No excuse for a niggardly Covid-19 relief package

KP Kannan | Updated on April 13, 2020 Published on April 09, 2020

Faced with the prospect of economic collapse and even starvation, a fiscal package of 10 per cent of GDP is in order. And it is just a question of getting the priorities right

These are not normal times for any country. In one swoop, Covid-19 has proved how fast it can globalise and integrate all countries and people, albeit in a disastrous way. While the Western countries are paying a very high price for their initial lackadaisical attitude, one shudders to think what price India will have to pay, should the situation assume the proportions of those in some other countries.

With two-thirds of its 1.34 billion people having to make do with a hand-to-mouth existence, the Covid-19-induced health crisis could easily transform itself into a hunger crisis for this huge mass of people. With 90 per cent of its workforce without employment or social security, a lockdown means no work and hence no wages, and thus no means to support the family, unless the state steps in decisively and in full measure. A rough calculation of ‘no work no wages’ for the 90 per cent of the workforce translates itself into a wage/earnings loss of at least ₹3.5 lakh crore per month for these insecure, or informal, workers. We are already witnessing this with the current lockdown, that is set to go beyond one month.

A lockdown in economic terms means a simultaneous demand and supply compression that has already halted this large economy, consisting of many small units of production and services. Strangely enough, the expenditure for keeping the health system in an overdrive mode and the attendant support system and minimal exchange of food and medicine are the segments that are contributing to the maintenance of a part, albeit small, of the national income.

The biggest crisis India is now facing is: how to avert mass deaths and probable social unrest due to starvation and fear of death in its quest to halting Covid-19?

Little relief

Extraordinary times call for extraordinary measures. Despite the neoliberal rhetoric of minimal government and the blatant sale of the ‘family silver’ to the big private corporate sector, it is the state — both its national and regional manifestations — that is called upon to save the people, their livelihood, the economy and, in sum, the country at large. While the State governments struggle to respond to both the health and livelihood crises, the initiatives from the national government are minimal at best, and scandalous at worst.

An economic relief package equivalent to less than 1 per cent (₹ 1.7 lakh crore) of the national income has now been revealed to be a mere 0.5 per cent or so, if one were to adjust for existing budgetary allocations.

Despite having a President known for his open and extreme bias towards business interests, the state system in the US has managed to announce an economic relief package close to 10 per cent of its national income. A similar conservative, populist regime in the UK did not prevent it from announcing a relief package of £375 billion, equal to around 17 per cent of its national income. Similar responses have already emerged from a number of countries.

The Indian government’s relatively timid response is nothing but a political tragedy that the people — ever patient as they are — don’t deserve. Is this because there are no options for the Indian government to mobilise the required resources?

Mobilisation of funds

A sovereign national government has an enormous number of options to raise resources, including creating new money and spending it in such a way that it meets the effective demand of the working people, which will be least import-intensive given the fact that it would be mostly spent on wage goods that would support the local economy from collapsing. It also has the option to cut down on non-essential expenditure.

Budget reallocation would be a much needed exercise in times of national crisis. States are reeling under financial pressure and should be immediately taken care of by transferring money to them. Here are a few more examples which could be discussed: An amount close to at least 10 per cent of the national income should be treated as the target for fighting the twin crises of Covid-19 and the loss of livelihood that constitutes the effective demand for the economy.

That gives a target of ₹20.1 lakh crore. If the fiscal deficit is doubled, it should give an additional amount of ₹10.9 lakh crore (another 2.2 per cent of national income for the Government of India and 3 per cent for the States). This will be new money.

To this, the Government of India should add the ₹1.44 lakh crore that was gifted to the private corporate sector. That would be a small acknowledgement of its primary obligation of protecting the lives of the vast masses of working poor and their families in this hour of crisis. And then there is the oil bonanza. Reports suggest that the profit of the Government of India as a result of declining oil prices since 2014 has been a staggering ₹20 lakh crore. The latest decline is expected to net around ₹3.5 lakh crore this year. And at least this much could be diverted for meeting the current crisis.

Budget rejig

As for Budget reallocation, there should be a closer re-examination to reduce non-essential expenditure as well as reallocation of priorities. Do we realise that it is the Ministry of Home Affairs with its large and several contingents of paramilitary forces which gets the second-highest priority in the Union Budget? The Budget allocation of ₹1.19 lakh crore in 2019-20 was hiked by 41 per cent to ₹1.67 lakh crore in 2020-21. This hike can, and should, be rescinded and given over to the Ministry of Health that gets a sum equal to a mere 41 per cent of the Budget allocation of the MHA! Policing the people seems to trump over their health security, no doubt.

Similarly, the luxury of re-building the central vista in and around the Indian Parliament can wait and the allocation of ₹20,000 crore can easily be added to the economic package. So can the frequent travel of the Council of Ministers and bureaucrats. Shaving off a 15 per cent from the Budget allocation of all Ministries except Health, especially when no worthwhile expenditure is incurred in times of lockdown, should not be a pain at all. A sum of ₹4.5 lakh could thus be diverted to protect the lives of people and the demand and supply systems of the economy at the same time.

An amount of ₹20.34 lakh crore thus mobilised will be equal to 10 per cent of the national income, with 2.1 per cent coming out of Budget reallocation, thus lessening the effective mobilisation to around 8 per cent. This would set an example, hopefully, for the big private sector to pitch in with contributions in money and/or in kind that will ultimately turn out to be in their self-interest.

Civil society organisations, numerous as they are across the breadth and length of this country, have already come in with their meagre resources but enormous empathy and labour to provide some succour to the suffering people. That needs more encouragement, recognition and elevation to a higher order of politics of humanism in these troubling times, in more sense than one.

The writer is a development economist. He was a Member of the erstwhile National Commission for Enterprises in the Unorganised Sector

Published on April 09, 2020

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