Elephant in the Room-General Elections, reduce GDP(Gas,Diesel,Petrol)prices to boost GDP!!!

 Elections, particularly in India, can indeed have an impact on its economy, including liquidity and inflation. During election periods, State governments of India often increase spending to buttress their election campaign and implement populist measures to attract voters. However this GOI has eschewed its temptation to loosen its purse strings. However it has increased its Capex infra projects which can generate assets and have a trickle down effect in the income of the people. But this increased government spending at State levels can potentially lead to higher liquidity in the financial system.

If the increased liquidity is not matched by an increase in productivity or economic growth, it can potentially lead to inflationary pressures. In such situations, central banks like the Reserve Bank of India (RBI) might need to adopt tight liquidity management policies to rein in inflation. Tight liquidity management involves reducing the money supply in the economy by selling government securities, increasing interest rates, or implementing other measures to absorb excess liquidity.The Reserve Bank of India (RBI) is likely to face the challenge of managing liquidity in the run-up to the 2024 general elections.

This is the Elephant in the Room of both GOI and RBI for them to deftly handle!

The RBI will need to use a variety of tools to manage liquidity, such as open market operations, repo rates, and cash reserve ratio. It will also need to closely monitor inflation and financial market conditions. If inflation starts to rise too quickly, the RBI may need to tighten monetary policy. However, this could dampen economic growth.

The RBI will need to strike a delicate balance between managing liquidity and supporting economic growth. It will also need to be mindful of the political implications of its decisions. If the RBI is seen as being too hawkish, it could alienate the government, upset favourable business conditions and jeopardize its chances of re-election.

Here are some of the specific measures that the RBI could take to manage liquidity in the run-up to the 2024 general elections:

• Increase the repo rate: This is the rate at which the RBI lends money to commercial banks. By increasing the repo rate, the RBI makes it more expensive for banks to borrow money, which reduces the amount of liquidity in the system.
• Sell government bonds in the open market: This reduces the amount of money in the system by draining it from the banking system.
• Raise the cash reserve ratio: This is the percentage of deposits that banks have to keep with the RBI. By raising the cash reserve ratio, the RBI reduces the amount of money that banks can lend out, which reduces the amount of liquidity in the system.

The RBI will need to carefully monitor the situation and adjust its policies as needed. It is a challenging task, but the RBI has a good track record of managing liquidity in the past.

On 31st August India's Q1 FY24 GDP is expected to be announced which may come at 7.9% to 8%.This high percentage may be due to subdued Q1 of FY23 revealing low base effect.Even though GST and Income Tax collection have remained buoyant in Q1 FY 24, Corporate Tax collections have languished indicating a K shaped recovery in the economy.

Considering the Inflationary effects and the likely Q1 GDP nos. Govt is expected to face a dilemma shortly. It is also the question of Short term inflation versus Long term inflation. GOI must consolidate its limited available revenue resources without upsetting its Fiscal deficit calculations ,inorder to rein in short term Inflation immediately and for that to happen Govt must look at reducing a different GDP! Yes, this is a different GDP-Gas,Diesel and Petrol- taxes levied on them must be reduced to contain Inflation in the short run inorder to give a boost to real GDP in FY 24 before Lok Sabha elections!

India's PMI and growth prospects

 The July PMI was slightly lower than the June PMI, but both readings were above the 50-mark, indicating expansion in the manufacturing sector. The decline in the July PMI was likely due to a number of factors, including rising input costs, supply chain disruptions, and a slowdown in demand. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month.

Here is a table comparing the July and June PMIs:

Indicator	July	June
Manufacturing PMI	57.7	57.8
Output	57.5	57.8
New orders	58.3	58.7
Input prices	62.7	62.5
Employment	51.0	50.7
Business confidence	63.3	63.4

As you can see, July PMI was lower than the June PMI in all but one indicator. However, the overall picture for the Indian manufacturing sector remains positive, with the PMI remaining above the 50-mark for the 25th consecutive month.

The July 2023 PMI report for India did not include any specific figures on corporate profits. However, the report did state that input costs rose at the fastest pace in over two years, driven by higher prices for raw materials and energy. This suggests that corporate profits may have been squeezed in July, as firms were forced to pass on higher costs to their customers.

The report also stated that business confidence remained strong, with firms optimistic about the outlook for the next 12 months.Even though GST collections are robust and Income tax collections are rising, Corporate Tax collections have not grown to that extent which also indicates some strain in Corporate profit levels till June quarter end.

Added to that are many Global headwinds hitting Indian economy like fall in Exports especially in Services after June quarter, higher crude prices, higher inflation triggered by hardened food & commodity prices, higher interest costs coupled with tight liquidity conditions, lower disposable income in rural areas affecting demand, tardy monsoon rains likely to be affected by looming El Nino threat, may all dampen the growth prospects in the remaining 8 months of this fiscal.

Only after the end of second quarter of this fiscal in Sep23, we can make realistic assessment of growth prospects for the rest of the fiscal. In all likelihood hitting 6% GDP growth or thereabout this fiscal looks more probable.

What, when ,why and how of the Stimulus?

 "Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses"

The above is from Daniel Kahnemann's magnum opus "Thinking, Fast and Slow". India is facing a shrinking pie situation with steep GDP contraction. Fiscal stimulus is imperative and it is expected on a yesterday war footing. Early birds and head-starts enhance hope and confidence which feed favourably into demand and investment.They also act as countercyclical to shrinking pie despondency. Credit boost is a temporary remedy to manufacturing machinery to kick start and keep up the production capacity. But it can work only up to a point, where the productivity and earnings should become sufficient to keep up with the plan of repayment of loans and borrowings. If the people in general do not foresee sufficient future income and employment, they may not turn out to buy things and assets.They cannot evergreen their loans like some corporates feeding only on liquidity. People should have sufficient disposable discretionary income to buy durables and assets. Or atleast have the confidence of generating future income through gainful employment or business opportunities. Otherwise it becomes a shrinking pie syndrome which feeds into further shrinkage,  leading to a vicious cycle.

For quick results, Govt should look at products that have price elasticity. One of the products which is highly price sensitive is Automobile. Irrespective of the clamour of the opposition that cars are bought by the rick, Govt should look at the huge multiplier effect this will have on the rest of the economy. UPA Govt used this carrot when the economy plunged into an economic abyss following the financial crisis in 2008-09 and the growth revival was tough. UPA Govt responded by temporarily reducing Excise duty on Cars etc. in order to boost their demand.This action had a huge beneficial ripple and multiplier effects running across the economy.

However much you tweek monetary policy to boost credit offtake, unless it is followed up by fiscal measures to give a fillip to the demand generation, the credit growth will not be sustained. Fiscal measures must also be credible in the eyes of the public and for that products which have demonstrated price elasticity must be chosen. Only this can start rotating the wheels of the economy bringing about a virtuous cycle of employment,income and surplus.

Of course ,Govt has also taken measures under Atmanirbhar Bharat to promote Make in India to crank up the economy and the demand. But quick result areas and the low hanging fruits must be tried immediately.Govt must always remember:

 "For want of a nail the shoe was lost.

For want of a shoe, the horse was lost.

For want of a horse , the rider was lost.
For want of a rider, the message was lost.
For want of a message ,the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail."

A stitch in time saves nine . The falling tax revenues and the 15th Finance Commission's Chairman Mr.N.K.Singh's exhortation to pep up the GDP growth is a clarion call that can be ignored by Govt only at its own peril.

Atmanirbhar India, the PLI schemes and import bans

 

Central Govt has brought three PLI (Production Linked Incentives)schemes so far- for Electronics Manufacturing, Pharma APIs and Medical devices- in order to give a big push for Make in India as part of PM Modi's aspirational theme "Atmanirbhar India".

Under PLI scheme for Electronics mfg. 4% to 6% is the incentive on incremental sales over the base year and the scheme has three sub-categories-Mobile phone (International Cos), Mobile Phones(Domestic cos) and Specified Electronic Components Mfg. The govt recently announced 16 companies under these categories which included the likes of Samsung, Apple's Contract manufacturers Foxconn Hon Hai, Wistron, Pegatron and also Rising Star. Under the Domestic companies, Lava, Micromax etc. and under Specified Electronics components, 6 companies have been approved.Over the next 5 years, this policy initiative is expected to lead to the production of over Rs.10.5 lac cr with a likely export of over Rs.6.5 lac cr out of this, as per the Ministry of Electronics & IT. 

Minister Mr.Ravishankar Prasad, exuded optimism that the Large Scale Electronics manufacturing would become successful under this PLI scheme providing huge employment opportunities and will set the right tone for all similar Atmanirbhar India schemes.The Cos. with an investment potential of Rs.11k Cr will be the torchbearers of this ambitious scheme which will put Make in India on a high pedestal in about 5 years' time.

Govt has also come out with PLI schemes for Pharma API and medical devices, which will entail a budgetary outgo of more than Rs.12K cr over the years.Since India is overdependent on China for Drug intermediates and APIs, this incentive scheme is expected to drive investments into these sectors making India self-sufficient in the years to come.This will give a fillip to manufacture of key starting materials(KSMs), DIs, and APIs and the scheme has been prepared to deliver Rs 7K cr as incentives for greenfield projects.Since India's pharma industry is the 3rd largest in the world and 14th largest in terms of value, this scheme has been designed to enhance the industry capabilities in terms of strengthening its value chain within the country with both backward and forward linkages.

All put together the Central Govt. has identified 10 sectors including the above. The other sectors like Battery storage, Solar PV modules, Automobile and auto components, textiles, food processing, white goods, telecom, and networking components.

The main aim of the scheme is to expand the manufacturing base of India in all these high potential niche products. However there are few criticisms by industry experts in smartphone manufacturing highlighting that this PLI scheme will only lead to an increase in domestic manufacturing value and not in increasing domestic value addition. This is explained by them saying that huge component imports from countries like South Korea and Taiwan and even China will continue. Since the focus is on phones which are priced Rs.15K and above ,which are mostly exported as against domestic mass consumption phones which fall under lower price category, they fear that this may be the picture on the ground. Some have also mentioned that even with this PLI, the Smartphone mfg. will still not be cost-competitive compared to China or even Vietnam. But the Govt strategy seems to be for incentivising the manufacturing within India and also for generating employment opportunities, so that value addition increase will happen over a period of time when the scale grows bigger and reaches the critical mass.

Now in order to support the Make in India under the overarching Atmanirbhar programme, Govt has chosen to ban the import of Pneumatic tyres, Airconditoners etc. This has been done not due to protectionist policies but in order to enable the nascent manufacturing to stand on its own legs and survive the vagaries of trade. The Govt. will have to be suitably cautioned not to persist with this policy of import restrictions for long beyond 3 years, since the flip side of it is poor quality and high price to the consumers.

With the above well laid out paths for manufacturing to take firm roots in this country, and with its contribution to GDP increasing from 14% at present,India is poised to compete with countries like China in the years to come.But the journey is forecast to be uphill and strenuous. An unshackled India can emerge victorious when pushed to a corner in a crisis like the prevailing one.

India, its agriculture lending a helping hand during the pandemic!

 India's agriculture has hit a new high when the entire country is under lockdown and the industry has hit the rock bottom.Kharif sowing as on 5th Sep20 has reached 1095 lakh hectares which is 6% more than what was the sown area in kharif season 19-20.The acreage of paddy has grown by 8% to 396 lac hec.over previous year.The acreage under Oilseeds has grown by 12% to 195 LH; Pulses by 5%  to 137 LH; Cotton by 3% to 129 LH and Coarse cereals by 2% to 179 LH.This has been facilitated by 9% increase in rainfall during June-Sep 20 to 795mm.

All five summer grown Oilseeds has seen higher than anticipated increase in their respective MSPs  and better procurement during the initial months of Covid pandemic phase.The increase in Minimum Support Prices including that of Paddy announced at the beginning of Kharif season in june 20 has really helped in increasing the sowing area and in augmenting the revenue of the farmer.

That apart, India has witnessed a 23% increase in farm exports dominated by Rice and Sugar, in the Q1 of Fy 20-21. These are all heartening news from the agri sector.

However the worrying patches, in the otherwise bright outlook,are the outstanding dues of over Rs.14.2K Cr. of Sugar Mills in UP to the cane growers. The State Govt has raised the FRP(Fair & Remunerative Price) by Rs.10 on an average as a policy measure during this cane crushing season, starting Oct 1.Sugar Mills have approached the Govt for a subsidy to pay the farmers in order to tide over the Covid induced difficulties.

Modi Govt has also constituted a Agri Infra Fund of Rs.1 lac cr. The Infra Fund is for catalysing the Agri-infra development and help build pivotal infrastructures like warehouses, cold storage, and nurture farm assets. This will bring about a increase in Agri share of GDP in the economy from 15% approx and thus improve the livelihood of those dependant on agriculture.(link GDP).

Modi Govt has promised doubling of farmers' income  by 2022 which is a daunting task ahead and Govt. is well focussed on this with far reaching structural changes made in the last few months by amending Essential Commodities Act and by liberalising farm trade , land leasing for agriculture across the country.

Now the country is looking forward to the Rabi season.

Compensation to States and Borrower of the Last resort!

 India's FM is an unenviable position. Given the penchant for two steps forward and one step backward in all economic decisions, FM is in the eye of the storm unendingly ever since the pandemic struck India. In fact, even before that, India's GDP was sliding YOY from 2016-17 onwards. It hit a high of 8.26% in 16-17 and hit the lowest so far in Fiscal 19-20 at 4.2%.

GST collections have also ebbed along with the GDP since even Nominal GDP has grown only by 7.2% in Fy 19-20.It was growing at 11.76% in Fiscal 16-17. So, this skidding of the nominal growth rate coupled with a reduction in GST rates in 2018 led to a shortfall in GST collections even though the tax base widened. The good thing about the One Nation, One tax has been the acceptance of this Taxation in lieu of VAT at the individual state level and Excise duty at the Central level. The consensus behind GST has been bought by Arun Jaitley with the commitment for providing Central funds at the growth rate of 14% YOY to the individual States, by levying Compensatory cess on luxury and sin goods. However, the Central Govt is caught on the wrong foot this year due to the pandemic. The tax collections are abysmally low and this has forced the Central Govt. to consider reneging on its promise of providing compensatory funds to the states.

In the recent 41st GST Council meeting, FM has been compelled to use the insurance phrase of Act of God i.e force majeure(or Hand of China?!), to describe the extraordinary situation due to the Covid pandemic. Due to this compulsion, the Central Govt has presented two options to the States to consider and give their replies in a week's time. Under Option 1 States may borrow Rs.97K cr at a special interest rate and the principal and the interest will be later on paid out of Compensatory cess on Cars, Soft drinks, tobacco, pan masala, and coal. Under Option 2 States can borrow up to Rs.2.35lac cr and States will have to pay interest at the market rates.Only the principal will be paid out of Compensatory Cess later and the interest will have to be provided in the States' Budgets. In this GOI has made a fine distinction between GST implementation loss and Covid induced tax revenue loss which is also hair-splitting and needlessly academic, if not contentious.

Now the overall emerging scenario is one of confrontation between the Centre and the States. All economists are now supporting the States saying that since it is the commitment of the Central Govt. it has to find the resources for funding this GST collection shortfall. Of course, they are of the view that the Central Govt can source this fund at a much cheaper cost than what the States could bargain for.This is an important point. However Finance Secretary has gone on record saying that if the Centre resorts to this borrowings, overall bond yields may go northwards, which will raise the cost of borrowings for both the Public sector and Private Sector. As a consequence, the sovereign rating of the country may be adversely impacted which will be detrimental to the interests of all sectors of the economy. But the moot point is this can happen even if States borrow for this purpose.

In the meantime some of the opposition ruled states are considering approaching SC for a direction to the Central Govt, saying that the Centre is trying to hide behind AG's legal opinions, shirking its responsibility in honoring the revenue commitment in letter and spirit. But such an outcome may not augur well for federal relationships and for the future of cooperative federalism which is touted as the big success point behind GST introduction.

However, in all this surcharged situation over who should shoulder the borrowing burden, the missing point is how well or badly States are containing their deficits in the last few years despite being given higher level of funds without much of efforts from their side. Any additional funds given without caveats are being frittered away by them in giving freebies, free EB and in unplanned revenue expenditure. So who is going to discipline them and rein in their penchant for spending without answering for outcomes? Even in May 20, when Centre gave permission for Additional borrowings through the WMA window, many states incl. Tamilnadu objected to the thinnest of the sticks like DBT transfer of EB subsidy to BPL families, that came with the carrot. States only want the carrot as their right without any strings being attached.

That said, Central Govt. must seize this opportunity to bring to light the importance of fiscal discipline at the State level by finally agreeing to resort to the borrowings on their behalf.

If you consider the Center and the State as the right and the left hands of the same person, sometimes when your right hand is full of weight to be lifted, the left hand also should chip in to bear the weight in order to balance it. Left cannot accuse the right of transferring some of the weight to it!!

Inflation, Monetary policy and India

 The minutes of the recent meeting of Monetary Policy Committee  of RBi which were released this week, contain some interesting mentions. One of the news columns said that RBI minutes mention 'uncertainty' 12 times, 'growth' 43 times and 'inflation' 147 times It has expressed concern over inflation and it seems to be valid as CPI has remained above 6% which is more than the tolerance limit of RBI. Alongside, India is experiencing severe GDP growth pangs as its IIP has remained in the negative territory in the first quarter and in July also. Services sector is in a deeper mess except of course ITES, SAAS etc. which have been affected to a lesser extent. It looks like only Agri sector has not been impacted adversely so far ,as the progress of monsoon has been satisfactory and the spatial dispersion also fairly good.

The RBI Deputy Governor Mr.Michael Patra had said : "If inflation persists above the upper tolerance band for one more quarter, monetary policy will be constrained by the mandate to undertake remedial action, including an immediate and more than a proportionate response to head off the build-up of inflation pressures and prevent it from getting generalized." So, to sum it up ,we have classic case of "stagflation"- a combo of GDP slowdown and inflation.!

CPI in India has a higher weightage for food and fuel indices and these two are certainly not amenable to monetary policy measures. In India fuel price is driven more by Govt . policy measures and it is feeding into inflation with its rippling effects on the rest of the economy widespread.When pandemic is restricting economic activities profiteering becomes rampant in vegetable and food prices. When the supply chain and free movement of people and commodities happen, the inflation tendencies will come down. Cost push inflation of food prices will not listen to monetary policy signals in the short term in Indian conditions. As India is driven more by cash , there is a quite a lag in food inflation responding to monetary policy measures, if at all it is significant. May be hoarding and black marketing of these vegetables,cereals ,staples etc. may come down a little bit.However Govt. initiatives through Essential commodities and anti-hoarding sticks used by Govt. through other means incl. emergency imports may be more effective in the short term to bring down food prices.

When the economy is awash with liquidity, the prices in general have tendencies to go north .More so when the supply constraints remain elevated due to lockdowns,e-passes and uncertainties compounded by fear for life and livelihood affecting the income. In these circumstances. RBI should look at high CPI as extraordinary during the pandemic period and should start looking at Core inflation now and then revert back to CPI only after the pandemic is seen plateauing.In the meantime, RBI may seek a temporary amendment for its inflation targeting, switching to Core inflation in times of extraordinary circumstances like a pandemic,global financial crises etc. and then have a glide path back to CPI inflation targeting after the crest of the crises is over.

RBI monetary policy and the state of the Indian economy

 RBI's recent Monetary Policy announcement after MPC considered the latest economic factors, CPI etc , came out with no repo rate cut. Primarily because CPI is elevated and at an uncomfortable level as far as RBI is concerned.since the mandated and stated objective of RBI is now inflation control, RBI has decided to hold the rate this time despite the economic slowdown calling for a steep rate cut.RBI also mentioned that this year would see real GDP contraction after more than four decades, but still decided to save the powder for a more rainy day or for a day when the bang will be worth its buck.

India is facing rising prices also esp. food prices, fuel prices and therefore is experiencing a cost push inflation. There is a school of economists who say the inflation is fueled by easy liquidity floating in the economy and the stock exchange boom , gold price rise all indicate to easy money into areas where some quick money can be made.Even RBI is predicting a rise in inflation levels in Q2 but has refrained from an inflation forecast.

Gold price,as Ruchir Sharma in today's TOI blog(link )puts it, rises due to uptick in demand whenever interest rate is lower than the inflation rate. But Gold being a safe haven investment booms when the rest of the economy sees more volatility elsewhere esp. in stable investments. There is a rush of outflow from equity MFs in July but is it going to Debt MFs or to stock market or to gold  is anybody's guess.But there is greater desperation driving up buying Gold rather than preference as an investment.

All this paint a confusing story but with tinges of liquidity bulge which may become an inflation down the road, unless the productive resources are used for assets and jobs creation. But the silverlinings are shallow oil prices, decent monsoon, burgeoning foreign exchange reserves and surplus in current account balance. So, cost push factors in inflation are slightly mitigated in the near to short term.

CII 's recent 111th Business Outlook survey,July 2020, which was released last month revealed that out of three indeces Current situation index, Expectation index, Business confidence index, the Current Situation Index of Q1 of Fy 20-21 is similar to the levels of Q4 of Fy 19-20! Only the Expectations and Business Confidence levels in the economy have deteriorated during Q1 of Fy 20-21 as compared to earlier quarter.

Dr.Manmohan Singh in his BBC interview has also clearly said that this human crisis created by the pandemic calls for greater spending and greater borrowings by the GOI, even upto another 10% of GDP for tackling health, military and economic challenges of the country. His wise words would be worthy of listening now.(link)

But this borrowing must have a clear exit clause linking it to FRBM Act requirement of glided fiscal deficit path to 3% of GDP eventually in the short to medium term of 3/4 years. Only this can bring back investors into the country. Otherwise Fiscal profligacy is the scourge of the growing economies like India.

There are no simple answers but quick actions,as outlined by PM in his speech on the occasion of  Ram janmasthan Temple laying foundation,have to be taken by the Govt. Quoting from Kamba Ramayana he said "காலம் தாழ ஈண்டு இனும் இருத்தி போலாம்" என்றான் இராமன்" which essentially means we should not procrastinate taking actions to rectify the situation. A well focused fiscal stimulus, vaccine or no vaccine, is an urgent imperative.

Government's asset monetisation

Policy prescriptions are flying thick and fast and on my part, I am adding one more .

All Economists including me are prescribing deficit monetisation, pump priming etc. taking a leaf out of Modern Monetary Theory.

As against this,Central Govt. has an alternative which is called Asset monetisation, according to me.Govt calls it Disinvestment/Divestment of PSUs. When the whole world is reeling under Covid pandemic , will there be a suitor for Air India?

Even if there is a good buyer will he be willing to pay the right price for Air India.What will be the benchmark for its valuation when the whole industry is bogged down by this pandemic and its repercussions on the travel industry.

In such unprecedented situations , it is best advised not to go in for outright sale transactions of Government stake in PSUs including Air India, BPCL,etc.

Similarly, other intangible but real assets are Spectrum waves (link), Mining/Abiotic  ,Biotic Resources which are hidden inside the Earth, Ocean ,Space etc., Potential Renewable energy sources, which have future economic value and can add to GDP when suitably exploited without degrading the environment.

If these resources are valued properly, and India identifies these assets in terms of monetising its strengths, then India will have to look for its Enterprise value and raise suitable resources upfront for its current requirements in investing in its infra development.

In fact even lands owned by Indian Airports Authority can be used better by allowing usage of its land underground for commercial purposes.Even some of the defence lands can be wisely used under the ground for commecial purposes without in any way jeopardising defence security.

Immediate prescription for demand stimulus!

Sri. Krishnamurthy Subramanian, Chief Economic Advisor to Central Govt,yesterday, has gone on record saying that further demand stimulus measures will be announced after vaccine becomes available. Why should we link stimulus to vaccine availability is not clear. What kind of vaccine he is expecting and if the vaccine falls short of his expectations whether he would not allow roll out of stimulus?

It may become too late to wait till then.Why because, the common man has started saving his meagre earnings due to his fear about his future earnings and not due to Covid pandemic per se.In order to allay his fear about his employment and future earnings, Govt must sacrifice some near term revenue and announce some economic incentives  for kick starting the economy.What better place to start than with Indirect Tax cuts.

Auto sector is the biggest in manufacturing in terms of GDP and reducing GST on it from 28% and converge it with Revenue Neutral Rate(RNR) of 18% will give a huge boost to demand, and thereby to the generation of employment.The multiplier effect will be huge on the rest of the economy with ripple effects cascading throughout the economy.Difficult times demand drastic steps in terms of revenue sacrifice by Govt in the near term.The Govt.will get back more than half its sacrificed revenue by way of huge jump in volumes of goods and services produced.The feel good factor this can generate will negative the fear over the pandemic and will give a greater fillip to PM's call for "Atma nirbhar Bharat" and "Make in India" initiatives.So, one should not wait for Vaccines to announce this.We must do it on war footing.

We have anecdotal examples at hand. Like Mr.Mukesh Ambani bringing in huge FDI even during Covid without waiting for it to end, the Govt. must take a cue from his proactive action and give this relief to the economy.Thiruvalluvar also says "தூங்குக தூங்கிச் செயற்பால் தூங்கற்க தூங்காது செய்யும் வினை."(Sleep over such actions as may be slept over, but not over such actions which require quick actions)

 This calls for immediate action on the ground to kickstart demand and to restore the confidence of common man in his future earnings, income, and employment.

RBI consumer confidence survey of May 2020 and getting the common man's dreams back.

RBI consumer confidence survey was done in May 2020, which came out a few days back paints a dark picture of consumer confidence. It has hit rock bottom so far.link. Whether it will hit another bottom is a moot point.

According to RBI Consumer confidence collapsed in May with the Current Situation Index (CSI) touching a historic low of 63.7 dipping from 85.6 in March 20. One year ahead Future Expectations Index entered the zone of pessimism at 97.9 for the first time after Modi govt. took charge, falling from 115.2 just two months ago.

These are all negative news, but as expected. However these are lag news and therefore markets looking for lead indicators ignored this. We all now know that Covid 19 has wreaked havoc on our economic health more than what it could do to people health.

But there are several silver linings like not many people do not expect price levels to go up. If we discount the "recency bias" in their opinions and perceptions,I still find 14.4 % people saying in May 2020 that the economy has improved. We must also keep the date of survey and context in our minds. The survey date is between  May 5-17 and in the midst of Covid fear, with lakhs of migrant workers walking and shown endlessly 24x7 in TV news. Sometimes I wondered how come with so many trains and buses being stopped which were all running overcrowded, people are managing commuting and travelling. Our media has put a little spin and exaggeration to this by labelling every traveller on foot a migrant labourer leaving for his native place. Every reporter worth his salt with a mike on hand interviewed every single person on foot asking whether he was migrant labour and everyone being asked acknowledging it. Now I understand that all those trains and buses running daily are only for migrant labourers!! That is beside the point.

Coming back to my point that almost 14.4% of people still finding that the economy has improved is a testimony to the confidence of the people on the Govt. Govt has rightly acted with alacrity by announcing Rs.21 lac crore bundled package which will make  supply-side fire on all cylinders. All of us agree that it is the supply side which needs time to pick and put all its pieces together. But the confidence and speed with which Supply-side can get back on its feet, essentially depends on its perception of demand perking up. The demographic dividend is a major contributor to the demand but Future Expectations Index indicator is a proxy for this perception by the Supply-side. When FEI is weak, it is time for the Govt. to understand that income levels are falling and people are losing faith in the strength of the economy. This pessimism will damage the Supply-side booster shots going waste unless the perception is reversed quickly. Opening up of the economy after lockdown will itself augur optimism but sustaining it depends on Demand-side actions by the Govt. To kickstart a flagging economy, the man on the street who is the ultimate consumer must get his job back, his income back and basically his dreams about the future back.

Govt must work for getting his dreams back without losing time. Cut  Auto sector GST, for a start.