* Cash-flows are to small businesses what ventilators are to patients with respiratory infections

*Around the world, governments and companies are looking to decouple their supply-chain dependence on China

US President Harry S Truman is known to have said, only half in jest, that he yearned for the services of a “one-handed economist” — because the ones he knew were forever going “on the one hand... on the other hand.” Equivocation comes naturally to play-safe practitioners of the dismal science, partly because macroeconomics is not quite an absolute science, and for that reason it is difficult for economists to summon up the same certitude that men and women bring to, say, pure sciences such as mathematics or chemistry. Two plus two will always be four, in this world and in the next, but — as the Reserve Bank of India is learning to its dismay — the exertions of mandarins in the cause of opening the liquidity tap and getting banks to lend to down-and-out companies haven’t quite borne fruit in the real world in the way that textbook monetary theories suggested they would.

Worse, in the week leading up to May 3, when a phased easing of the extended 40-day lockdown was under consideration, the failure of the Narendra Modi government to articulate a coherent and comprehensive policy response to the economic shock precipitated by Covid-19 created a vacuum — which the ranks of bureaucratic babudom sought to fill with arguably some of the most regressive fiscal and taxation proposals ever. The finance ministry furiously dismissed these suggestions — which were premised on a return to the growth-stifling high-tax regime of the ’70s — and initiated disciplinary action against the revenue service officers who conjured them up. But even these ministerial fulminations could not fully dispel the sneaking suspicion that the government’s policy weathervane was pointing in much the same direction.

There is, of course, a case to be made against ideological rigidity in times of crises: Pragmatism will also expand the repertoire of policy options in responding to the economic consequences of the Covid-19 crisis. Governments around the world have demonstrated this in the way they have harnessed public and private resources in the short term. Yet, in India, the invocation of policy options that have demonstrably failed in the past points to an inadequate understanding of economic history. It also suggests that the seeds of regressive ‘unthinking’ are implanted deeper in the recesses of India’s elite civil services than had been thought.

This wasn’t the only instance of policy incoherence arising from bureaucratic bungling. Even a straightforward notification permitting stand-alone shops to reopen for business was so wrapped up in convoluted babu-babble that it required clarificatory follow-ups. And the guidelines for a gradual reopening of companies were worded clunkily in a manner that suggested that managers would be criminally liable if employees ever contracted the virus.

The excessive preoccupation with minutiae also revealed a larger failing. In the three months since the world woke up to the gravity of the economic disruption that Covid-19 would wreak, many governments have marshalled an array of fiscal and other policy responses, particularly aimed at keeping small businesses from keeling over. In India, however, the delay in extending such a lifeline could have devastating consequences. Cash flows are to small businesses what ventilators are to patients with acute respiratory infections: Lifesavers. Tragically, the alacrity with which the government acted to enforce the lockdown, owing to a heightened sensitivity to protecting lives, has been missing in its policy response to protect livelihoods.

Thus far, the government has also failed to leverage a potentially game-changing strategic advantage that providence has gifted it. Around the world, governments and companies are looking to decouple their supply-chain overdependence on China. Few countries offer quite the same scale of manufacturing capacity that India potentially can, but other than a fleeting mention of it at Modi’s video-conference with chief ministers, the government has so far not given voice to any plans it may have to seize this opportunity. The mills of manufacturing don’t, of course, grind quite so fast. It will take time — and policy initiatives with single-minded focus — to get things moving. But the near-total radio silence on this front is disconcerting.

Every crisis comes embedded with an opportunity, but it requires clarity of thought to make the most of it. For all the reform initiatives that the Modi government has unveiled since 2014, particularly the goods and services tax, and the architecture for orderly insolvency and bankruptcy, it is difficult to make the case that it is committed to reforms — or even to know what its core beliefs are. Far too often, it has surrendered to a nativist impulse that is faithful to the ruling party’s regressive belief system. And for a man who, as chief minister, championed the rights of states, Modi appears currently to be preoccupied with abridging their revenue-generating capacity.

Zen scholars given to philosophical musings ponder over such abstract questions as “What is the sound of one hand clapping?” The answer is many-layered, but at its core is a message about the interconnectedness of things. It’s a learning that the Modi government might draw from. Tackling the Covid-19 crisis requires coordinated policy efforts by the Centre and the states, not the overreach of a Centre looking to encroach on the rights of states.

And that’s a view that economists, be they one-handed or two-, agree on.

Venky Vembu is Associate Editor, BusinessLine; venky.vembu@thehindu.co.in

comment COMMENT NOW