Shariq-us-Sabah
ON 23rd of March 2020, Government of India announced a country wide 21-day lockdown. People of India were given total of four hours to prepare for the lockdown that would be strictly enforced for next three weeks. Prime minister Narendra Modi in his address likened the fight against coronavirus to epic war of Mahabharata, which he said will be won in 21 days.
Soon there was a mad rush of people scrambling to stock groceries, masks, sanitizers, etc.
Amongst other vulnerable groups, the government totally forgot to account some fifty million migrant labourers spread all over India. These labourers rely on daily wages for their dinner. With no work, scanty or no savings, and no place to stay (as majority of these workers live either at construction sites or at factories where they work), tens of thousands of migrant labourers started their journey back to their villages on foot. The images of long serpentine trail of human beings, of all age groups, religions, regions, united by their hopelessness and poverty, were starkly reminiscent of the 1947 post partition migration. The unfolding humanitarian crisis, perhaps not anticipated by the government, forced it to act, but the help arrived too late and was too little.
At the time of writing this Article, we are in the midst the 3rd Phase of lockdown and it is scheduled to conclude on 17th of May. Though the government has allowed the stranded migrants, students and tourists to return to their homes by arranged surface transport, hundreds of thousands are unable to avail the facility given the long distances they have to travel. This begs a question. Was not the government aware of massive number of migrant labourers spread across Indian states? And what was its plan for their evacuation?
After the lockdown was announced, a humanitarian crisis unfolded, forcing people into starvation, joblessness, poverty, destitution and depression. This is apart from the health infrastructural crisis. In my opinion, the policy measures announced, and that which is needed but not announced by the government is self-destructive and akin to shooting at one’s own foot.
Economists all over the world are advocating the urgent need for a suitable stimulus package to revive the economy. The COVID-19 catastrophe is bound to be at least as bad as 2008 global financial crisis, if not worse. India’s current healthcare expenditure is below 1.5% of GDP even as the health sector is marred by a shortage of doctors, primary health care centres, Super Speciality hospitals, ventilators and lab technicians.
What is the situation?
As per the CMIE data, India’s unemployment rate has surged to 27.11% for the week ended May 3 from the level of 6.74% in the week ended March 15. The largest hit in employment is witnessed in unorganized sector and in MSMEs. Several Economists have predicted that India’s GDP Growth will be in a negative territory which will be die to sharp slowing down of all economic indicators. There is a strong link between disability, loss of employment and impoverishment. Disabilities today have quadrupled, because of destruction of long duration employment and it is now translating into rising poverty. India desperately needs an all-encompassing, well-structured and inclusive stimulus package. United States has announced a package of 10% of its GDP, and, close home, few Asian countries have announced a package of up to 15% of their GDP. While India certainly cannot risk spending in double digits for its stimulus package (because of inflationary risks), but a meagre Rs.1.76 Lakh Crore package, majority of which is repackaged, is impossibly and woefully low.
What the Government must do?
A meticulous fiscal stimulus plan is needed to boost consumption demand, to cushion the shock and to help the economy revive.
The fiscal package must aggressively target those in informal sector and MSMEs. MSMEs must be protected by providing it with a moratorium on loans for 3 months along with interest waiver. This will help both the Bank’s balance sheet and the MSMEs will also stay afloat.
The fiscal package must include
A direct and unconditional cash transfer of Rs. 2000 per month for 3 months, to the bottom 60% of Indian population. This will create the demand in the economy, which is rapidly shrinking.
RBI must devise a framework where there is no coercive action on bankers when they lend loans that later become NPAs. A balanced regulation is utmost required to unclog the impending liquidity squeeze in the financial system. Mere rate adjustments will not help. Every sector of the economy is in a dire need of credit.
All State governments must immediately issue temporary Ration Cards to the bottom 40% of India’s population, and the Union government must order FCI to offload the grains and distribute it amongst the poor. The Current bumper Rabi harvest will refill the FCI godowns.
The Central government must reduce excise duties on Petrol (by Rs 20 per litre) and on Diesel (by Rs 25 per litre) and pass on the benefits of lower prices of Crude to the consumers ($23.86 a barrel currently).
The government needs to incentivize the external sector of trade and commerce.
Is it fiscally doable?
Yes, the government will have to delay certain gratifications to do that. The money can be made available if we reallocate some of the budgeted capital expenditure and rationalize expenditure. We can certainly defer Central Vista Project and save Rs.20,000 Crore outright. Similar beautification projects, statue building etc must be deferred indefinitely. The Oil bonanza is helping the government have a huge windfall gain for the past six years. The Government has already suspended MPLADS, Dearness Allowances. It must bring in a COVID Solidarity tax and can raise funds by Issuing bonds to the public. If nothing, it can always print money. We also don’t have to worry much about the inflationary pressure right now because we have sufficient food stock, a stable foreign exchange and low fuel.
The government must suit up and announce a fiscal stimulus to the tune of 5-8% of GDP quickly. We have lost a lot of time already, and, we cannot afford being frugal or lackadaisical. Desperate times require desperate solutions. We need to break free from textbook fiscal norms and go beyond the standard practice.
Author is an economist and policy executive. He can be reached at [email protected]
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