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THE GIST of Editorial for UPSC Exams : 28 March 2020 (How can India contain the economic impact of COVID-19? (The Hindu))

How can India contain the economic impact of COVID-19? (The Hindu)

Mains Paper 3: Economic
Prelims level: COVID-19 pandemic
Mains level: Economic impact of COVID-19 on India

Context:

The COVID-19 pandemic has effectively brought normal life to a halt in India.
The importance of social distancing and a lockdown in curbing the spread of the virus cannot be stressed enough, but these measures also have huge repercussions on livelihoods and the economy at large, which has already been seeing a slowdown over the past year.
In a conversation moderated by Vikas Dhoot, Naushad Forbes and M. Govinda Rao talk of ways in which India can tackle this humanitarian and economic crisis.
Do you see a parallel in recent history to the situation we face globally due to the novel coronavirus?

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Govinda Rao:

This is the mother of all challenges in recent memory. The International Monetary Fund (IMF) says that the 2008 financial crisis comes close, but I think this is much bigger than that.
Possibly, one has to go to the times of the Great Depression. Even qualitatively, it’s a very different challenge, because first you have to save lives, then you have to save livelihoods, then you have to meet with other costs like loss of jobs and production, and supply chain disruptions.
It’s not just confined to one sector or country; it encompasses the entire economy and the world.
So, I think there is no immediate policy instrument that you can put in place because you don’t even know how long the problem will last.
The depth of the problem that you are going to face is dependent on the length of the period for which you are going to close down and the extent to which the virus spreads.

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Naushad Forbes:

Every country is either already deeply affected or is at the start of being more affected.
This is unprecedented in terms of its immediate impact on the lives of individuals from all walks of life.
We have a few additional factors in India: an economy which relies very heavily on informal employment, so our reliance for people’s well-being on the broader economy performing and the markets performing is high, whatever role the state may try to play.
And anything that you change in the functioning of the economy has unintended effects.
We sometimes have, I think, a tendency to act and then plan. I worry about that. For example, on Saturday, all manufacturing companies in Pune were told to shut down.
On Sunday, all trains were stopped. And on Monday, all companies were told, ‘Look, you must keep supporting your staff and contract workers.’
Now, the sequence should have been the reverse: first, you work out which companies will ensure support for everyone across the board and how. Then you stop the trains so that you contain populations [moving].
And then you close the actual sources of employment. If you do it in the opposite sequence, you end up with what we saw on Saturday and Sunday, which is thousands of people crowding into train and bus stations, heading out of town, potentially spreading the virus across the country.
This is obviously an unintended consequence.
We sometimes act first without going into what we actually want to achieve.
The way to achieve ‘social distancing’ is not to announce something which then brings suddenly crowds of people together in a panic [but] to do something for their own security, well-being and longer-term success.
A little bit of thought before we act would really help.
Over the last few days, both the formal and informal sector have come to to a virtual halt. Lakhs of truckers are held up across States and most manufacturing firms have shut down. How will this impact our output and incomes?

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Naushad Forbes:

Everything’s come to a halt. The lockdown is the right thing to do for the country. From everything one reads, [we get the idea that] a lockdown is the way to ensure social distancing and contain the virus.
How do you then limit the economic impact and who do you need to buffer the impact for? Without question, it is the people who are most vulnerable, those who live from day to day and have no savings to fall back on.
Then you look at medium to small companies with very limited staying power. The only way they can actually survive is by not paying people. You don’t want that to happen, otherwise you’d spread that distress in the economy.
You need to address their concerns, either through moratoriums on principal and interest payments or direct salary support, as we’ve seen happen in the U.K., Switzerland and France, to ensure some employment is sustained.
Then you need to extend it to larger labor-intensive companies if they employ 20,000 people and if they don’t have enough money to pay salaries next month we’re going to see something rather critical happen within a week.

Govinda Rao:

One of the biggest problems in the system is the capacity of the state to deal with the problem. The reaction that we have is a knee-jerk reaction. Today, you cannot worry about issues such as fiscal deficit.
You have to save people’s lives. There is a 21-day lockdown and redistribution is a major issue. Thankfully, you have a much better targeting device [Jan-Dhan accounts and Aadhaar] than before. Augmenting the state’s capacity... I don’t know how you’re going to do it.
At 8 p.m., the Prime Minister says we are closing down for 21 days, and everyone runs to the shops and panics. Couldn’t this have been done in a smoother way?
One could have said essential supplies will be available — simply saying there’s a lakshman rekha outside your house, that really scares people.
The immediate issue is to focus on health, which we have never done, and see how you can establish the public health system. And the second is livelihood issues.
Regulatory compliance deadlines have been extended, but non-performing asset recognition norms remain 90 days (of defaults). Would you say this regulatory forbearance is sufficient?

Naushad Forbes:

It’s a classic case of ‘necessary but not sufficient’. These are all the right things to do.
You can have regulatory forbearance and extend regulatory forbearance for returns that have to be filed, but if there is some question on whether you will survive long enough to file your returns, then you need to address that.
If we start by recognising that we have very limited state capacity, then we can think about how to get the desired outcome with an assumption of limited state capacity.
For example, I would like to see a massive publicity campaign on what social distancing means and why it’s important to do. Regardless of what announcement comes, people should know not to crowd outside a shop together.
And if my action in announcing something is going to prompt just this, let me first send out all the reassurances that grocery stores will be open.
The government has said that, but if you read the actual notification, it doesn’t say how groceries will get to homes.
There are some vague references to it being delivered. That sounds to me like a horrendous task to take on if state capacity is limited... delivering groceries to 1.3 billion people. Instead, rely on people going and doing the right thing.
So, you say, ‘grocery stores are going to be open and here are the rules under which people can go and buy groceries.
Grocery stores can decide for themselves if they wish to be open 24 hours. We will allow a maximum of so many people per square foot.

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Govinda Rao:

A lot of things can now be done at home with online trading. To the extent that crowds can be avoided, it is important. But that doesn’t mean that you should shut down the stock market. It is a barometer... in the immediate context, it may not tell you what your economy’s doing if something is happening the world over. But you don’t kill the messenger, it gives you a message.
Three weeks from now, what would be the best-case scenario for us to be in?

Naushad Forbes:

We should, by the way, do some scenario planning for what’s the best- and worst-case scenario and what’s in between.
For those scenarios, we must have action plans in place that are transparent so people can prepare accordingly.
The best-case scenario to me is that the three-week lockdown delivers. We shouldn’t expect the rising trend of cases to change for a minimum of 10 days before a successful lockdown can have an effect (because of the gestation of the virus).
The best-case scenario is that 10 days from now, we start seeing a flattening of the growth rate. A few more days later, we see the curve starting to turn down.
Then we can say the lockdown is working, now how do we start working towards recovery. We should put those plans in place now.
We will not go back to normal from day one, where everyone can do whatever they wished.
Can all manufacturing start again? Does everyone show up at work all at once?
If you have the curve pointing down sharply, maybe 50% can come back and we’ll see for another two or three weeks how that sustains.
Shops can open again, but with limited operations and all the social distancing in place. You probably should not allow anything which involves mass gatherings of people even in the best-case scenario.
So, you’re not going to have large conferences, movie theatres, sports stadiums. Those will come last. I really think there’s a lot of value in this plan being as transparent as possible.

Govinda Rao:

The first thing that the government will have to do immediately is massively ramp up testing. We have not done enough testing as yet and do not know the magnitude of the problem.
Even if you take the best-case scenario after three weeks, this will be different in different places.
You may have to look at differential relaxations in a calibrated and transparent manner and say that areas with these trends can allow some of these activities.
My own feeling is that after 21 days, there will be some areas where you can have economic activities without much movement, and restrictions will have to continue elsewhere.
But we should be prepared for the long haul. Life is not going to be easy.
My big concern is about children not going to school. Some from well-off families may learn on the computer, but what about those children who cannot go to school, can’t play, or do anything.
About 40% of the population is in the age group of zero to 14. We really have a crisis brewing there.

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Prelims Questions:

Q.1) With reference to the Light Combat Aircraft Tejas, consider the following statements:
1. It has been indigenously-designed and manufactured by Hindustan Aeronautics Limited (HAL).
2. It is an Indian single-engine, delta wing, multirole light fighter.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. None