Hard Road to Recovery: What the Modi govt must do to put corona-hit India back in business
As India enters the third week of the unprecedented lockdown to arrest the spread of the coronavirus, the big question weighing on everyone’s mind is whether it will be extended or lifted or strategically eased. This is the most difficult decision for the government to make in view of the mounting evidence of the economic suffering the lockdown is causing to the most vulnerable in our society. According to a recent report by the International Labour Office (ILO), 400 million people working in the informal economy are at the risk of falling deeper into poverty during the crisis. The weekly tracker survey of the Centre for Monitoring Indian Economy (CMIE) shows that the unemployment rate shot up from 6.7 per cent mid-March to 23 per cent in the week ending April 5. The well-off countries don’t have to worry so much about prolonged economic lockdowns because of their social security nets. India does not have that luxury. Rural India is also on the verge of harvesting its rabi crop.
To put it cold-heartedly, 28,164 persons on an average die every day in India and a few thousand more should not warrant a lockdown. The problem is that Covid-19 is such an infectious disease that it can spread very fast if not contained and lead to a massive number of people requiring hospital care simultaneously, leading to a collapse of the medical infrastructure. This compression of the crisis can lead to a sudden spike in mortality which no government, especially a democratically elected one, can accept. The prime minister acted promptly and correctly in imposing a national lockdown to avoid this eventuality. It bought us time to contain the spread of the disease through measures such as social distancing, more testing and strengthening our medical infrastructure by enhancing quarantine facilities, procuring ventilators and vital personal protection equipment. India does have some factors in its favour such as the fact that 83 per cent of its population is under 50.
However, beyond all this is a looming financial emergency, the likes of which India has not seen post-Independence. This is because never before have the wheels of the economy ground to such a complete halt. When the wheels of the economy turn, vast numbers of Indians lift themselves out of poverty. When the economy shuts down, as it has now, millions of families could be staring at a fate far worse than death. The government hence needs to find ways to restore our economic health and fight its way out of this unique crisis. Unique because the pandemic struck when our third-quarter GDP growth was already decelerating to its lowest in over six years. The impact, as a recent KPMG report assessing the pandemic’s economic effects noted, is a ‘supply, demand and a market shock’. A manufacturing-only recession already underway has now spread to the services sector. Other reputable rating agencies have downgraded India’s growth rate for the financial year 2020-21, ranging from as low as 1.6 per cent to a maximum of 3.5 per cent. This makes it even more urgent to start on the arduous path of restarting the economy in a planned manner so as not to endanger lives or livelihoods.
The clamour to spend our way out of the Covid-19 crisis, just as the rest of the world is doing, is immense. The US will throw a mammoth $2.2 trillion (10 per cent of its GDP) economic lifeline to its economy, the UK $430 billion (15 per cent of GDP) and Japan $1 trillion (20 per cent of GDP). India’s only relief package so far has been Rs 1.7 lakh crore, which amounts to a paltry 0.8 per cent of GDP. By several estimates, India needs to spend Rs 10 lakh crore (5 per cent of GDP) to pull out of this crisis. This money needs to flow into the economy to spur demand and the productivity of industries, which employ 110 million people, or 28.94 per cent of our non-rural workforce.
Our cover story, ‘Hard Road to Recovery’, put together by Deputy Editor Shwweta Punj and Executive Editor MG Arun, with Senior Editor Anilesh S Mahajan, examines the options before the government. Our correspondents across the country assess how chief ministers of major states are dealing with the pandemic. This is a time for true federalism to beat the scourge.
The pandemic is the biggest of the three crises to have hit the Indian economy in the past three decades. The first was the balance of payments crisis in 1991, and the second, the world economic crisis of 2008. What we learned from those financial calamities was that nothing works better than a crisis to push governments towards landmark economic reforms. When we were hurtling downwards in those crucial years, the government had no way out but to revive the economy with a series of policy reforms, either by ending the Licence-permit Raj in 1991 or fiscal interventions in 2008. Just like all of us are re-setting our lives to deal with this pandemic and the economic disruption, so must the government rethink the way it works and makes itself leaner and more efficient. This is not the time for incrementalism. This is the time to make difficult choices and take swift and bold action in the national interest without worrying about political consequences. The economic emergency has to be dealt with the same urgency and audacity as the medical one. If we don’t act now, we will have to pay a heavier price later. We need to seize the hour, and we will only emerge stronger on the other side of the pandemic.
(India Today Editor-in-Chief's note for the cover story, Hard Road to Recovery, for April 20, 2020)
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