Context:  India’s policy must be aligned with the present realities to make its economy shock proof to any external development.

• India has gone through a number of crises in the Indian economy since 1962. 
• For Example like India fought three wars, suffered droughts, first oil shock, double-digit inflation, which peaked at 26 per cent, imposition of Emergency 1975, the 1991 foreign exchange crisis, the Asian and then global financial crisis, and so on. 
• In recent years, including, the “twin balance-sheet crisis”, the demonetization of 2016, the covid-induced crisis.
• Now, there is a need to take an account of the resilience of economy to the past shocks and make it prepared for the present and future shocks. Only it will make it shock-proof.

What has been done by India to shock proof the economy, so far?

• At commodity level: The food shortages are over; and the oil reserves have been built to mitigate the risk of an oil price shock.
• At macroeconomic level: The foreign exchange reserves are more than comfortable, inflation has been trending lower, and therefore the currency is more stable.
• At the firm level, the corporate balance sheets are better than before. For example, the debt-equity ratios have improved, profit margins have improved, and overseas debt is being discouraged. Therefore, there are now fewer zombie firms that lock up capital in half-dead enterprises and the Banks are better-capitalised.
• At the individual level, the food security programme for two-thirds of the population, the rural employment guarantee scheme, the rolling out of a free health insurance programme for the bottom half of the population, and modest cash payments to different categories of individuals have been  provided as safety net at many front
• At governance level: There is also greater transparency and better regulation (However, with scope for improvement in both.)

Key ways to make economy shock-proof

• At individual Level: The rural employment guarantee act needs to be better funded, and the old-age pensions needs to be stepped up.
• At commodity level: India has energy dependence on imports, for which there is no solution for the foreseeable future. Therefore, the capacity of the oil reserves can be doubled once oil prices fall.
• At firm level: The firms should build buffers against supply shocks. There is a need for concerted indigenisation push in strategic sectors like defence.
• At governance level: A scrutiny is required at governance level. It is because the crisis like IL&FS have been due to problems at the level of boards of directors, the auditing firms, and credit-rating agencies.
• Others: It can help minimise the premature deaths that push vulnerable families into crisis. The focus should be made on better road engineering. It is important to reduce the high toll of traffic accidents.

Road Ahead

• However, better quality jobs for better-qualified people would be a better safety net. An unemployment allowance should be the next big social-security initiative. It is because abovesaid shock-proofing requires a larger macro-economic transformation, which will take time and can’t be achieved in the foreseeable future.

By: Shubham Tiwari