Economy

The Lockdown Backfired and Modi Has Only Himself to Blame

Had India done what Malaysia did – kept everyone where they were by ensuring that their economic futures were not imperilled by the lockdown – we would have been in a much better place right now.

At the beginning of India’s national lockdown, Prime Minister Narendra Modi asked the nation to endure the coming disruption of their lives with stoicism.

“The Mahabharata war was won in 18 days, this war the whole country is fighting against coronavirus will take 21 days,” he said on March 25 in an address to the people of Varanasi.

Not for the first time in the past six years, Modi made a promise he could not keep. On March 25, when the lockdown began, there had been 606 reported cases of COVID-19, of which 87 had been added in the previous 24 hours. As of the time of writing, the corresponding numbers are in excess of 2.97 lakh, rising by an average of 10,000 a day.

Prime Minister Narendra Modi addressing the nation. Photo: PTI

The only sliver of a silver lining today is that the ratio of daily recoveries to new cases has been rising steadily and is now almost 50%. The current spike, mostly attributed to migrant workers returning to their home states, has slowed this to a snail’s pace but not stopped it altogether. If the trend is maintained, the number of active cases will reach a peak and begin to decline in two-three months from now, i.e five-six months after the declaration of the lockdown. That will be a far slower start to recovery than any other country has witnessed from similar lockdowns so far.

What went wrong? The experience of most western European countries has shown that the tougher the lockdown, the sooner has a country reached a peak in the daily addition of cases, the more rapid has been the decline afterwards. When asked why this has not happened in India, BJP ministers and spokespersons, and government officials have brushed the question aside, in essence saying that those are rich nations and our problems are entirely different.

Also Read: Delhi: Traders Report Poor Footfall and Earnings as India Slowly Unlocks

Malaysia’s lockdown

But if that is so, how do Modi and his government officials explain the extraordinary success of Malaysia, a middle-level industrialised nation that was far poorer than us only 40 years ago?

In many ways, the Malaysian government ’s lockdown experience has been similar to ours. It announced a national lockdown on March 18, six days before we did, designed to end on May 12 a week before our phase 3. But on May 4, under pressure from industry, when it lifted some controls on public transport, and congregation in workplaces, four out of its 13 states refused to implement these. On May 10, following a public petition signed by half a million Malaysians, it extended this partially relaxed lockdown for another month till June 9.

A worker sprays disinfectant at a mosque, which is closed during the movement control order due to the outbreak of (COVID-19) in Kuala Lumpur, Malaysia. Photo: Reuters/Lim Huey Teng

It is the impact of the two lockdowns that has been starkly different. For unlike ours, Malaysia’s has been a total success. The infallible yardstick there, as here, is the new case to recovery rate ratio. Starting from 13% of new cases on March 18, the recovery rate rose rapidly till it exceeded the number of new cases for the first time on April 6 and then stayed above it for 53 out of the next 64 days till the lockdown was lifted on June 9. By June 8, the total number of COVID-19 cases the country had experienced was 8,319. The number who had recovered was 6,694 – 80%. The number of new cases on June 8 was only seven.

Also Read: In a Post-COVID-19 World, the Only Way Ahead for India Is Economic Federalism

Malaysia’s success cannot be ascribed to a higher level of development, better health service or more efficient administration. It arises from the government’s very different concept of its duty towards its people. From the incipient, planning stage of the lockdown, the government recognised that the severe dislocation of the economy it would cause could not be compared to an economic recession or a natural disaster. The first resulted from vagaries of the domestic and international market and could be mitigated by countervailing policy measures. The second could be as catastrophic as a lockdown but the government could not be blamed for it. But the lockdown was a conscious act of government. It therefore imposed a specifically moral obligation upon the government to make sure that the victims – employers and employees – suffered as little from it as possible. Malaysia’s Prime minister, Muhyiddeen Yassin accepted this from the outset. Modi did not and still has not.

The Malaysian government, therefore, recognised that the lockdown would cause a crash in sales and drying up of revenues. This would make it difficult for employers to meet their fixed costs and wage bills, and destroy income and demand. This had to be prevented at any cost. The government, therefore, decided to spend whatever was needed to meet the production and minimum wage and salary costs that would have to be paid to keep factories in working condition and workers in place to resume work when the lockdown was lifted. It estimated that this would require it to provide fiscal stimulus of up to 14% of its GDP. Indeed its preliminary estimate was 17%. This was the highest deficit financing limit set by any country in the world.

As a result, Malaysia has suffered little or no social or economic dislocation from the lockdown. Although a large part of its 15.8 million labour force consists of internal migrants, and several million more are foreign workers, the sudden loss of income, home and security that has driven more than 10 million despairing migrant workers in our country to set out for homes in distant villages by any means possible is signally absent. Instead, the government has put pressure on employers to register their undocumented foreign migrant workers and provide them with the dormitory accommodation that is required by law. Their number, fortunately, is relatively small because, again unlike us, the state has a law that requires employers to register all new employees with the social health authority within 30 days of hiring them.

India’s lockdown has failed because the sense of moral obligation that has driven Malaysia’s policies is completely absent. In its place Modi made prayashchita (atonement) the guiding principle of policy: a great evil had descended on the world. To fight it, one had to be willing to suffer.

Crash in demand

The crash of demand that has followed the lockdown is, therefore, one that no other economy has experienced. The demand for electricity fell by nearly 30% in April. The demand for transport fuels fell so sharply that oil refineries had to halve their production.

Maruti, the automobile industry leader, did not manufacture a single car or commercial vehicle in April and almost none in May. It met the few export orders in hand from stocks that had accumulated after the sudden imposition of the GST last year.

The Maruti plant in Manesar around which several ancillary activities have grown, giving employment to migrant workers. The lockdown meant cessation of work, no wages, or partial payments. Photo: Rahul Roy

Bajaj Motors, the other Indian automotive giant, sold no vehicles in India in April. It continued to produce at a skeleton level, but entirely for export. Even there it experienced a fall of 80% in sales (32,009 two-wheelers and 5,869 three-wheelers in April, against 160,393 two-wheelers and 38,818 three-wheelers in the same month in 2019).

SIAM, the Society of Indian Automobile Manufacturers has predicted that if a demand boost does not come now production this year will decline by 35-40%. And ACMA, the Automobile Manufacturers’ Association says that it has lost $57 billion dollars worth of sales. This is 2-3% of India’s GDP.

The textiles industry is in equally bad shape. A survey of 2,000 firms by A.C. Nielsen showed that their production had dropped by 84% since the lockdown. Much of what was still being produced was personal protective equipment (PPE) clothing for health workers. The textiles industry employs 105 million workers, second only to agriculture. Thus most of the 114 million persons who lost their jobs by the beginning of May were probably from this industry.

The construction industry, which used to create 40% of India’s non-agricultural new jobs every year, is in a coma because, with the departure of migrant workers, it faces an acute shortage of labour, rising wage rates and lower EMI payments by financially stressed homeowners.

And finally, there are the travel, hospitality and entertainment industries that account for a quarter or more of the GDP and are, collectively, the largest employer after agriculture. These have been hit both by the need for social distancing and the sharp fall in income and demand in the economy.

Had India done what Malaysia did – kept everyone where they were by ensuring that their economic futures were not imperilled by the lockdown, the number of COVID-19 cases would have peaked very much earlier, even in the most crowded of our cites, and the virus would not have been carried to the villages. Best of all, the economy would have remained poised to jump back to normal the moment the lockdown was relaxed.

But Modi had other goals. He wanted to emerge from the battle against coronavirus as Arjuna had emerged from the battle of Kurukshetra, steely, determined and invincible. Now that he has exposed his own lack of capacity to deal with real as distinguished from self-manufactured emergencies, instead of changing course and pumping purchasing power into the economy, he is busy fashioning another image of himself as the lone champion of ‘self-reliance’ in an increasingly ‘sold out’ economy.

One can only hope that when this too fails, India’s voters, who placed their faith in him for a second time in May last year, will recognise him for what he is.

Note: An earlier version of this article erroneously stated that Modi’s Mahabharata reference was made on March 24. It was, in fact, made on March 25.