Policy choices in the times of Corona

by April 8, 2020 0 comments

The COVID-19 crisis is a bolt from the blue. There is no precedent of this particular strain of the coronavirus, and hence, any projections of its impact can just be intelligent guesses. Predictive numbers need to be relied upon with great caution. One has to keep a very close watch on how the crisis unfolds and keep tinkering with different actions as facts regarding the virus trajectory, the effectiveness or otherwise of containment efforts, and reactions of economic actors become clearer. The crisis would, as any crisis does, affect both the supply and demand sides of the economy and stress not only the financial markets but the socio-economic fabric of society.

The country has been put under a nation-wide lockdown from the midnight of 25th March 2020. While social distancing is necessary to prevent the rapid spread of the epidemic, there is a huge economic cost that it entails. There is no denying the fact that the choice seemed to be between GDP and lives. However, sooner than later, questions regarding rising unemployment, shutting down of businesses, increasing non-performing assets, supply chain disruptions, reduced investments, and contracting demand would become serious challenges. The sooner we reframe the choice from being between GDP and lives to being between lives and lives, the better we would be able to manage the crisis.

While this may seem to be the right time to undertake structural reforms that may help build long- term resilience to such crises in the future, our prime concern has to the revival of the economy in the present. To the extent possible, we should only focus on the short-term for the moment while trying to ensure that these short-term measures are aligned with the needed long-term structural changes. The responses for every sector would have to be classified into short term (2–3 months) focused clearly on defeating the onslaught of the pandemic; medium-term (3 to 8 months) focused on socio- economic revival; long term (8 months onwards) focusing on pushing ahead on all cylinders based on new emergent realities.

In the short term, flattening the curve of the epidemic below levels of available capacity in terms of hospital and ICU beds is a top priority, and mere lockdown won’t be enough to achieve that. Lockdown is not sustainable beyond a point as people will start to decide between a thin chance of dying from the virus and an almost certain chance of starving to death. The smartest ways of leveraging the lockdown lie in the world of data. If a rapid testing methodology (NAT or equivalent) can be deployed at a large scale that enables quick tests, then a sampling methodology can ensure that the working population can be screened as per need. And, if needed, quarantined and then treated so as to allow them to get back to work as quickly as possible. The tests should not only be free but also be freely available.

The country will have to be very creative with the generation of resources. Fiscal deficit goals could be shelved for at least the next six months. Fiscal action needs to be directly focused on providing relief to individuals and firms most affected by the crisis and not on public spending on the creation of economic assets like highways and sewage systems. The actions would include, inter alia, ways of ensuring people remain on payrolls or else are provided unemployment allowance etc. The crisis hit manufacturing sector needs to be supported through special loans, restructuring and rescheduling of

loans, GST breaks, tax incentives, altered insurance premiums, especially in the case of SMEs. After individuals and firms, banks need to be supported. Government can look at a law against layoffs during the crisis period. The role of the RBI in this context will be crucial.

In the medium term, the focus has to be on rapid economic revival. The recently announced 1.7 lakh crores crisis management package by the government, which accounts for around 1 percent of the GDP may need to be scaled up to around 5-6 percent of GDP considering the magnitude of the crisis. Within that package, resources would have to be found to support sectors most severely impacted by the crisis through incentives, moratoriums and easy availability of credit.

Also, investments into the expansion of the healthcare system would need to be continued with a significant emphasis on the development/ sourcing of a vaccine to deal with the outbreak. Collaboration with international agencies and being nestled in global efforts in this direction would be immensely important. States are playing the most critical role at the forefront of dealing with the crisis, but face constraints in using resources as their hands are tied with laws like the Fiscal Responsibility and Budget Management Act, 2003. It is time that these restraints are relaxed for the current financial year so that they can ramp up testing infrastructure, health facilities, and buying of vaccines as per their need.

Revving up the economic engine, in the long run, would need more than liquidity, doles and incentives. The country can use this opportunity to carry out structural reforms. A society with unequal levels of ownership of capital and unequal access to basic services like health and education would see an exacerbation of such differences as it attempts to push frontiers of economic growth. Therefore, the first step should be toward land reforms. In a country where more than 70 per cent farmers have less than 2 hectares of land, and almost 40 per cent of the workforce in agriculture is landless, no amount of support services can provide the foundation for sustainable upliftment from a state of perennial crisis. There is a need for actual redistribution of land between the haves and the have-nots. The political economy has to bite this bullet before it is too late.

Government’s aspirations towards becoming a 5 trillion-dollar economy are laudable. There are many priorities, programs, and policies currently. In the absence of harmonization amongst them, different actors in the economic system work towards different goalposts in a fragmented and inefficient manner, sub-optimally addressing the national imperative. The importance of decentralization in solving problems in an agile manner cannot be exaggerated. Economic growth has to be a key objective of local governments. An integrated Ministry for Economic Growth, both at the Centre and State levels could be examined to support local efforts and to bring convergence between the functions of industrial policy, urbanization, regional development, and economic growth through the ‘whole of Government’ approach.

The crisis has also brought the use of technology into limelight. States and cities have set up war rooms, command and control centres equipped with the latest gadgets and applications for effective communication with citizens and stakeholders; gathering information from various sources; management of activities, essential supplies and lockdown; and predictive modelling for keeping up with needs of the future. The success of these efforts in the field of technology demonstrates its power and should not end along with the crisis. Technology can play a tremendous role in increasing access to quality health and education services to the masses. Even though they would be tremendous gains, they would still account for only the tip of the iceberg, as the potential of modern technology to transform governance and citizen outcomes goes much beyond these two important sectors.

The country is facing the worst crisis in modern times and it would need to follow a structured approach to overcome it. Extraordinary times require extraordinary solutions, and the state should step aside from the playbook to make them possible.

(Writer: Kunal Kumar – Joint Secretary and Mission Director, Smart Cities Mission, Ministry of Housing and Urban Affairs, Government of India, New Delhi )

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