India’s 21-day lockdown, now extended to May 3 with chance of further extension, has pushed the Narendra Modi into a crisis of choice.
India has so far escaped a huge surge in corona infections and Modi claims the situation would have been far worse but for the lockdown. A study by Indian Council of Medical Research (ICMR) says more than 300,000 people would have been infected by now instead of the 8500-odd so far, if the lockdown was not in place.
So despite the huge distress caused to people, specially the poor and migrant labourers, Modi felt vindicated for saving lives.
When he recently said “Jaan bhi, Jahan bhi” ( save lives, but also the country) Modi clearly reflected on the huge dilemma he now faces . If he does not enforce and extend the lockdown, he may bargain for a spread of the pandemic through community transmissions that would be clearly difficult to control.
But that would mean bringing the US$ 3 trillion economy to a complete standstill, leaving millions without work and money needed to buy food and other essentials, which may leave a huge vulnerable poor bulge in the population without immunity to face the deadly virus.
India’s unemployment rate seems to have already climbed by more than 20 per cent due to extensive job losses in the economy after the lockdown took effect in end-March, according to a survey by the Centre for Monitoring Indian Economy Pvt (CMIE). The jobless rate was 23.4 per cent for the week ending April 5 based on a sample size of 9,429 observations, Mahesh Vyas, the chief executive officer of CMIE, told mediapersons.
The government publishes unemployment data every year. The last report, released in 2019, put the unemployment rate at a 45-year high of 6.1 per cent. That mainly owes itself to a huge blunder by Modi when he scrapped India’s 500 and 1000 rupee notes in 2015 and forced millions to queue up for hours, even days, to change them rather than work where they did. The cash crunch in an economy still largely informal led to work stoppages, cost and time overruns, joblessness and fall in consumption demand.
India’s economy, hit by notebandi, Modi’s Hindi for demonetisation, was further screwed up by an improperly planned imposition of the General Sales Tax, even as spread of religious violence and agitations over a new citizenship regime impacted on the work environment. Now the lockdown to fight the virus is set to ruin it even further.
About 400 million people working in the informal economy in India are at risk of falling deeper into poverty due to the coronavirus crisis whose “catastrophic consequences” is expected to wipe out 195 million full-time jobs or 6.7 per cent of working hours globally in the second quarter of this year, the International Labour Organization has warned.
“In India, with a share of almost 90 percent of people working in the informal economy, about 400 million workers in the informal economy are at risk of falling deeper into poverty during the crisis. Current lockdown measures in India, which are at the high end of the University of Oxford’s Covid-19 Government Response Stringency Index, have impacted these workers significantly, forcing many of them to return to rural areas,” the ILO report said.
So even as Chief ministers of most states and leaders of both Modi’s BJP and opposition push for extending the lockdown to ‘save lives and the economy later’, industry captains and economists say the impact of an extended
lockdown would be disastrous, because in the first place it was imposed on barely four hours notice in Modi’s classic ‘surgical strike’ style.
Rajiv Bajaj, managing director of India’s auto behemoth Bajaj Motors, said the extended lockdown would be disastrous.
“I continue to believe this (lockdown) makes India weak rather than stronger in combating the epidemic. We should have kept only the vulnerable at home, closed all public spaces, and allowed the young and healthy to keep turning wheels of the economy—with due precautions, with respect to hygiene, masks, distancing, etc,” the outspoken industrialist wrote in an opinion piece in the Economic Times.
He went on to explain that the current approach is totally unsustainable in the future. “Every now and then when a virus returns, are we to fear that the lockdown will also be back?”
“So far, the industry has received scant support from the government. However, I’m less concerned about that as to my mind, the priority is recalibration of this arbitrary lockdown. For, I firmly believe that we’re not going to save ourselves out of this crisis, we have to sell ourselves out of it.”
Leading economist Jayati Ghosh agrees. ” India is on the verge of an unprecedented economic catastrophe as the humanitarian disaster from the Covid-19 pandemic unfolds. The sheer scale of disruption from the ongoing
national lockdown..is unprecedented in Indian history, ” she told Southasian Monitor.
She says that the disruption is much starker than the global financial crisis of 2008, which hit the Indian financial sector and real demand, but did not bring production to a halt. “Besides, at the time, the Indian economy was
much better placed to handle the crisis, as it had been growing rapidly in the years leading up to 2008. By contrast, the Covid-19 crisis comes at a time when GDP growth is slowing. If it was rolling down a hill earlier, now it is poised to fall off a cliff.”
Ghosh said the lockdown only provided some ‘breathing spell’ to the government in the COVID battle rather than solving the problem. “It only provides some breathing space for the government to produce and distribute
more testing kits, increase the rates of testing, ramp up supply of ventilators, and ensure the safety of medical workers, among other things. Without these measures, the lockdown will only postpone the problem.”
Other economists and some political leaders who understand economics agree with Ghosh, because there is tell-tale evidence that the most vulnerable sections are bearing the brunt of the crisis.
The greater part of the non-agricultural work force will have no livelihood for at least 21 days (and possibly longer as the lockdown is slated to continue, given the spike in positive cases). In the absence of massive public intervention, there will be widespread increases in poverty, as the ILO has predicted.
Desperate migrant workers crowding into buses or trying to walk several hundred kilometres back to their villages provide only one indication of the severity of the crisis, which is intense even among people who have not tried to move.
Most importantly, this lockdown affects supply. The dramatic curtailment of production and distribution means that relatively soon, all sorts of shortages will appear. Consumption demand, the real strength of the Indian economy, is also expected to fall due to the collapse of incomes, and private investors will be shaken and uncertain. Many small entrepreneurs will be wiped out as well.
Construction and services sectors will be deeply affected, and finance will also be in big trouble . Besides banking, which is already grappling with a bad loans crisis (caused by Modi’s pampering of crony capitalists ), insurance companies may see their business become unviable depending on the claims that will be made when the dust settles. Ghosh is right in arguing that a ” complete lockdown is, therefore, unjust, inequitable and, in any case, unsustainable for too long.”
“The Modi government’s response thus far has been both draconian and inadequate. The restrictions on mobility and economic activity must be implemented for sure, but with more sensitivity and awareness of the living and working conditions of most Indians, as well as a recognition of the economic damage that it will cause,” she told Southasian Monitor.
Former BJP finance minister Yashwant Sinha, an arch critic of Modi, opposed the lockdown by tweeting sarcastically — ‘Some people think before they act, some people think after they act, some people do not think at all’. He said India’s economy will be put back by 21 years if the 21-day lockdown is further extended.
Congress leader Rahul Gandhi insisted that Modi needs to ensure that the most vulnerable and the poor are protected comprehensively. ” India has to fight COVID with an India- specific strategy and consultation. India needs to prepare for the economic devastation,” he added.
When Modi asked for suggestions from Opposition leader on how to fight the virus, Congress president Sonia Gandhi demanded a complete ban on media advertisements – television, print and online – by the government and public sectors undertakings (PSUs) for a period of two years, with the exceptions being advisories for COVID19 or issues relating to public health.
“Given that the central government currently spends an average of Rs 1,250 crore per year on media advertisements (not including an equal or greater amount spent by PSUs and government companies), this will free up a substantial amount to alleviate the economic and social impacts of Covid-19,” she added.
The Congress chief also sought immediate suspension of the Rs 20,000 crore Central Vista project that seeks to construct new parliament buildings and many official spaces . “At a time like this, such an outlay seems self-indulgent to say the least. I am certain that Parliament can function comfortably within the existing historical buildings. There is no urgent or pressing requirement that cannot be postponed until this crisis is contained. This sum could instead be allocated towards constructing new hospital infrastructure and diagnostics along with equipping our frontline workers with personal protection equipment (PPE) and better facilities.”
In her third suggestion, Gandhi sought a proportionate reduction of 30% in the expenditure budget (other than salaries, pensions and central sector schemes) for the central government as well.
“This 30% (Rs 2.5 lakh crore per year approximately) can then be allocated towards establishing an economic safety net for migrant workers, labourers, farmers, MSMEs and those in the unorganised sector,” she added.
The Congress president also urged Modi to put on hold all foreign visits, including that of the President, the Prime Minister, Union ministers, chief ministers, state ministers and bureaucrats. “Exceptions can be made in
case of special emergency or exigencies in national interest to be cleared by the PM. This amount (which is around Rs 393 crore for just the Prime Minister and Union cabinet’s trips in the last five years) can be utilised extensively in measures to combat COVID19.”
In her fifth suggestion, Gandhi demanded transfer of all money under PM-CARES fund to the PM-NRF. “This will ensure efficiency, transparency, accountability and audit in the manner in which these funds are allocated and
spent. It seems like a waste of effort and resources to have and create two separate silos for the distribution of funds. I understand that Rs 3,800 crore approximately are lying unutilised in the PM-NRF (at the end of FY2019).
These funds, plus the amount in ‘PM-Cares’, can be utilised to ensure an immediate food security net for those at the very margins of society,” she said.
There is no indication whether Modi will accept these suggestions because he usually does not. So when Modi asked his countrymen to light candles, bang utensils and clap loudly to support the fight against Covid, Congress MP and former UN diplomat-turned author Shashi Tharoor fired a cryptic tweet: “Listened to the Pradhan Showman. Nothing about how to ease people’s pain, their burdens, their financial anxieties. No vision of the future or sharing the issues he is weighing in deciding about the post-lockdown. Just a feel-good moment curated by India’s Photo-Op Prime Minister!” he said.
Modi’s government has been pulled up for ‘giving peanuts when mountains are needed’ over the $23 billion package announced by finance minister Nirmala Sitharaman, on March 26. Economist Jayati Ghosh said “is so small that it is embarrassing. The grandiosely named “PM Gareeb Kalyan Scheme” is mostly a tweaking of some benefits of existing schemes.”
“The new spending proposed in this package would amount to only around 0.5% of estimated GDP—a trivial increase that will do nothing to counter the free fall of the economy. Compare this to other governments that have declared relief and stimulus packages of anywhere between 5-10% of GDP, with more to follow.” Ghosh told Northeast Now.
The macroeconomic concern now is to stabilise an economy that is in free fall, which requires measures to sustain some demand as well as to ensure supplies. Some state governments—notably Kerala, Delhi, West Bengal, Odisha, Rajasthan, and others—have come up with some necessary measures, but they are all cash-strapped and cannot afford interventions on the scale required. The onus is on the central government to ramp up its own spending and provide funds to state governments for both public health purposes and for dealing with the economic consequences. The choice is not easy for Modi, whose management of the economy so far gives very little cause for hope, primarily because of the lack of expertise and experience evident in his team.
Compare Modi to Manmohan, Finance Minister Nirmala Sitharaman to Congress finance minister P Chidambaram, Reserve Bank Governor Shaktikanta Das to previous incumbent Raghuram Rajan (now in the IMF experts team) — you end up comparing battle-hardened veterans who turned round the Indian economy in two decades to a bunch of green-horns more into event management and publicity stunts rather than level-headed decision making.
Modi’s first economic team — Niti Aayog boss Arvind Panagriya, Chief Economic Adviser Arvind Subramaniam ( who turned bitter Modi critic) and RBI governor Urjit Patel — is no longer around.
Sachidanand Shukla, chief economist at Mahindra & Mahindra conglomerate, sums it the challenge: “As we approach April 15, policymakers will have to carefully analyse a tough trade-off – continued lockdown at the cost of longer-term economic devastation, or a rational ‘unlocking’ allowing India to ‘return to work.”
It is clearly a devil or deep sea situation with some prefering to brace for the devil of a virus to the deep sea of economic downslide that will leave millions starving and jobless.