The lockdown should have been preceded by economic stimulus measures

India has announced a 21-day nationwide lockdown on March 25, even as the number of official Covid-19 infections is at a fraction of other nations who are contemplating such measures, points to a Hobson’s choice. Given the creaking state of the country’s health infrastructure, the fear seems to be that if Covid-19 is allowed to run its course, India’s public health facilities will be swamped by an unmanageable flood of patients. Faced with this grim prospect, the Centre is trying to slow the march of the disease through a draconian lockdown that is set to extract a heavy price on the economy. Whether this lockdown manages to win India’s healthcare system adequate time to cope with the outbreak will be evident only in hindsight. But there are already signs of its crippling economic impact. Industries have had to drastically scale down operations, supply chains broken by restrictions on inter-State movement. While export sectors are grinding to a halt on the logistics logjam, MSMEs are faced with a sudden stoppage of revenues that threatens their very survival. The freeze on construction, hospitality and other services locks lakhs of informal workers out of their jobs. Given this reality, it is quite astonishing that this lockdown announcement has been unaccompanied by any Centrally-driven economic stimulus, either to provide a safety net to businesses who have been co-opted into it, or financial support to citizens who are expected to survive without incomes.

The measures announced so far by the economic task force have been under-whelming. The FM’s ‘package’ on Wednesday offered marginal concessions on deadlines for income tax and GST filings when what was really needed was a deferral or a waiver of taxes during this period. Raising the threshold on insolvency references to ₹1 crore from ₹1 lakh should have been accompanied by regulatory forbearance on NPA recognition. To support wage-earners, the Centre seems to be content with ‘advising’ the private sector not to resort to lay-offs and pay cuts, when it should be bankrolling direct income credits from its own coffers. Indeed, many State governments have come up with far more useful packages entailing cash transfers and food supplies to the poor. India’s financial system meanwhile is showing signs of seizing up, and ensuring their smooth working calls for exceptional accommodation from the RBI, for which the Central budget will need to provide the backstop.

India’s economic response to this crisis is in sharp contrast to other nations who have invoked nuclear options to contain the economic fallouts of this pandemic, ahead of considering lockdowns. The US Fed and the European Central Bank have broken their banks to announce unlimited lines of credit and the UK and the US have pledged direct income support to employees of affected firms. But the Centre’s actions so far suggest its idea of battling the crisis is to demand extraordinary sacrifices from its citizens and private entities, while making few proactive contributions of its own.

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