While India has somewhat managed to ‘flatten the growth curve of the virus’, the biggest casualty has been the economy
The last time I sat down to pen this column, I still had to think twice before ordering a barrel of crude oil. However, things have changed dramatically and crude is now nearly at a 160-year-low. To quote The Economist “…. it stood in real terms at the very same level as it did at the start of January 1860 — its first regular reading.”
Just a month into the global caging of humans at home, the unimaginable has happened. Oil futures dipped to negative, which basically means sellers would actually pay buyers to lift barrels of crude. If you were to take an aerial snapshot of offshore oil tankers, it is oceans full of plenty, coast to coast. Yet, the rock-bottom oil prices do not offer a significant upside to a fossil fuel importing country like ours at this stage. Like everyone else or perhaps many shades higher, India has been under the world’s harshest lockdown, shuttering more than 70 per cent of enterprises and economic activity. While India has somewhat managed to “flatten the growth curve of the virus”, the biggest casualty has been the nearly $3 trillion economy. Estimates suggest nearly $30 billion weekly losses, which translate to a whopping $180 billion losses since the first day of the lockdown. This number, even by conservative estimates, is three times the total Foreign Direct Investment (FDI) of $49 billion that India managed in 2019. A near-complete closure of all services and manufacturing activities has led to India (along with the rest of the globe), staring at a “great economic depression” rerun.
In such a scenario any bet on building a huge reserve of crude might be seen as a risky option, particularly by a cautious bureaucracy. To be fair, no one can predict for sure if demand for crude-based energy, riding on airlines and power-hungry factories, is going to make a comeback soon, even when the lockdown is lifted. Many are worried about the uniformity of the lifting of the lockdown across the country.
This brings us to the issue of policy flip-flops. E-commerce, together with home delivery of all kind of goods, is clearly emerging as the consensus winner for the “most-apt solution” to the new, post-Covid world order. The Government did allow delivery of all essential and non-essential (fridge/mobile phones/ACs/clothing/perfumes and so on) via an order, only to reverse it a day before its implementation under pressure from protectionist groups. There is no direct scientific or medical research to prove that delivery of a kilogram of apples (currently approved under the e-commerce route) is safer than that of a mobile phone or AC remote control.
Similarly, there is no evidence to prove that delivery of “sin” taxed items such as alcoholic beverages and cigarettes poses a greater risk to human health at this stage, than the visible crumbling of a tall, promising economy. Yes, opening up both of these requires bold decisions at the top and quick amendments to regulatory requirements along with changes to tax laws. The time for the Government to take a bold policy decision could not have been better, with a 130 billion-strong captive audience staring at it.
As of now, e-commerce restrictions continue to be in place and even after things open up for the sector, post May 3, in many districts of the country, State interpretation of Central laws will continue to create roadblocks to recovery.
Lakhs of trucks stuck across State borders are another issue which calls for urgent attention and close Centre-State coordination. With the motto of “protecting lives over livelihoods” multiple key business districts across the country have sealed their borders, in some cases by erecting physical walls. This act, even if temporary in occurrence, is sending wrong signals to an already-eroded business sentiment across the country. Remember, these high on optics clampdowns will not leave entrepreneurs’ memories for a long time and will make them more risk- averse. A potential solution at this stage could be re-designating each District Magistrate as “CEO” of the area. The “Board Chairman”, the State Chief Secretary in this case, could give the task of restoring each district economic activity to its pre-Covid level to each regional “CEO.”
Corporate solutions like this have great potential to quickly refuel the dried-up economy engine of the country. This could start a new chapter of constructive federalism, with true devolution of power to the district level, with each District Magistrate running a small portion of the national Gross Domestic Product and adding to the bigger picture.
This brings us to ‘Make in India’ and the country’s high hopes of getting investments from corporations exiting China. The Centre has to start aggressive virtual roadshows with all hands-on deck presentations to win over global investors. A key fact to remember here is, while attracting China-fleeing investment is a key task, a blanket ban on money coming from China could have downsides. In private, most will acknowledge that China is more integrated into the global economy than many would have thought. Therefore, keeping a sharp eye on aggressive overtures from China to fish in troubled waters by taking over companies at low prices has to be balanced with attracting good quality long-term investments from factories willing to relocate out of China. Japan has already announced a $2 billion package for assisting industries moving from China into its territory. India will also have to start talking these kinds of numbers. It will also have to remove or possibly temporarily lock down tonnes of regulatory compliances existing and future businesses face in India. The sharp focus has to be on ‘Make in India’ and to quote the Prime Minster, “protecting livelihoods along with lives.”
(Writer: Kumardeep Banerjee; Courtesy: The Pioneer)