Javascript on your browser is not enabled.

Advertisement

Pushkar Mukewar

The author is Co-Founder and CEO, Drip Capital

More From The Author >>

Drip Capital on the Impact of COVID-19 on the Indian economy

India has fared no better than any other nation. According to recent trade data released by the Ministry of Commerce, India's merchandise exports contracted by 17.7% to US$ 173.66 billion between April and November, compared to the same period during the previous corresponding year.

The Year That Was...

2020 is probably the one year that it is perfectly acceptable to call annus horribilis. The coronavirus pandemic, which started in Wuhan in 2019 but spread to the world in 2020 and was declared a pandemic in March, has wreaked havoc across the globe. Since then, thousands of lives are lost and healthcare systems are stretched to breaking point. Factories and workplaces are shuttered and millions have lost their jobs almost overnight. Economies around the world have been hit hard.


India has fared no better than any other nation. According to recent trade data released by the Ministry of Commerce, India's merchandise exports contracted by 17.7% to US$ 173.66 billion between April and November, compared to the same period during the previous corresponding year.


Policies Matters

To control the pandemic-led economic damage, the government announced a series of measures such as the Atmanirbhar Bharat Abhiyan, a Rs 20 lakh crore stimulus package, and the Performance-Linked Incentive (PLI) scheme to bring some relief to Indian business, especially the cash-starved MSMEs.


With the trade deficit trending downwards, we are yet to analyze the medium to the long-term impact of the Atmanirbhar Bharat Abhiyaan on Indian exports. Having said, the PLI scheme is a more promising measure to revive the sector. This scheme reiterates the government's commitment to moving away from subsidy-based policies to boost overall trade and commerce. The PLI scheme, clubbed with the upcoming Foreign Trade Policy (FTP 2021-26), will have a positive impact on the Indian exports sector.


Issues At Hand

On the other side, the government needs to address the container shortage issue, caused by a fall in the imports, on a priority basis. The shortage has increased the freight cost by multifold for Indian exporters and MSMEs in particular. If not resolved at the earliest, the high cost of exports will further challenge Indian exporters' competitiveness in the global market in the coming months.


Additionally, access to finance continues to be a pressing issue among Indian MSMEs who were hardest hit by the lockdown. The government is cognizant of this, and has offered moratoriums on MSME loans. More important, it has disbursed Rs 1 trillion under its emergency credit line guarantee scheme. But these schemes are only a stopgap and do not address the underlying problem. Besides, banks are also reluctant to lend to MSME companies due to their complex processes and the high cost of servicing the sector. They are also under the glare of public and regulatory scrutiny over bad loans making it difficult for MSMEs to borrow. The answer to the credit needs of MSMEs could lie in fintech companies.


Alternative lending companies leverage technology to offer financing solutions to MSME exporters. The government should assist the fintech ecosystem and provide easy access to the banking mechanism for payments, raising capital, credit and risk analysis, etc.


Apart from regulatory issues, the government’s continued focus on digital India could help MSMEs access financial technology. We look forward to more schemes like the PM-WANI (Prime Minister Wi-Fi Access Network Interface) in 2021.


Commodity Performance

On the merchandise front, we are quite optimistic about commodities such as metals & ores, pharma, cereals, and agro commodities for the upcoming year, which seem to have outperformed this year despite Covid woes. Resilient commodities including chemicals, plastics, rubber, and seafood, which remained just below/at par in 2020, are likely to regain their pre-Covid trajectories. Much-impacted sectors such as textiles and automobiles will gain momentum towards the end of 2021 or early 2022. However, fossil fuel-based commodities continue to remain a point of concern, which for many years has been the topmost contributor to the Indian export basket.


The announcement of several vaccines to combat the coronavirus suggests that 2021 could be the year in which things lookup. However, the newly discovered mutations of the virus may put an end to any signs of buoyancy. But we hope that with a little help from governments, global economies, including India, will show healthier signs of recovery.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


Tags assigned to this article:
COVID-19 indian economy government schemes

Around The World

Advertisement