Saumyen's Pages
Rethink
Case 1: 39-year old Ranveer Singh, a home-delivery worker with a food delivery company in Delhi, was worried about the scarcity of food and cash when the lockdown was imposed for 3 weeks. In the absence of transportation, he decided to walk to his home at Badfa village of Morena district of Madhya Pradesh. He covered 200 kms and died in Agra on March 28 due to exhaustion (TOI, Mar 29).
Ranveer is one of the many collateral damages of the unprecedented measures in India for prevention and containment of Covid-19
Case 2: A resident doctor from AIIMS was not allowed to his rented apartment once he had come back from his 12-hour duty of treating Covid patients. The Delhi Government had to invoke Covid-19 Regulations 2020 under the Epidemic Diseases Act, 1897 to stop eviction (and threat thereof) of doctors and medical staff from their residences by the landlords (Livemint, March 24).
India and for that matter, across countries, multiple social phobias have emerged – against religion, tribes, professional groups, geographies that potentially result in social unrest in various forms.
Case 3: Ramasarai has finally reached home in Muzaffarpur by Shramik Special train. According to data released by the Bihar government (20 May), one in every four migrant workers who were tested on their return from Delhi, tested positive for Covid-19 and an estimated 2 million migrants are expected in next few months. UP Government attributes 70% of new cases to migrants in their rising numbers (Indian Express, May 19).
This potentially initiates spread of the disease (and scare a few times more) from select metros or cities to villages. Whether that would cause herd immunity or worsen the epidemic further, only time can tell!
The cases represent different aspects of the lockdown and quarantine situation in India but have one common trait – ‘while the outcome is social or humane, the underlying raison d'être remains mostly economic’. Beside economics, this war against Covid-19 has serious implications on social cohesion, psychological status, religious practices and celebrations in varying ways across the population strata, across geographies and countries. The countries, more prominently from the developing world, that have adopted quarantine and lockdown as the effective but costly instruments are aware of the implications of this nature and India is no exception – albeit there is a debate – mostly political - around the timing, efficacy and modus operandi of the lockdown.
The post pandemic revival strategies are currently, at best, hypothetical in nature as independent India has not faced this scale of socio-economic crisis. The situation is particularly critical considering that the economy was striving to attain the target growth for last one year much before Covid-19 struck. However, the historical evidence about epidemic may possibly throw some lights on the quarantine methods and subsequent economic impact in this context.
Quarantines date back to the 19th-century epidemics and is perhaps the first known international interventions on controlling the spread of infectious diseases. Colonization brought epidemics like the deadly tropical infectious diseases namely, the bubonic plague and Cholera to Europe from countries like India, Sri Lanka and were managed through quarantine albeit often in adhoc or unorganised way. Quarantines were costly, and were also an effective tactic for imposing trade tariffs and enacting trade wars under the guise of public health with Europe dominating things in their favour. (Alexandre I R White, The Lancet, March 2020).
Extent of Problem
In the modern world of socio-economic dependency across the 180+ Covid-19 impacted nations, the nature of problems and the post-war path of recovery are expected to be enormous but different from the historical scenarios. In fact, within the basic principle of quarantine, countries have adopted a non-uniform method of addressal and recovery.
India represents one sixth of world population, with a high density of 464/ Sq Km and ranks a dismal 146th among 192 countries in per capita GDP. The world’s largest lockdown has therefore presented unique & complex challenges of an enormous scale distinct from the more privileged nations.
First, we do not have a visibility of the tenure and magnitude of the problem and hence the extent of recovery by timeline is difficult. Starting the first case in end-January, the trend is still rising. As of 20 May, more than one lakh diagnosed cases with 3% death rate show a doubling trend in 13 days. While some experts have used data analytics to predict the trend, the result so far, is at variance from actuals – possibly owing to scantiness and accuracy of data and applicability of a generalised model in predicting specific scenario in India.
Secondly, it’s difficult to estimate and identify the population being impacted during the pandemic as the reach of any government, without questioning the intent, is at best limited. A normative estimate can be derived from other data points.
India’s GDP has grown by 32.2 times since post-independence while per capita income grew by 8.2 times and population by 3.3 times. By accounting for the skewed distribution of income and saving, it only implies that the trickle-down effect has made only a marginal improvement in the living conditions of a vast majority of the country. So, in a crisis like this - with no income and uncertain future of job and in absence of social security, a large portion of this group has the risk of falling deeper in poverty.
The recent views of the government, media and academicians only substantiate the point that migrant labourers, daily wage earners and many employees of the unorganised sector (contributing 48% of GDP) as the large and most impacted group during this crisis. CMIE estimates the increase in unemployment rate from 7.3% in May 2019 to current 24% - with wide variation across states (2% in Punjab and 50% in Tamil Nadu) – loosely representing the states more dependent on the industrial sector are impacted more.
Thirdly, MSMEs which mostly form part of the unorganized sector, is the dominant contributor with about 30% of GDP, 33% of manufacturing, 25% of services and 50% of Indian Exports. The sector, under the Covid-19 pressure, has been facing multiple severe problems: payment of wages to workers, covering fixed costs on electricity, rent and interest, managing inventories of unused inputs and of outputs that possibly cannot be sold, exhausted working capital etc. So, reviving this sector’s output from the current situation is an extremely difficult task at hand – also due to a predicted low demand for next 1 to 2 years.
Fourthly, the Government does not have adequate provision to support the impacted group – financially, logistically over a sustained period of time. The estimate by an Agency, forecasts a 22% rise in public expenditure to support this crisis despite lower revenue collection and is expected to have a fiscal deficit of 7.4% of GDP this year as against the initial target of 3.5%. Adding the deficit of 28 states, this may be around 12%. This puts a lot of pressure on government finance that is likely to continue for months and thus reduces the options and ability to take more aggressive fiscal measures to boost the economy. How the States will fund these expenditures is another area of concern to be dealt with.
Options for Revival
The challenges and solutions are different during and after Covid-19 scenario. The current focus from the Government are multifaceted including awareness campaign to limit the spread, analytical prediction of spread and plan for healthcare infrastructure, arranging of manpower and financial resources to address the inexorable situation, managing the supply of essentials across the country, and enabling direct transfer of money and/or food/ ration. The higher expenditure in this war situation is thus unavoidable.
The problems are expected to be much bigger in post-war situation when the priority is to focus from healthcare provisioning to reviving economy and income. Like in the past, there is a diversity of opinions among the economists and the policy makers on formulation and adoption of the conservative versus expansionary policy approach to revive the post-Covid-19 economy, though the policy measures in this unprecedented scenario is presumptive or at best hypothetical. Historically, Keynes prescribed demand management policies for recovery from the 1930s Great depression whereas Friedrich Hayek predicted the Great Depression and argued that recovery would require a supply management policy i.e. return to sustainable production. The dilemma is: a demand push with inadequate supply would potentially cause inflation and fiscal deficit while a supply push with not adequate demand may result in less revenue and in turn impacts fiscal deficit for the government. In the current scenario, the right balance of demand and supply management may be warranted.
Supply-side Stimulus
The recent government revival package of 20.97 Lakh Cr focuses more on the supply push by increasing liquidity and is primarily non-fiscal in nature – and built within the framework of controllable fiscal deficit, inflation etc. The revival package does not address the corporate sector in manufacturing and especially one of the most impacted sectors, namely HAT (Hospitality-Airlines-Tourism). The package, among other things, addresses the key problems of providing (a) support to the target group – atleast partially and (b) a major policy thrust to fund MSME sector through -
- Loans provisioning through the banking and other financial institutions (for four-year tenor and a moratorium of 12 months on principal payment) with Government loan guarantees that should technically aid credit flow to MSMEs. The execution may require additional assurance for these government financial institutions to disburse loans without apprehensions of investigations.
- Infusion of Rs 50,000 by the Government in equity in MSMEs having growth potential and viability through a Fund of Funds that will be operated through a Mother fund and a few daughter fund.
- Bringing a new definition on a mix of investment in plants and machinery or equipment and turnover to provide further impetus to this 50% export-contributing large sector
The fiscal stimulus – with impact on demand and more on supply side - has been primarily limited to Pension fund support, temporary tax cuts, farm infrastructure upgrades (if funds are quickly disbursed and projects rapidly executed), free food provision for migrant workers, funds to safeguard rural employment and an emergency fund for post-harvest activities – all will have a near-term impact. The measure like ‘one-nation-one-ration card’ for India, aiming to supply food essentials to the poor is a welcome step but is difficult to operationalise in the short-run.
Finally, the next …
It is clear that the relief measures seek to target supply side push by bringing more liquidity/ fund through lines of credit (with significant portion of 8 trillion provided by RBI) more specifically and logically to the MSME sector that also supports the agenda of “Atmanirbhar Bharat” (Self-reliant India). While this opens up the net export growth for India (in some areas at the cost of China), going by history - additional trade barriers by other countries to protect their own interests are anticipated too. The history suggests so.
It is essential now to have a more rigorous demand-side push as demand is expected to be slow in post Covid-19 scenario in India. The demand was incidentally low in pre-Covid period due to poor consumer sentiments and is likely to aggravate further. Hope that the next level of stimulus addresses them more directly. Else this will impact the government revenue and in turn, will impact the fiscal deficit that is already expected to reach a record high in last 30 years. We look forward to the new measures for aggressively pushing demand.
(The views are personal)
Restarting Indian Economy in Current Times…
(May 2020)