The quarterly GDP has collapsed from 8% to 7.1% for the first quarter, 7% to 6.2% in the second quarter and 6.6% to 5.6% in the third quarter.
The increase in COVID-19 cases has seen a descent mainly in the real estate, construction and manufacturing industries. The demand for domestic and international trade dropped drastically due to establishment of Atma Nirbhar or the Make in India Campaign.
This was introduced in hopes of supporting local businesses and making the country more economically robust. The World Bank and the Asian Development Bank have come to aid during such stressful times. The only solution remains to be the implementation and execution of new economic policies.
The Reserve Bank of India presented a list of financial measures which were immediately approved and put into effect. Different banks and financial institutions had quickly begun reaching out to the clients for vital rebuilding exercises as time available was extremely short.
The goal plan reported by RBI is a noteworthy help to elements which have been influenced by extreme pressure brought about by COVID-19 pandemic and has resulted in monetary interruption. RBI has allowed a onetime rebuilding of advances, as the continuous Covid 19 pandemic is essentially affecting the business in all cases.
The government had provided the masses with a package of 1.7 trillion, yet large sections of India are still searching for basic amenities. The stock market plays a vital role during a pandemic. India’s stock market saw a 4000 point drop of India’s SENSEX. The 13.15% drop is the biggest in history but overcame the fallout on March 25, 2020.
The simultaneous loss and gain affect the progress of India’s economy. India will face a negative bump in terms of business since China is one of the biggest import and export allies compared to other nations. There has been a 40% decline in electronic items from China which has collided with India’s exports of cotton and minerals. The agricultural sector, which contributes a minimum of 18% of the economy, is having a hard time overcoming the hurdles.
The restructuring program gives a window under the prudential system to empower banks to execute a goal plan in regard of qualified corporate introductions without a change in possession and individual advances while grouping such presentations as standard subject to indicated conditions. We need to keep in mind the salient points of this restructuring framework, wherein, they do not accept the introduction to money related part elements just as central government, state government and municipal bodies.
The accounts that are in default for not more than 30 days as on March 1, 2020, will be qualified for such rebuilding. All others will be focused on records to follow the June 2019 structure for the goal plan. This one-time restructuring is intended to be summoned by 31st Dec 2020 and shall be actualised within 180 days. Lenders can extend the residual tenor of the loan by a period not exceeding two years when a loan is converted into other instruments, such debt to be included as a part of the post-resolution debt.
In case of multiple/consortium banking, disbursements and payments to be routed through an ESCROW account maintained with one of the lenders. Resolution plans in respect of reports where the aggregate exposure is Rs 100 crore and above, shall require an independent credit evaluation (ICE) by any of the credit rating agencies authorised by RBI.
A committee headed by K V Kamath would recommend to the RBI, the required financial parameters, along with the sector-specific benchmarks to be factored into each resolution plan.
The economic framework would need to raise capital for taking into account a post-Covid 19 economy by keeping up sufficient cradles and dry powder. RBI has been urging elements to raise funding to support their BS. This has been displayed by a few banks reporting capital raising plans.
Domestic stocks are probably going to once again face worldwide monetary recovery because of a spike in CoronaVirus infection cases.
New tensions from China-US pressures also need further steps to end the bulls following right after them. At the same time, it has been recorded that Indian organisations are set to raise a record $30-35 billion in share deals this year.
With neighbourhood moneylenders and organisations taking advantage of worldwide liquidity through qualified institutional situations, rights issues, follow-on open offers and square arrangement, India will hopefully see an economic boost soon!
The Reserve Bank of India, when exposed to the current crisis, had introduced these measures that can be helpful for banks and other financial institutions. The only question remains, whether these measures, along with new loan restructuring, can prove to be an excellent long term solution.