By: Toshani Singh (Daulat Ram College-DU)
India’s precautionary lockdown has indeed been a savior of the long-term medical cost that would have to be incurred if the virus was spread all over the country. But the lockdown has caused a massive disruption in the economy. Even before the pandemic, the Indian economy was slowing down with a real GDP growth rate of 4.7% which may have to be revised significantly downwards because of the deleterious economic effects of the pandemic.
There may be one out of the following three fates awaits for India post lockdown:
Optimistic scenario with a V- shaped recovery.
This scenario suggests that the pandemic is controlled by the effective interventions of the government by the end of June ’20 and economy starts recovering at a rapid rate from Q2 of FY2021.
Somewhat optimistic with a severe blow to the economy and a U- shaped recovery curve.
If the supply chain problem multiplies and global demand declines sharply, and there is limited success in controlling the contagion; then the economy will resume back to life in Q4 of FY 2021 with a slow growth rate.
Pessimistic scenario with a whole new low level of normal
If there is high contagion and spread, it can lead to a steep decline in the demand and there will be significant cuts in production. The situation will ease in Q1 of FY22 after which the economy will revive modestly. And for the next two years, the growth rate will be 1.5-2% lower than what would have been otherwise, with unequal recovery across sectors.
The Indian economy is indeed going awry with government revenue declining every day in the lockdown. But to generate immediate revenues, the interventions such as opening up of liquor shops are clearly a tomfoolery which leads to violation of social distancing. And if hasty steps like these continue, then we certainly will have to deal with the third scenario mentioned above. Hence, first things first — there should be more emphasis on curbing the spread rather than instant revenue generation. There must be strategic planning of reviving the economy during the lockdown and implementing them as soon as the lockdown ends.
Undoubtedly, recovering the current economy can be a herculean task as the travel ban and lockdown have induced a slump in nearly all sectors of the economy – manufacturing, construction, retail trade, hotels, restaurants, tourism as well as agriculture. Both demand and supply side economics have gone amiss. To kick-start the economy, the typical bureaucratic approach will be a total failure. An ‘out-of-the-box’ comprehensive economic strategy is essential to bring economy back to life.
Even after the lockdown ends, the frenzy related to the same won’t be a thing of the past. People will be reluctant to step out and work like pre-pandemic times. To clench people on working to revive economy, the government must have credibility regarding the same. This can be done by government spending on health infrastructure so that people step out of the house fearlessly post-lockdown. The COVID-19 pandemic has exposed the fragility of the public health and the tertiary care infrastructure across the country. Part of the reason for the excessively long and nationwide lockdown has been the inadequacy of public health infrastructure. Healthcare needs to be notably uplifted so that in near and far future, the pandemics don’t completely disrupt our life and economy.
The pandemic has totally altered the fiscal calculus of India. Most often than not, reviving economy is about reviving demand. Due to lockdown, daily wage workers are having a hard time earning and spending. Although the death rate due to virus in India is among lowest in India, but there are deaths due to deprivation. To help the economy stabilize, the government should loosen the fiscal restraints and should increase its expenditure mainly in form of transfers so that the poor stratum of the economy has cash in hand to spend. This will boost up the consumer expenditure in the GDP. Once the pandemic is under control, the government must foster investments in infrastructure which is the fastest way to create jobs.
Public transport is totally hampered that’ll require immediate public investment as soon as lockdown ends. Transport being disrupted, the wheels of the economy have halted. The labor market, goods and services market, education sector, etc. have been brazenly disrupted by the lockdown. Worst hit is the market of agricultural produce with trouble in harvesting as well as marketing. There has been a shift of workers back to rural areas which will have tremendous economic tension if it stays this way – disguised unemployment will be inevitable. The rigmarole of migrants, students and professionals can have a long-term disruptive impact on growth revival if easy movement of people is not assured. Growth in one part of this diverse nation is significantly dependent on other which calls for restoration of road and rail movement. Unquestionably, the worst hit sector is tourism and hospitality and India has a lot to lose with that sector going askew. As the lockdown and pandemic ceases, India must boost tourism as it undoubtedly has lot many good tourism spots.
Alongside the increase in governmental activism, the private sectors should also rejuvenate production aided by adequate finance and government spending to revive demand to regain economic momentum. This is the perfect time when the Indian economy becomes self reliant. With whole globe combating the virus and focusing on their own stabilization, India must not depend on aids from other nations. Hence, it is high time the government ‘yojnas’ such as Make in India, Skill India, etc. are proficiently enforced. Most of the MSMEs need funding to tide over the crisis. The government needs to ensure the provision of working capital at low interest rates to start-ups and MSMEs.
The pandemic also gives us a deep insight into the over-dependence of Indian economy on China. The supply of raw materials has been totally obstructed since January on the onset of COVID-19 in China. The supply of raw and intermediate goods for Indian industry has led to high input prices, low profitability and supply shock. This calls for some serious reflection on the subservience of Indian markets on foreign ones. Thus immediately after lockdown, India must aim for self sufficiency that would not only help the ‘gram swaraj’ but even help in the longer run. There had been a significant drop in the demand of FMCG due to supply shock, hence a revival of their supply logistics is must to at least get them moving as soon as lockdown ends.
Amidst this delirium, we cannot lose sight of the fact of the human resource management — education and skill training systems are in need of an overhaul. This will certainly demand greater government funds which must be provided without ado to improve access to good-quality education for students who are losing out right now. While the middle- and upper-class have access to distance learning, those from disadvantaged households might need further assistance even after lockdown ends.
Sun-Tzu noted that “In the midst of chaos, there is also opportunity”. For us, the opportunity amidst this lockdown is to plan comprehensive economic sustenance to be implemented post lockdown.