The jury is still out on the actual contraction that the world economy will undergo due to the coronavirus pandemic. But, with a vaccine date in the zone of speculation, the global rating agencies are converging on their assessment of the world economic growth for the current fiscal. And they are more or less unanimous that the contraction would be over minus 4 per cent.

Fitch Ratings, in its assessment published on September 7, has brought the annual contraction figure marginally down to a negative 4.4 per cent from its June assessment of a negative 4.6. But, for the Eurozone, UK and India the predictions are not at all good. Fitch expects the Indian economy to contract a little over 10 per cent, which is worse than its earlier assessment of 5 per cent.

Fitch and other rating agencies, however, are hopeful that the situation might look up if the spread of COVID-19 is contained and lockdowns in all its forms are lifted. These conditions are highly speculative and the reality may differ drastically from the assumptions.

However, all may not be lost. The stakeholders of the Indian economy are known for their resilience, and the MSMEs or micro, small and medium enterprises even more so. The policymakers, having noted the nimbleness of the MSMEs, are reorienting policies and trying to redirect the funds flow through various fiscal interventions towards this segment.

This is the most crucial initiative, and if it works it can upset all predictions about a contraction. There is over-capacity in the system. The producing units are operating at around three-fourths of their capacity and the build-up is rising albeit at a slower pace. The under-utilisation of capacity has been prompted by the continued fall in demand.

There is a section of analysts who are speculating on a V curve revival of the economy. It means that, as the economy has contracted sharply, it would recover with similar sharpness and the fall and recovery would look like the alphabet ‘V’. They are saying this with the belief that the contraction has happened due to a non-economic exogenous factor, the coronavirus pandemic. With the passing of the pandemic, all other things remaining the same, and with the government initiating demand recovery through various fiscal interventions, the economy will get back its pre-lockdown strength.

With more funds available, demand will rise and absorb the over-capacity in the system. Right now, therefore, the key to a revival lies in the availability of funds and comprehensive cross-channel intervention, including non-banking financial companies and microfinance institutions.