NEW DELHI: The ‘primary’ challenge earlier than the federal government, once it unlocks the financial system amid the COVID-19 disaster, might be to put the financial sector back on its feet, former Niti Aayog Vice-Chairman Arvind Panagariya mentioned on Monday.

Panagariya additional mentioned that India is going through a well being disaster that has led to a sudden cease of the financial system.

“To restart and return the economy to the pre-COVID-19 path, we need to overcome the health crisis. Once this is done, the main weakness we will need to overcome is the one we had left unsolved prior to COVID-19: disruptions in the financial markets.”

“Getting the financial sector back on its feet will remain the government’s number one challenge once we unlock the economy,” he mentioned.

The nationwide lockdown was first introduced by Prime Minister Narendra Modi on March 24 for 21 days to include the unfold of the novel coronavirus. The lockdown was first prolonged until May Three after which once more until May 17. It was additional prolonged until May 31 and now has been prolonged in containment zones until June 30.

The dwelling ministry on Saturday mentioned ‘Unlock-1’ might be initiated in India from June Eight beneath which restrictions might be relaxed to an amazing extent, together with the opening of purchasing malls, eating places and non secular locations.

Replying to a question on India’s present macroeconomic scenario, the eminent economist mentioned that once regular functioning of life with out masks and social distancing turns into possible, development will resume quick.

“Can we assess quantitatively the place the GDP in 2020-21 will find yourself? I believe not. There is just too a lot uncertainty relating to once we might be ready to start functioning usually with out masks and social distancing.

“It is all going to depend on when a vaccine against novel coronavirus and a cure for COVID-19 become available or when the virus would go into remission on its own,” Panagariya, a professor of economics at Columbia University, emphasised.

On how is reverse migration going to have an effect on the financial system, significantly, the agricultural sector, he famous that migrant employees will return to host states as quick as they left them once the federal government permits free motion of individuals and transportation turns into simply out there.

“The nature of migrant employees is to rush to dwelling when their office is shut down and rush back to the office as quickly because it opens up.

“Just as the host states found it impossible to hold migrant workers back once their states went into lockdown, home states will find it hard to hold them back once host states unlock and resume work,” Panagariya mentioned.

Lakhs of migrant employees in metro cities returned to their native villages after the nationwide lockdown was launched on March 25

In the longer run, Panagariya burdened that the issue India wants to resolve is the creation of a sufficiently massive variety of well-paid jobs for farmers who need to depart their tiny farms to search a greater residing in trade and providers.

Asked whether or not he was glad by the tempo of privatisation, Panagariya mentioned, “Vested interests and socialist mindset have kept the process of privatization from moving forward even though the Prime Minister and his cabinet had blessed it as far back as 2016.”

He identified that COVID-19 has proven that the federal government wants to do much more within the space of well being than it has been doing to-date.

“But can it achieve this effectively with out withdrawing from different actions? Not in my opinion.

“The natural activities from which to withdraw to focus better on health is manufacturing that serves no public purpose and is best carried out in the private sector,” the eminent economist opined.

Panagariya, who just lately wrote a guide ‘India Unlimited: Reclaiming the Lost Glory’, additionally appreciated the federal government for asserting quite a few reforms that may assist enhance the effectivity of the financial system within the medium to future.

“These reforms had been awaited for decades. I hope the announced reforms actually happen rather than shelved once the crisis is over,” he mentioned.

When requested about criticism by some consultants that India wanted extra expenditure and never liquidity infusion, Panagariya defended the federal government’s just lately introduced measures, arguing that fiscal stimulus, which works by creating demand, can not go far when there aren’t any employees to assist generate a provide response.

He advised that whereas novel coronavirus is on a rampage, the federal government wants to ramp up well being infrastructure to cope with the virus; be certain that the fundamental wants of individuals comparable to meals and shelter are met; and supply sufficient liquidity in order that solvent companies don’t go bankrupt earlier than the financial system opens up.

“Various packages that the government announced have focused precisely on these three items,” he asserted.

Last month, the federal government introduced a Rs 20.97 lakh crore financial package deal, which included RBI’s Rs 8.01 lakh crore price of liquidity measures.

Sitharaman had unveiled the package deal in 5 tranches, which included Rs 3.70 lakh crore help for MSMEs, Rs 75,000 crore for NBFCs and Rs 90,000 crore for energy distribution firms, free foodgrains to migrant employees, elevated allocation for MGNREGS, tax aid to sure sections and Rs 15,000 crore allotted to the healthcare sector.