Context: The current Coronavirus crisis requires a medical cure to kill the fear, effective economic actions and sophisticated geopolitical navigation. Till an antiviral is found, economic activity will be constrained, and this will affect people, industries and countries in disparate ways.
- Unknown factors: We don’t know for sure how it spreads, whether people can get re-infected, whether it is mutating, whether the hot weather kills it, and what the real fatality rate is. We don’t know for sure how far we are from an antiviral.
- Ineffective monetary tools:
- The preceding global financial crisis (GFC) has exhausted the efficacy of monetary tools. In addition, corporates globally are leveraged to the tune of $12 trillion.
- The accompanying oil price collapse (beginning due to a spat between producers Saudi Arabia and Russia) has been compounded by a precipitous slump in demand.
- The Chinese economy can’t help as it did during the GFC. There is too much global suspicion of China to allow it to do so. So, countries will largely be on their own.
- US-China Tensions: China’s muscular foreign policy together with its aggressive stance on multiple issues, most importantly on technology and technology standards, has created conflict.
- Failure of global governance: Multilateral agencies, especially the WHO and UN, suffer a complete loss of credibility. India needs to chart its own course in these turbulent times.
- But Indians cannot afford to stay locked much longer. We are too poor and too many of us live on a day-to-day basis — not even on a paycheck to paycheck basis.
Positives for India:
- Oil prices have collapsed, really helping our balance of payments.
- Our food stocks are plentiful, the rabi crop has been good, and the prognosis for the monsoon is positive.
- Aggregate demand is down, and will dampen inflationary impulses.
- RBI has taken prompt actions to reduce rates, increase liquidity, adjust prudential norms, allow moratoriums, and protect financial entities.
- The weakened rupee will help our exports and with a debt to GDP ratio of about 73 per cent, along with better growth prospects, India is relatively better placed than several other countries.
Way forward: The current IMF projections suggest that India will have the highest growth rate in the world this year. For it to happen, we need to act at three levels — health, economic and geopolitical.
- Testing at scale and isolate: India needs to "significantly ramp up" the number of tests done across the country to trace COVID-19 infection cases if the pandemic is to be contained in time.
- Economic measures:
- Given the paucity of tax revenues, the government should be willing to print money
- The PM can make an appeal for private gold from people and temples — it could target 1,000 tonnes of gold worth $30 billion and offer a five per cent tax-free return repayable ($1.5 billion a year) after 10 years, in rupees or gold.
- Providing additional direct benefit transfers of Rs 2,000 every month for three months to Jan Dhan accounts, together with foodgrains release from the FCI, to the tune of around Rs 65,000 crore, to alleviate people’s miseries.
- Protecting MSMEs directly by providing them working capital (with an RBI backstop) and, like in the UK, provide 80 per cent of the salary to employees of the “GST-paying MSMEs” for six months (if the employees were on their rolls in February).
- Launching a massive public works programme (in the nature of the New Deal of FDR) outside the Budget as suggested by the chairman of CII’s National Committee of Infrastructure and PPP. A quarter of its budget should be set aside for strengthening and upgrading primary health centres.
- Expediting pending reforms in agriculture (especially those pertaining to APMC), power (pricing and discoms), banks (government ownership at 30 per cent and bad banks).
- Geopolitical measures: Super-power rivalries will create opportunities to replace China as a major supplier to the US and Japan. But first, we must survive. We can then re-imagine and thrive.
Source: Indian Express
Image Source: Economic Times