Need of the hour: Kick Starting or Rejigging Economy


(Brig (retd) GB Reddi)

“Lockdown”, if prolonged, is likely to be catastrophic that will cripple Indian economy as per commonsense.

Even higher authorities in the government recognize it.

Lessons of success stories from Taiwan, South Korea, Canada, Georgia, and Iceland  show that COVID-19 can be stopped by pro-active measures to include inspecting travelers coming from outside, setting up a system to track those in self-quarantine, and ramped up production of medical equipment including surgical face masks.

The government also realizes that “Lockdown” and “Social Distancing” per se cannot stop the spread of COVID-19.  Until date, the focus remains on enforcing that “Lockdown”, “Social Distancing” and “Quarantine” measures. Admittedly, such measures were needed to sensitize people to the horror prospects of “COVID-19 Pandemic” uncontrolled spread.  The purpose is almost achieved, particularly the need to maintain “social distancing”. Next, stage or phase wise selective relaxation is the need.

Indian economy has almost certainly entered a contraction, if not already.  And, the real challenge before Modi-led NDA government and the State governments is to take bold decisions as to when to “Kick start and how to Rejig” the economy and implement them on war footing.

Ipso facto, small and medium scale business enterprises, and real estate, are the worst hit or on virtual breakdown due to “nationwide lockdown” status. Migrant labor is mostly linked to Small and medium scale businesses, and real estate. Majority of migrant labor have returned to their homes. It is not simple to enable them to return to their jobs in cities and towns.

The real frontline heroes, besides the Doctors and health care workers, are, therefore, migrant labor. Go to any corporate private hospitals in Hyderabad, they provide labor to keep them afloat.  Similarly, they constitute the bulk of labor force in MSMEs. The scenes of migrants forced by speculative rumors and lockdowns to walk hundreds of miles home from India’s major cities and towns was most depressing. Surely, the State administrations could have contained the exodus by timely action.

Elsewhere, their absence has deepened the sense of crisis. Now, interstate border closures and travel bans have deprived them of the migratory labor to restart their production activities.

The government faces a “Hobson’s Choice”. To restart business and production only when the curve of the virus spread flattens, which is not easy to determine, is a “high risk” decision. Economic recovery without risking more lives, particularly small and medium scale businesses, is an imperative. Even automated industries like the auto and even steel and cement industries expeditious revival must be considered.  It has to balance resuming work while remaining vigilant.

As per the latest media reports, Ministry of Home has issued guidelines for opening and reopening of various establishments. And, the responsibility for implementing them pragmatically now rests with the State governments. No point in blaming the Central Government for their failures to respond as per local situational requirements. After all, identification of “COVID-19 Hotspots” and “Free Zones” is best ascertained at the State Governments level.

What are the realities? In Hyderabad City, vegetable supplies have been resumed after the first two days of lockdown. Food production is normal and fine in rural areas.

Restrictions on essential commodities, retail shops and medical outlets have also been lifted. Also, pharmaceutical industry has been allowed to function in various states. The country may boast of stocks of paddy to last more than one year. But, what about rice stocks what with “Lockdown” status of rice mills?  And, they are not manpower-heavy establishments. Surely, reopening of rice mills must be permitted. Similarly, other production enterprises of products sold in retail shops.

Furthermore, the real problem in agricultural sector is transportation restrictions from auction platforms-wholesale markets to intercity and inter-state distribution that is still blocked and its lifting is the challenge. If continued, hoarding in the “Mandis” and godowns, in turn, create problems.

All sources of medical supplies to include industries producing “Ventilators” and “Masks” must be encouraged and incentivized to operate.

Next, India cannot compare itself with either the U.S. or China to provide financial support to millions of unemployed poor. Millions of workers, shoppers and students cannot remain restricted to homes as a precaution against spreading the virus without adversely impacting economy.

 The burden of providing financial succor to jobless migrant labor will further erode the financial state of both central and state governments. Poor will certainly take to streets demanding the State to meet their day-to-day livelihood needs.

It is, therefore, an imperative to kick-start economy without triggering a third-stage – community transmission – eruption of Coronavirus cases. It’s a high-stakes challenge for all governments at the Center and States.

Moody’s COVID-19 Map model given below provides “A” suggested basis for giving relief from “Lockdown” restrictions:


Time is, therefore, ripe to simultaneously review the relevance of continuance of “Nationwide Lockdown” status at State levels instead of looking over the shoulders to the Central Government. Selective lifting of “lockdown” is necessary to revive the economy on the basis of requirements and local COVID-19 crisis developments and situation.

Officials around the world are agonizing over how long to maintain curfews and quarantines that are essential to curb the pandemic but which are tipping the world into a deep recession, possibly even an economic depression.

In my earlier article in January 2020, the need to COVID-19 outbreak to be viewed as an opportunity to exploit with regard to producing medical supplies.  If so, the government needs to make special arrangements for workers to return to their work stations.

The USA and Western nations are weighing enormous tradeoffs while the virus remains a global threat. In the United States, Donald Trump has been arguing that the country will have to reopen for business “very soon” even though the virus is “going to be bad.” Until date, Abe has not imposed state of emergency in Japan. So also, South Korea has kept COVID-19 at bay without a total lockdown.

The study of total “Lockdown” in Wuhan province provides lessons. Today, China too is selectively lifting restrictions to “Jumpstart economy”.

In retrospect, the data of incidence of COVID-19 state-wise is available, surely those states where the rate of incidence and fatalities are very low and contained, the decision to lift the “lockdown” may be best left to the State Government’s to decide. The drastic measures appear to have kept the virus under control, particularly community transmitted infections.  Of late, most of the cases reported are from the “Markaz” event. The ongoing drive at improving the availability of testing, equipment, emergency supplies, hospital capacity, and treatment is paramount for public health and the well-being.

Now that the number of infections is slowing down and restricted to pockets, many parts of the country can explore the feasibility of lifting lockdowns, removing road blockades and allowing people to travel more freely in areas where the virus appears to have run its course — as long as they have documented proof that they are healthy.

If white collared office workers wear protective masks are allowed to carry out their routine office duties, it may be worth considering applying the same rule on selective basis in various fields and authorized with special passes.

To save the economy, both the Central and State governments must formulate a slew of policies and campaigns meant to push people back to work, encourage business confidence and protect as many companies from failing as possible.

The government is a major part of the economy. Every day crores of rupees are paid to the government and paid out by the government. Prudent policy would be to delay payments (tax filings, student debt payments, and small business loan payments) as much as possible to help households and firms through the most challenging months in the downturn. A word of caution. Staggered payments can also result in backlash. Instead, austerity particularly extravaganza, must be curbed.

State government must order State Road Transport Corporations to organize special convoys to carry migrant workers from “the door of their house to the gate of the factory.” After all, overwhelming 120 million people or more are estimated to migrate from rural areas to urban labor markets, industries and farms, which perform low paying but vital work that are critical drivers of the economy.

At the macro level, the initial Central Government and Reserve Bank of India’s monetary policies are just the first infusion to sustain the economy with prolonged “Lockdown” restrictions and lay-offs.

Speed is the essential parameter. Direct Beneficiary transfers are good ways to provide needy succor to the real beneficiaries. The Finance Minister, Ms. Nirmala Sitharaman, has announced the stimulus package, which is only the first installment – mostly welfare measure. By conservative estimates, the requirement is additional spending of at least INR5 lakh crores to avoid full blown recession. Direct transfer to  BPL families is laudable until social distancing and other restrictions are lifted. And, the World Bank announced US $. One billion loans.

States are on the front lines of the pandemic. Protecting their citizens will raise public safety and public health expenditures. Making sure states have adequate resources to fight the downturn is a crucial part of a public health response.  The Central government is already under pressure to provide financial support to states. After all, States have limited capacity to borrow, revenues go down (due to lower tax returns), and when their costs go up (due to health and public safety measures) they are often forced to seek central allocations.

The primary goal for fiscal policy at present should be to cushion the downward shock as much as possible and set the conditions for the economy to bounce back after the restrictions on economic activity are removed. At present, fiscal policy responses are primarily aimed at cushioning the blow to households,  and firms. That alone will likely require the largest single fiscal policy package ever. The RBI has lowered the interest rates and deferred EMI payments etc., to promote liquidity in financial markets. These actions are important, but unlikely to shield the economy from widespread damage.

The first set of RBI announcement to make it easier and less expensive to borrow, encouraging firms and consumers to accelerate investment and purchasing decisions are encouraging.  Even, private sector needs to be financially assisted to restart those firms that have gone bankrupt to restart firms, rehire workers and reactivate supply chains in order for the economy to rebound once social distancing restrictions are lifted, particularly small- and mid-size firms through loans.

Furthermore, the government also needs to accelerate payments to suppliers and vendors to improve their cash flow during this difficult time. None of these actions entail true budgetary implications as they simply rearrange the timing of payments, but given the government’s ability to borrow at near zero interest rates and the challenges many families and businesses are facing in the short term, these actions could help.

The War on COVID-19 Pandemic has just begun. To win the war, many more battles have to be fought on all fronts. There are no magic wands available to win the war. Nation must be prepared for the worst to still follow particularly to overcome the economic depression or repression.