What should India do now to tackle the coronavirus crisis?
While the Covid-19-induced blockade has yielded mixed and spatially diverse results so far in terms of disease containment, the socio-economic impact has been uniformly devastating across all states in India. This ensures a careful evaluation of the closure strategy and a reorientation of the role that the Center and state governments play in the later phases of closure.
India still appears to be some distance from the peak of new cases, but different states have been affected at various speeds and intensities. This ensures a state-specific, decentralized, calibrated exit closure strategy, in contrast to the top-down approach introduced about a month ago. The daily implementation of closure measures is highly dependent on state governments. States are also administering necessary containment measures, such as testing, contact tracing, isolation, and treatment.
Although the performance of state governments varies significantly, they remain in the best position to determine the nature and extent of the restrictions required to contain the pandemic in their respective domains. The Center must decide to resume travel and transportation between states, but unless disease containment reaches a uniform outcome threshold across states, normalization of such activities may be unfeasible.
As the decision-making space regarding the closure exit cedes to the states, the Center must continue to support, coordinate, advise, and monitor the containment efforts of the state governments. However, problems persist with the adequacy of quality test kits and personal protective equipment (PPE). States with weak public health systems need additional financial and institutional support.
In fact, greater transparency and accuracy in reporting state data by the Center and promoting best practices by states can help achieve convergence in disease containment efforts.
The Center must intensify its efforts to address the livelihood crisis, which is likely to persist much longer than the pandemic. While India’s closure has been tighter, the Center’s macroeconomic and welfare policy response has been the weakest among the major economies. According to estimates by the International Monetary Fund, the real spending measures of India announced so far by the Center and the states combined are 1.42 trillion rupees, which is approximately 0.7% of GDP, much less than Rs 1.7 trillion announced by the Union Finance Minister on March 26. .
It is necessary to clarify how much of this has been spent on actual transfers under Prime Minister Garib Kalyan Yojana. The reports suggest important deficiencies and exclusions in cash transfers and food rights in different states. Monthly cash transfers of Rs 1,000-2,000 to old age pensioners and others, to Prime Minister Jan Dhan Yojana’s female account holders and farmers, or a simple salary increase of Rs 20 per day for workers in Mahatma Gandhi’s National Rural Employment Guarantee Act is simply inadequate.
Ninety percent of the 490 million workforce in India is in the informal or unorganized sector, and about 81% of them earn less than Rs 15,000 per month. These revenues have simply evaporated due to the blockade.
The additional five kg of free food grains for each recipient of the National Food Safety Act (NFSA) is also insufficient to meet basic nutritional requirements, given the severe limitations on food availability. Furthermore, the promised kg of free pulses per family has not even been delivered to most states. It makes little sense to restrict food allocations to NFSA beneficiaries, who cover just 67% of the 2011 population, that is, about 830 million of the current population of over 1.35 billion.
The distressed workforce needs two things in an emergency: adequate food and cash income. The Center must universalize food rights, with at least 10 kg of food grains, two kg of legumes and one liter of cooking oil per head delivered to the households of the beneficiaries. Cash payments of at least Rs 7,500 per household must be made in conjunction with home-delivered food rations.
Rather than transferring digital cash droplets to bank accounts, the state machinery should be geared toward door-to-door delivery of food and cash entitlements with minimal exclusion criteria. If the bottom 80% of Indian households are covered, the entire aid program should cost no more than Rs 5 trillion (about 2.5% of GDP).
The damage caused by the Covid-19 pandemic to the global and Indian economy cannot be adequately estimated at this stage, because there is fundamental uncertainty regarding the longevity of the pandemic globally. It would be rational to prepare for a new provisional budget as the revenue and deficit projections of the February 2020 budget have already become unsuccessful. State finances are under severe pressure, and unless the Center reconsiders its fiscal conservatism, the economic crisis will affect all sectors, causing widespread insolvencies. Austerity measures and wage cuts will only reduce aggregate demand and deepen the crisis.
The unprecedented and multidimensional nature of the economic crisis, which can be compared to the Great Depression of the 1930s, requires a radical departure from economic orthodoxies, as was the case with the Keynes-Kalecki economic revolution. We require a similar review of the government’s fiscal and monetary strategy, going beyond the measures taken by the previous government in the wake of the 2009 recession.
The Fiscal Responsibility and Budget Management Act should be scrapped immediately, along with the Reserve Bank of India’s “inflation targeting” framework. The only viable short-term solution is a significant expansion of the fiscal deficit, financed by low-interest government loans and printing more money. If the economic downturn can be avoided through deficit-financed public spending and indirect tax cuts in this financial year, direct income, profit and wealth tax rates can be improved in subsequent years to restore fiscal balance.
Instead of opting for convenient routes, the Center must act responsibly when making difficult but substantive decisions.
Dipa Sinha teaches economics at Ambedkar University, Delhi; Prasenjit Bose is an economist and activist; and Rohit teaches economics at CESP, JNU
The opinions expressed are personal.