Covid-19: The Path Out Of Economic Lockdown... To ReincarnationBloombergQuintOpinion
It is the season of resurrection.
Across the world, governments are designing and devising ways to revive economies, stranded at the intersection of life and livelihood. The challenge is to preclude the sins of the Covid-19 pandemic from visiting and revisiting the prospects of normalcy and restoration of a modicum of certainty.
In India, where the idea of reincarnation is an embedded article of faith, the government is opening up to the idea of resurrecting the economy. There is much lather and scouring of alphabets on what the contours of the recovery would look like – W, V, U or L… graphically a hockey stick, a la Nike or Li-Ning logo. Whatever the contour, revival demands alignment of aspirations and calibrated baby steps.
The magnitude of the challenge is exacerbated by the structure of the crisis. Karl Popper warns about the poverty of historicism. Indeed, this crisis is like no other witnessed – it is unlike the Great Depression of 1929, unlike the war-time recession, unlike the 9/11 shutdown and is not a financial crisis like 2008.
The quest for flattening the curve of transmission and infection, through social distancing, results in the shutdown of all but essential engagements, of businesses and a deepening of distress. The vicious cycle of a drop in consumption and shutdown in production has delivered a double whammy, a supply-demand shock.
Epidemiology tells us vulnerability to Covid-19 rises with pre-existing conditions. This is true for economies too. India’s economy, frail from co-morbidity, tripped from slowdown to lockdown.
The context set in the circumstance of pre-existing conditions makes it all the more challenging for policy and politics to bring the economy out of the deep trough.
As in the verse, whosoever believeth shall live, much depends on faith and on hope. The path for resurrection calls for a series of sequential steps – provision of food for the poor, catalysing demand through direct transfer of spending power, creation of job and income support programmes, use of innovative credit delivery to restore production, induction of technology to ensure worker and workspace safety and a smart plan to raise resources to fund the sequence.
The following ideas enable the framing of the crises and reincarnation of the quarantined economy. The ideas fall in four general buckets – cash transfer for living support, public works job programmes, restoration of the supply chain for production and innovation in resource management.
The release of food grains free, for the 20-plus crore families and direct cash support allowance, will prevent starvation and vulnerability to the pandemic.
Three Months Free Ration: It is true that there is a general resistance to freebies but extraordinary times call for extraordinary measures. Yes, the government has announced extra allocation but it reeks of buy-one-get-one-free schemes. Prime Minister Narendra Modi once on a radio broadcast advised Indians to desist from haggling with the poor. The advice holds true for the government too.
The granaries are overflowing, the freed space will enable states and the centre to ramp up procurement and help farmers in the coming season.
One-Time Cash Allowance: Milton Friedman, who crafted the idea of a negative tax, said that in addressing poverty “the form most useful to the individual” is cash. Yes, there are cash transfer programmes but the criteria are problematic. What is needed is a universal one-time direct transfer of allowance using the Aadhaar gateway. It is the need of the time – the United States is transferring cash to 175 million. Transfers to those above a pre-determined income level can be adjusted in year-end filings. What is critical is to install spend power and confidence in the regime.
Public Works for Jobs
Employment will be challenged. The answer is a Public Works Programme, a la Franklin Delano Roosevelt’s 'New Deal'. To contain moral hazard there is a need to dove-tail their design to solve issues. The programme can be funded with vouchers which could be used to buy food, medicines or simply encashed.
Piped And Potable Water Projects: Hand wash is a primary defence against Covid-19 as is clean water. This calls for expansion of availability of water, particularly potable water in homes.
A large chunk of the population depends on wells, hand-pumps, unprotected water bodies or tankers. A programme to set up filter-water ATMs at each village and pipe network into homes will provide income and clean water.
Community Health Centres: The poor state of health care infrastructure in India, six lakh villages make do with one sub-centre for five villages, is manifest in data.
India loses over 700 under-five lives a day just to diarrhoea and pneumonia.
The crisis is a good opportunity to deploy public funds to expand access to health care and implement the programme to set up the 1 lakh community health centres announced in 2018.
Urban Waste Management: India’s cities generate over 60 billion litres of sewage per day, of which barely a third is treated. Untreated discharge has left more than 300 rivers, water bodies and a sixth of groundwater zones contaminated. Poor sanitary condition is an invitation to epidemics and pandemics. Setting up sewage treatment plants will generate jobs for urban poor and make city environs healthier.
Expand Rural Roads and Markets: Over 7 crore migrant labourers in rural India will be struggling to leave homes and find jobs. There is an opportunity to bring together and leverage the national rural jobs programme and the farmers’ collectives and companies scheme – to strengthen rural connectivity and engineer farmers' access to markets, both physical and online.
Restoration Of Supply Chain
The revival of the economy needs the restoration of the supply chain for production. This calls for a mechanism to ensure the safety of workers and workspace and for innovation in credit supply.
Safety Of Workers And Workspace: The revival of production requires a return of labour to work. The government needs to create a systemic mechanism, like in South Korea or China, cataloguing and using data on those tested and those cleared. One way to do this is to deploy the Aadhaar biometric identity platform and use of QR code. Aggressive and even rapid testing of individuals is sine qua non to instill confidence.
Access To Credit For MSMEs: Restoration of a supply chain depends on credit conditions. The state of the economy dictates forbearance on debt—staying the debt clock till normalcy—and expansion of credit to MSMEs. The $2 trillion U.S. stimulus includes $454 billion to the Federal Reserve which it will lend to banks to leverage and make credit available. China made credit available at new low rates to businesses for operations. India could tweak the template to make operating capital available at low rates.
Innovation In Resource Management
The state of public finances in India has been the trigger for action by rating agencies. Funding resurrection of the economy calls for innovation in raising funds and in expenditure management.
Time for an India Dollar Bond: World over, sovereign wealth trusts and pension funds will be hurting and hunting for long-term paper to manage their flow of dividends and redemptions. India could leverage this need and launch a ‘Buland Bharat Bond’ (Strong India) and ambitiously target $25-30 billion, in tenures of between ten and 30 years, in two or three tranches. This bond could also be issued by the State Bank of India and or the Life Insurance Corporation of India, as long-tenure paper specifically targeted at sovereign and pension funds.
BPCL, PSUs And India’s Temasek: Till Covid-19, India’s defence of fuzzy fiscal math was rescued by the promise divestment of BPCL. It could still offload BPCL, perhaps to U.S. oil companies who may look for a vehicle and a market for the barrels being spewed out. Post Covid-19, India needs to monetise every public asset to raise resources for the economy. The crisis wrenches away the luxury of procrastination and debate.
It is time for India to set up a trust, an Indian Temasek and park all public assets in it to be monetised over a period of time.
India can script the resurrection of its economy. It can leverage the scale of its domestic economy to acquire a larger footprint in the global supply chain and use demographics to woo investments.
Much, though, will depend on India’s agility and ability to shed shibboleths of the past and steer past petty politics.
Shankkar Aiyar, political-economy analyst, is the author of ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’; and ‘Accidental India’.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.