Stay shut but reopen the economy

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By- Kritika Pandey                             

We are in the second half of the national lockdown but the battle against the deadly pandemic is far from over. Due to the perfidy of the Tablighi Jamaat, the health and police services across the country are further stretched. Hopefully, this challenge too shall be soon overcome. As of now, given the size of the population things seem to be still under control. Our per capita rate of infection is far below that in the more advanced countries with far superior health systems. As the battle against the pandemic enters a crucial phase, the authorities may soon have to think about a staggered reopening of the economy. The shutdown has already inflicted a huge economic cost. By some estimates, it might have led to a loss of up to four per cent of GDP. Precise numbers are hard to come by but along with the rest of the world the Indian economy, too, is set to suffer from a severe recession.

Whether the overall growth in the last financial year was four per cent or even less, there will be a huge loss of GDP due to the lockdown. The prognosis for the current financial year is not very optimistic for it will take at least two quarters for the economic engine to be running at full throttle. There is much debate about the pattern recovery might follow. Whether it would be like the letter V or W or L, indicating respectively a sudden dip and an equally sharp upturn, or a sudden dip and then a moderate recovery before fully regaining the lost ground or, worse, a sharp fall and then stabilising at the lowest levels. No one is certain about it because economics is an imperfect science, relying on a very diverse sets of inputs. But they are always wiser after the event. In fact, some economists argue that following the recession the recovery might mirror the popular Nike’s swoosh, meaning it may not dip sharply but will remain weak for a long time. Whatever the actual numbers, authoritative studies have forecast that India’s economy may yet grow the fastest amongst all major economies, including China’s and the US’s.

However for the complete return of normalcy the government may have to further augment the special coronavirus package unveiled to alleviate the suffering of the people, especially the millions of daily wage earners and the small and medium businesses. Here again expert opinion is divided as to how much more needs to be done to help the poor and needy without inflicting undue harm on the government’s finances. Some insist that the Centre should loosen the purse strings; increasing the bail-out at least three times more than that the already announced Rs 1.76 lakh crores. Fiscal conservatives reason against violating the provisions of the Fiscal Responsibility and Management Act which stipulates an overall deficit of less than four per cent at this point of time. The fear is that a deficit of the magnitude sought by those who want the coronavirus-related assistance package to be bolstered manifold would cause unbearable inflation and pressure the currency which has already lost much value in recent days, ruling at about Rs 76 against the US dollar last week. Given that the FIIs have pulled out nearly Rs 120,000 lakh crore in March from the equity markets, causing a fall of over 53 per cent of the Sensex from its record high earlier this January, an unconscionably high fisc would inflict much pain all-round. It is notable that in March though domestic institutions bought stocks for over Rs 55,000 crores, it failed to arrest the steep fall in indices. In other words, a via-media between the two different schools of thought needs to be found. Yes, the livelihood concerns of the people must take priority over all else, but, at the same time, if the economy tanks due to reckless handouts by the Centre and the States, both the have-nots and the haves would suffer immensely. Poor benefit from robust growth in myriad ways. Post-liberalisation a record number of people were pulled out of poverty. No government can risk a return to a phase of reckless spending without inflicting great harm on economic growth. It is therefore of utmost important that at the end of the 21-day national lockdown, as many sectors of the economy as it is possible without undermining the on-going fight against coronavirus are reopened. A poor country does not have the capacity to sustain a prolonged shutdown. INAV

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