A roadmap for India’s exit from the blockade | HT analysis – analysis
Prime Minister (PM) Narendra Modi is in an unenviable position. Many state governments and most commentators want the blockade to continue as new cases increase, even in areas hitherto free from the coronavirus pandemic.
Mathematically, even with a doubling rate of more than 11 days, due to large numbers or base effect on statistics, new cases will continue to increase substantially. At the same time, there is the livelihood problem of more than 400 million people; many above the poverty line may fall back due to the shock of income from loss of income.
Approximately 65% of the Indian economy is in the unorganized sector. What worsens the situation is that more than 90% of the workforce is informal with limited social assistance rights. In fact, but for Jan Dhan Yojana (cash transfer measures that have benefited around 350 million people, including farmers, rural workers, poor pensioners, construction workers, low-income widows) and Ayushman Bharat (medical coverage free of up to Rs 500,000 per 40% of the population), India would have faced a catastrophic situation. However, in the absence of universal basic income or unemployment benefits, the economy, now operating at around 40%, must restart to provide income for the vulnerable population and prevent millions of people from falling through the cracks.
The key question facing Prime Minister Modi is how to undo the blockade without endangering the lives of millions of Indians. One of the co-authors of this piece (Maurice Kugler), along with a colleague, developed six options for the United States (US) and we tried to apply them to India.
The safest way to control the pandemic is to maintain closure until a vaccine is developed and the entire population is immunized. The second option is for it to gradually ease, and as the curve flattens out, your health and financial rewards fall into the mid-range. The third option is a more aggressive version of the second, allowing for greater openness, but retaining the ability to reintroduce a full block if the infection rate increases. Under the fourth option, antibody tests must be performed and the immune can be allowed to move freely. Under the fifth option, the entire population should be evaluated once every two weeks. The sixth option requires contact tracing and generalized testing where cases are detected.
The first is not an option that India can afford, as it would probably take 12-18 months for the vaccine to become available. Similarly, the fourth and fifth options may be ruled out for financial and logistical reasons and the lack of availability of sufficient test kits.
The problem with the third option is that while your health costs are probably lower than the second, the economic recovery would be more uncertain and distant. The results could be volatile. It could leave policymakers little room to maneuver and lessen their credibility with people.
The only viable route for India would be to implement a modified second option, which would allow for faster opening, but with strict protection measures, along with the sixth option. Since the virus has a demographic preference (infants and the elderly), an alternative is to keep these age groups blocked. This is not possible in the Indian context, and the best way is to use geography as a determinant. This approach has already started in India with the identification of critical point locations: the district is too large a geographic area to be a viable disaggregation unit and would unnecessarily penalize millions.
The other is contact tracking backed by massive testing, if any positive cases are identified. In reality, the critical points, as a concept, have limitations and we should look for “hot” people. Therefore, the use of Aarogya Setu and the purchase of suitable test kits, personal protective equipment, and ventilators (even from domestic sources) should be stepped up by an order of magnitude. Tracking contacts will not be easy, even if Singapore fails to enroll 20% of its population. But India has no other choice.
However, India’s imminent emergence from the blockade will only be significant if the government and the Reserve Bank of India (RBI) adopt extraordinary and unorthodox policies. India should not worry about a large one-time fiscal deficit, and instead carry out structural reforms in agriculture (opening markets, advancing trade) and industry (facilitating land acquisition, encouraging contracting, simplifying tax systems).
Similarly, even though the RBI relaxed monetary policy, banks will not be able to increase loans due to existing high levels of non-performing assets. Learning from the US Federal Reserve. The US, which is directly buying below-investment-grade corporate bonds, the RBI, with the government, should create a public sector entity that can recoup some of the capital from micro, small, and medium-sized companies that would otherwise be strong , deploying their capital to reduce their term loans. Once companies recover, stockholders’ equity can be sold and costs recovered, when feasible.
The joint deployment of the second and sixth options and the adoption of aggressive fiscal and monetary policies should allow India to overcome the worst of the pandemic, setting the stage for economic recovery later in the year.
Maurice Kugler is Professor of Public Policy at the Schar School of Policy and Government,
George Mason University, United States.
Shakti Sinha is Director of the Atal Bihari Vajpayee Institute for Policy Research and International Studies, Maharaja Sayaji University, Vadodara.
The opinions expressed are personal.