R Srinivasan

Where is the vaccine for the economy?

R Srinivasan | Updated on March 19, 2020 Published on March 18, 2020

As the coronavirus sends the economy into ICU, old approaches simply won’t work

The Director-General of the Indian Council of Medical Research, Balram Bhargava, has asserted that India is still in ‘Stage 2’ of the coronavirus pandemic — with cases still being transmitted locally — and not in Stage 3, when it spreads rapidly through the community. This claim is based on a random sample testing of 500 people, who turned out to be not infected.

Now this may well have been done to prevent panic from spreading among the general populace (after all, the ICMR is a scientific body and I am sure its scientists know the statistical relevance of a sample size of 500 on a base population of 1.38 billion). This is quite understandable, but it would be a terrible mistake if our planners and policymakers start taking propaganda messaging as the basis for their contingency planning.

Look at how European nations are responding. Admittedly, they are at a much more advanced stage of spread of the infection. But the response, after initial fumbles (though the UK continues to be an exception in terms of its public health response) has been both swift and massive.

On March 17, President Emmanuel Macron told the French that the nation was “at war”. While the French government has used extraordinary powers to bring several healthcare-related firms under public control — a sort of nationalisation — and declared a state of emergency to clamp down on the spread of the disease, the economic response has been much more significant.

Tiding over the crisis

Macron said he expects the Eurozone’s GDP to contract by 1.2 per cent this year and the early next. France has pushed a special package amounting to 2 per cent of its GDP to deal with the crisis. It has underwritten €300 billion of guarantees for corporate debt (almost 17 per cent of current French corporate debt, according to financial news agency Bloomberg), which banks are being encouraged to bridge. In addition, there is a $50 billion fund for small businesses hit by the shutdown. Such businesses can also claim a temporary suspension of rent and energy bills during the crisis period. French companies can postpone paying their tax dues by a simple email (an estimated €10 billion a week loss to the treasury), and those which can prove they have been “directly hit” by the outbreak can apply for tax rebates next year, while a ‘solidarity’ fund aims to recompense workers who have lost wages as a result of widespread shutdowns, to the extent of 75 per cent of their earnings. All this, Macron hopes, will first limit the contraction in GDP to 1 per cent this year, and hopefully help the French economy to rebound faster.

In Italy, the country worst hit by the Covid-19 outbreak outside of China, the problem is more acute because of its poor economic health. Nevertheless, it has stepped up financing for its public health system, and extended the coverage of its “redundancy fund” to the entire national territory. Even firms employing less than five members can claim this fund, which means workers get paid for a minimum of nine weeks after being laid off due to a virus-induced shutdown. Almost five million self-employed persons will get €600 a month, tax free, as assistance to tide over the crisis. A $28-billion emergency fund will help small businesses, while $650 million will be spent on ‘renationalising’ bankrupt national carrier Alitalia so that Italians are “never stranded abroad again”.

In Spain, the second-worst hit European state, the entire public health system has been ‘nationalised.’ In addition, the government is giving $110 billion of loan guarantees for companies, a moratorium on mortgage payments and utility bills and a $658-million fund to help vulnerable people.

In the UK, which has been massively criticised for its inept handling of the public health crisis, the response on the economic front has been much more decisive. In a package which may end up to as much as 12 per cent of GDP, UK Finance Minister Rishi Sunak (son-in-law of our own Infosys’ Narayana Murthy) promised £330 billion of loans and guarantees for businesses to help them pay wages and suppliers. He also announced a ‘business interruption loan’ scheme for smaller businesses, of up to £5 million each, and £25,000-cash grants for tiny businesses. In addition, all mortgage-payers will get a three-month holiday. He also announced a tax holiday for small businesses.

Impact inevitable

India needs to learn some lessons quickly from these examples. It doesn’t matter whether we are in Stage 2 or Stage 3 — the impact is inevitable, and it will be severe on the economy. There will be large-scale job losses and millions of small and large businesses will face an existence-threatening crisis.

India’s vast army of self-employed and daily-wage workers will perhaps be the hardest hit of all. Any kind of extensions of the kind of shutdowns already being imposed across the country will simply destroy any chances of self-sustenance for them. Those who lose jobs during this period will face an even more uncertain future as there is no telling whether these jobs will come back.

At the moment though, the government still appears to be working to keep its Budget projections intact, as evidenced by yet another excise duty hike to garner the benefits of the fall in global crude prices for the exchequer. It is busy using taxpayer money (by proxy at least) to shore up a bank whose troubles are largely self-inflicted. Money which may be needed to help the very poorest of our countrymen in the near future is instead being given as dearness allowance to already reasonably well-paid and secure government employees.

Meanwhile, the biggest employment-generating sectors of our economy — IT and IT-enabled services, automobiles, telecommunications, aviation, hospitality, travel and tourism — and even millions of small, local businesses are on the brink of crisis.

In this scenario, we simply cannot afford any longer to pretend that it is business as usual. We need concrete plans and a well-defined stimulus package to ensure that the economy does not go into catastrophic free fall — and we need it now.

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Published on March 18, 2020
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