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(GIST OF YOJANA) Preparing India for an Uncertain Post-Covid World

[November-2020]

The world economy experienced a major crisis in 2020 due to the Covid-19 pandemic. This is the biggest shock to the world economy since the Great Depression of the 1930s and World War II.

Indian policy-makers too faced a challenging period on both health and economic fronts. As we move past the peak of the crisis, however, it is important to record our thoughts from this time.
Future historians will have the benefit of knowing the outcomes of today’s decisions but it is important to explicitly note down why certain decisions are taken while situation was still evolving and considerable uncertainty prevails.
This will hopefully also help future generations when they find themselves in similar conditions of extreme uncertainty.
At the same time, it is important to provide a framework for thinking coherently about an emerging but not yet clearly established post-Covid world. This essay is an attempt to do both.

It is important, firstly, to explicitly lay out the intellectual framework of India’s response to both the health and economic challenges caused by the pandemic.
The central problem in both cases related to making major decisions under conditions of extreme uncertainty and paucity of information; what can be dubbed “the fog of war”.

The Covid-19 pandemic is the biggest global disruption in generations. The post-Covid world that emerges from this crisis will not be a mildly-altered version of pre-Covid world. This new world will have its own geo-politics, supply chains, technological innovations, institutional structures, consumer preferences and so on. All of these factors will interact in multiple, unpredictable ways.
Therefore, it is very difficult to make grand predictions about how exactly the post-Covid world will function. After all, it would have been difficult to predict in 1940 that British and French colonial empires would collapse within a decade, that global geo-politics would be dominated for half a century by a US-USSR Cold War, that man would set foot on the moon, and that televisions would become everyday items.

Rather than invest in a rigidly master-planned response, it is better to invest in two things: flexibility and resilience. This is the context in which recent supply-side reforms need to be seen. Even a cursory look at recently announced structural reforms would show that they have one thing in common: an attempt to encourage flexibility and adaptation in India’s economy.
The agriculture sector reforms free-up farmers to sell their produce as they wish while those involved in the supply chain can invest in storage without fear of being labeled “hoarders”.
This will allow the farm sector and farm-related industries to adapt their activities to changes in demographics, climate change, consumer tastes and so on. India has the world’s second largest stock of cultivable land and there is no reason it shouldn’t be an export powerhouse in agriculture.
Similarly, dozens of central labour laws have been reduced to four internally consistent codes. On one hand they strengthen laws related to safety and working conditions, on the other hand they allow employers greater flexibility.

The main idea of self-reliance is that India should become more resilient by leveraging its internal strengths. It should also be unapologetic about pursuing its national interests. For example, the Indian government decided to opt out of Regional Comprehensive Economic Partnership (better known by the acronym RCEP) as it felt that the trade arrangement did not serve national interest.
This is not an ideological opposition to trade pacts since other trade deals will continue to be pursued where India has more to gain. Similarly, India’s globally competitive pharmaceuticals industry was found to be too dependent on critical imported inputs with supply lines that can be easily disrupted (as happened during the recent pandemic).
Hence, an effort is being made to bring some of the input production back to India. Again, note that this is not about protecting an inefficient industry but about the resilience of a globally competitive one.

The world has just experienced the biggest shock since World War II. The immediate response is well underway.
Based on a “barbell strategy”, India’s economic and health response has been somewhat different than that of other countries in terms of sequencing and emphasis of various measures. The cycle has not yet fully played out but, as the economy gets fully unlocked, the emphasis will shift towards stimulating demand using infrastructure investment. The long-term response, however, is aimed at making the Indian economy more resilient and flexible in order to deal with the opportunities and problems of the post-Covid world.
Recent reforms in agriculture, labour markets and the financial system should be seen in this light. This is also the context for Atma Nirbhar Bharat. Of course, many other areas also need change but arguably the administrative and legal systems should now be the focus of the next generation of reforms.