PM Modi can learn from CM Modi | Analysis – analysis
Prime Minister Narendra Modi, in his address to the nation on May 12, said that Rs 20 lakh crore by 2020 will be the size of India’s coronavirus disease economic recovery package (Covid-19) . It was obvious that he liked how the 1920s rhymed neatly. Finance Minister (FM) Nirmala Sitharaman, on a daily schedule for the next five days, attempted to provide the details of this package. By the end of the fifth day, it was clear that FM realized there was a huge confidence deficit in the package and mounted a pugilistic public defense, in the style of its previous avatar as a party spokesperson in a cacophonous television debate.
It also sparked a frenzy of analysis over the gap between the prime minister’s “20” and FM numbers. Was it the true fiscal size of the package, Rs 1 lakh crore or Rs 1.68 lakh crore or Rs 86,000 crore? Is this fiscal or monetary, an expense or liquidity, a measure on the demand side or on the supply side? This was the debate among economists, analysts, commentators, and even political news anchors.
The prime minister’s ridiculous 20 rupee lakh crore claim for 2020 became the focal point of all discussions on what was supposed to be a serious recovery plan to help the nation recover from the possibly greatest economic devastation in the Independent India. Millions of migrants walking home, closed businesses, and unemployed Indians don’t give a shout if the package was Rs 20 lakh or Rs 2 lakh crores, as long as they receive immediate assistance to survive. Unfortunately, India’s Covid-19 economic recovery plan has become a fight for media headlines rather than helping a struggling economy. But India’s political leaders and government administrators have a successful history of rebuilding the economy and society after a natural disaster. An example that will resonate better today is the story of the reconstruction of Gujarat after the devastating 2001 earthquake.
As the nation celebrated its 51st Republic Day in 2001, Gujarat was hit by its worst natural disaster: a 6.9 earthquake on the Richter scale. Around 20,000 people died and 200,000 were injured. One million homes, 12,000 schools, 1,200 clinics, and 5,000 small businesses were destroyed. The economic impact was 3% of Gujarat’s GDP, despite the fact that the epicenter did not contribute significantly to the Gujarat economy. The Gujarat Disaster Management Authority was created and tasked with rebuilding lives and livelihoods. An amount equivalent to 6.5% of Gujarat’s GDP and a fifth of the general budget expenditure was immediately allocated for aid and rehabilitation. This was on budgeted spending, for which money was loaned. Gujarat’s fiscal deficit went from a budget of 5.1% to 7.5% in fiscal 2001 and from 5.8% to 9.1% in fiscal 2002. (source: ADB) Food supplies, medical assistance and cash compensation were the affected people were immediately paid. Livelihoods were restored through reconstruction activities that provided a stimulus to other sectors of the economy. This is what economists call deficit spending in the wake of a crisis. In two years, Gujarat’s economy returned to normal. No one knows this better than the then Prime Minister of Gujarat, who is now the Prime Minister.
However, it is puzzling that Modi is unsure about deficit spending to cushion the economic impact of the Covid-19 pandemic. Perhaps the Prime Minister fears a possible downgrade of India’s sovereign ratings by international rating agencies if the fiscal deficit is allowed to soar as it did in Gujarat. When Moody’s rating agency upgraded India’s ratings in November 2017, the Modi government read it as an endorsement to pursue fiscal prudence. In which case, it is important to remind the Prime Minister that the fiscal deficit is measured as a percentage of GDP, and that GDP could decrease precipitously if bold and appropriate measures are not taken now. So if GDP falls much more than it should, then the fiscal deficit will look bad anyway, even if the government doesn’t go to extra expense.
The need of the hour is to put a large amount of money directly into the hands of the vulnerable. There is also consensus among Indian industry, some publicly and more privately expressed, that they are interested in reviving demand by putting money in the hands of the people. It is reasonable if the government’s position is that since it is only the beginning of the financial year and that the crisis still has a long way to go, one can gauge the need for deficit spending as the situation evolves. In any case, the timidity of the government’s response to the current needs of the suffering millions is inexplicable and unjustifiable.
The India Covid-19 blockade is the hardest and longest of all the countries in the world. So it stands to reason that the adverse economic impact is also the most severe in India.
Just as we have realized that the genes or soil of India cannot escape the laws of science and prevent the spread of the coronavirus, it is also important to recognize that there is no escape from the laws of economics from the adverse impact of a block. Childhood claims like Rs 20 lakh crores by 2020 or that the chain of coronavirus infection will break in 21 days is not worth serious discussion in this serious fight against the coronavirus and its dire impact.
Praveen Chakravarty is a political economist and senior congressional officer.
The opinions expressed are personal.