A blueprint to revive the economy
A carefully crafted economic proposal for consideration of the Indian government to help our fellow citizens
- A lockdown is necessary to prevent the spread of COVID-19. But we need not make a choice between saving lives and protecting livelihoods.
- We can achieve both through a ‘smart’ lockdown and careful economic management.
- The phrase ‘Greater Depression’, which has entered the vocabulary of economists, highlights the gravity of the humanitarian and economic crisis confronting us today.
- Every sector of the economy in every nation has come to a screeching halt.
Demand, supply challenges
- First, it is important to diagnose the scale of the economic crisis accurately. The economic crisis needs a demand side and a supply side response.
- It is morally imperative that we immediately address the miseries of the poor and vulnerable by providing money as well as food.
- The bottom half of all households (13 crore out of 26 crore families) must be given ₹5,000 per family in their bank account within a week. The States have their ‘below poverty line’ lists.
- This will cost a maximum of ₹65,000 crore. Further, depending on the need, for the month of May, these families can be given ₹3,000 each. This will cost an additional ₹39,000 crore.
- The government must universalise food distribution immediately, to remove identity requirements, and work with State governments to rush supplies to every ration shop so that every family gets free grain.
- District collectors should be given the freedom to start and expand works under MGNREGA.
- If work cannot be given for some reason, 10 days’ wages every month should be paid to the registered MGNREGA workers in the panchayat/block until the scheme is resumed.
- The Central and State governments must work in tandem to identify hotspots, preferably at the level of the block/mandal and not just at the district level.
- The new guidelines must be expanded to permit all economic activity (with a few exceptions) in non-hotspot areas.
- Continuous testing and monitoring will be needed as new areas may turn into hotspots and hotspots may become non-hotspots.
- Let small shops, service establishments and the self-employed start commercial activity in their areas.
- The new guidelines permit agricultural activity during the rabi harvest season.
- However, the constraint for all these commercial and agricultural activities will be the availability of labour for which re-opening of travel and transport is crucial.
- It is necessary to open up rail and bus transport with adequate precautions such as temperature checks and social distancing norms inside buses and trains.
Funding the revival
- A majority of the small and medium enterprises (SMEs) would have run out of cash and lost significant revenues. No bank is likely to lend to them.
- The government must step in to provide credit guarantees that can incentivise banks to SMEs.
- The idea is for the government to help formal sector businesses to keep workers on their payroll without resorting to retrenchment or lay-offs.
- The 2017-18 Economic Survey estimated, using the Employees’ Provident Fund Organisation (EPFO) data set, that there are 40 million employees earning less than ₹15,000 per month who are employed in firms registered under the Goods and Services Tax (GST).
- Exports can be the key to jobs for hundreds of millions of skilled and unskilled workers.
- Fiscal stimulus measures on the demand and supply side must be supplemented by monetary stimulus from the RBI with re-designed measures such as moratorium, loan forgiveness, regulatory forbearance, revised NPA regulations and easing the cycle of credit flow.
Money versus myth
- The Centre can borrow money during times like this without crowding out private investment or pushing up interest rates.
- As a final resort, the government can monetise part of additional deficit, otherwise known as ‘printing money’.