To mitigate the crisis, rethink the role of regulators – analysis
The economic impact of coronavirus disease (Covid-19) may last longer than its health effects. The global economy was stabilizing before the Covid-19 spread. But now, there is a consensus that we could be heading not just for a slowdown, but even a recession.
The Organization for Economic Cooperation and Development estimates that wide spread will lead to a 1.5% slowdown in global growth. The World Trade Organization also expects a “substantial” impact on the global economy. The economic impact in India will be more profound because most jobs are informal, the state’s ability to respond to disasters is low, and medical care is far from universal.
Conventional wisdom says that exceptional times require exceptional measures. Therefore, Western countries are deploying a combination of social spending and bailouts from the private sector. United States (US) drew up a nearly $ 1 trillion fiscal stimulus plan (about 5% of US GDP) that includes payroll tax cuts, small business relief, bailouts sectoral and direct payments to Americans.
The equivalent for India, as a percentage of GDP, would be over ~ 9.5 lakh crore. This is not too short of the annual GST collection. The rupee is not a global currency like the dollar, which limits India’s ability to print money like the United States. India’s current resources limit its ability to imitate or sustain such spending. Consider the fact that the muscular Bharatiya Janata Party government struggles to increase actual spending on military equipment, even in normal times.
India can take an alternative path to build economic resilience, reusing its regulators to make them more market friendly. The country liberalized industries such as telecommunications and broadcasting in the 1990s, and turned sector governance over to regulatory bodies. These bodies are intended to guide rather than prescribe. However, since India liberalized under the pressure of the balance of payments crisis, regulatory design has helped maintain state control. Consequently, companies are often locked in adverse court battles with the state. Regulators keep watch without doing anything, as disputes erode value.
The most prominent of these conflicts, in recent years, is a testament to the failure of regulatory agencies to smooth the interaction between markets and the state. In October 2019, the Supreme Court required telecommunications companies to pay legal fees of $ 1.47 lakh crore to the central government. That amount is 25 times more than the funds allocated for national broadband, under the BharatNet program. Naturally, these fees did not accumulate overnight. They stem from a 15-year dispute over whether a portion of dividend income, interest income and asset sales should go to the government in exchange for granting telecommunications companies a license to operate. In retrospect, a well-regulated industry would not be subject to such a large fiscal shock.
Another way to offset the economic shock in a time of global crisis is for the state to impose a moratorium on new regulations that do not address major market failures, as in the case of telecommunications. According to global health experts, the development of an approved Covid-19 vaccine will take at least 18 months. As a result, regulated markets will continue to be stressed in the medium term. The message to regulators is loud and clear: They must place the economic dimension of the public interest on a much higher pedestal than they do during this period.
The rule changes involve consultation with stakeholders, business reengineering, and field implementation. For example, broadcasting regulations introduced earlier this year require changes in the pricing, bundling, and transportation of television channels. Is mission critical to the economy? Probably not. In fact, the forerunner of these regulations caused a large-scale cable outage to around 12 to 15 million subscribers in 2019. The Maharashtra Federation of Cable Operators and individual distributors have already asked the Telecommunications Regulatory Authority to India to postpone the new exercise, because home visits to implement these changes are accompanied by significant health risks.
Focusing on regulatory relief for those at the top of the economic pyramid may seem counterintuitive, but the same logic applies to the highly welcomed moratorium on legal compliance announced Tuesday by the finance ministry. Furthermore, regulated industries generate hundreds of thousands of jobs and attract large private investments. They help organize and generate value in supply chains. Even during a period of recession, telecommunications companies created around 28,000 direct jobs and around 48,000 indirect jobs in 2018-19. Indirect jobs are largely contractual, and these workers are laid off when supply chains collapse.
If regulators were to adopt a talisman to manage the economic consequences of the global pandemic, it should be this: clearly demonstrate the impact of new interventions on employment and investment across the economy. In fact, “regulatory impact assessments” that measure such effects ex ante They are widely used by many countries. India should immediately demand such techniques through legislation and therefore preserve economic value.
Vivan Sharan is a partner of the Koan Advisory Group, New Delhi, and author of Wonked !: India in search of an economic ideology
The opinions expressed are personal.