By Nageshwar Patnaik in Bhubaneswar, May 16, 2021: The summer of 2021 in India turns out to be long and harsh with the sharp reappearance of the Covid-19 pandemic. With cities still reeling and the second wave spreading to rural areas, fear has gripped each family and the Narendra Modi government is on defensive for the first time since he came to power in 2014.

The country has been so swiftly and so disastrously engulfed by the second wave of Coronavirus that it has now emerged as the most serious public health challenges in the post-Independence era. Experts attribute Modi government’s flawed move allowing mass religious gatherings, its lack of respect to science and expertise, poor public health infrastructure and the protracted battle of ballots as some of the key factors leading to this horrendous crisis. The Modi government clearly misread the situation.

India on Sunday recorded 3.66 lakh fresh Covid-19 cases and 3,754 related deaths. This is for the first time after four straight days that India’s Covid-19 count has risen by less than four lakh fresh infections. The steep rise in infections has caused a huge strain on the country’s medical infrastructure and has prompted state governments to impose lockdowns and mobility restrictions.

The Covid-19 pandemic has left its impact on all sectors of the economy and the second Covid wave has slowed down the economic activity in the first quarter of the current fiscal year, the finance ministry said, but it expects the impact to be muted compared with that of the first wave a year earlier. India’s economy contracted 24.4% in the first quarter of FY21 following a nationwide lockdown to contain the first wave of the virus. Agriculture will continue to be a “silver lining” for the economy, the ministry said.

Though the first wave hit the economy pretty badly by the nationwide lockdown, there are no nationwide curbs at present. Local lockdowns or restrictions to reduce the spread of the virus and help the health system cope have further impacted economic activity. Not only have these disruptions affected the economy on the supply side, the second wave has also brought a contraction in demand.

But the impact on the Indian economy is likely to be less severe than last year, according to the finance ministry. Goods and services tax (GST) collections registered another record high of Rs 1.41 lakh crore in April, indicative of continued economic recovery, the report said.While the second wave had blunted the momentum of economic recovery, agriculture will continue to be a bright spot with record foodgrain production of 307 million tons estimated in the crop year beginning July on the back of a predicted normal monsoon, it said.

However, the Medium, Small and Micro Enterprises (MSMEs) and retail borrowers are likely to face a lopsided impact of the disruption. To keep this crucial sector going, the Reserve Bank of India (RBI) recently announced measures to tackle the economic disruption caused by the sharp resurgence of the Covid-19 pandemic.

The RBI’s relief measures focus on the small borrowers and entities in the unorganised sector. Besides, the central bank has taken steps to address the credit needs of the healthcare sector too. To help small entrepreneurs who are affected by Covid, the RBI package has provisions to ease credit for small enterprises. In addition to restructuring of loans from commercial banks, there is a special provision for small finance banks (SFBs).

The RBI has announced a liquidity window of Rs 50,000 crore to ramp up the Covid related healthcare infrastructure. Under the scheme, banks will be able to borrow up to Rs 50,000 crore at the repo rate to lend to a wide range of entities such as vaccine manufacturers, importers of vaccines, hospitals, pathology labs, suppliers of oxygen etc.

For small borrowers, the RBI has announced special long term repo operations of Rs 10,000 crore for SFBs. These small banks would be able to borrow from the RBI at the repo rate to lend to small businesses and other unorganised sector entities.

Moreover, to help MSMEs and individuals tide over the uncertainty caused by the second wave of the pandemic, the central bank has announced a one-time restructuring of loans. The RBI has also allowed banks to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR).

The restructuring scheme gives flexibility to banks to assess the credit needs of their borrowers and banks now have the flexibility to provide easier repayment options to the borrowers impacted by the localized lockdowns. Banks may not restructure the loans of borrowers whose businesses have not been impacted much.

In general, banks have turned cautious in lending. Banks have indicated that they will control their loan growth based on evolving conditions. This cautious outlook of banks could also be the major hurdle in the implementation of the measures announced by the RBI. In post first phase of Covid-19 pandemic, only a few MSME borrowers opted for the restructuring window. For instance, the SBI saw only 2 per cent of its MSME loan book go into restructuring. Banks went for restructuring in such a manner that part or full lending amount was adjusted as loan repayment to the bank, some MSME entrepreneurs averred.

Besides, higher rate of interest and accounts being labelled as “restructured advanced” discourage many borrowers to opt for restructuring. Banks place higher risk weights while lending to borrower accounts labelled as restructured. This increases their cost of borrowings and ability to raise debt in future. With the RBI’s new package and the possible package from the central government, change in the approach of the banks and implementation will hold the key for the survival of MSME sector.