India is into the second week of its 21-day nationwide lockdown. As the country proceeds with the lockdown, there is little doubt that the economic fallout from the novel coronavirus shock is going to be massive and drawn out over a long period. There are already signs that India is on the brink of a national calamity.
There is complete uncertainty what will happen beyond the 21-day lockdown. Much will depend on how the next two weeks go. While there are massive challenges on the public health front and for the country’s health system, we will focus on the most immediate economic aspects of the crisis.
A nationwide lockdown was a huge move. Perhaps there was no option, given the limited capacity of the health system to cope with a possible exponential spike in infections needing intensive care. A lockdown may well have seemed to be the only hope to achieve the high degree of social distancing needed to “flatten the curve” of infections.
However, a lockdown also means an economic shutdown with no work, no livelihood and no income for the vast majority of people. While the well-off have more staying power, there are grave concerns about how the poor and those with meagre livelihoods even in normal times will cope and survive the lockdown period and beyond.
With more than 68% of workers employed informally even in the non-agricultural sector (outside of crop production), the loss of livelihood will be massive. Without any savings to draw upon except for a privileged minority, the vast majority of those dependent on the informal economy are being pushed to the brink of survival.
Just as there is the spectre of exponential rise in infections without corrective action to control the spread of the virus, with each passing day of the lockdown the number of people driven to desperation by a total loss of livelihood will also rise exponentially and could rapidly snowball into millions.
Thirty-six hours into the lockdown, the finance minister announced a package of measures in response to the crisis. This is welcome and much needed. However, announcement is not the same thing as delivery. Just as important as the WHO injunction to test, test, test, the urgent priority in India is to deliver, deliver, deliver. The two key elements of delivery are physical delivery of food and essential services, and the delivery of financial support.
1. The announcement of additional free allowance of five kg rice or wheat per person and one kg pulses per household per month is welcome. Fortunately, India’s buffer stocks of 74 million metric tonnes of rice and wheat in the central pool (as against the buffer stock norm of 41 million metric tonnes) offer a deployable resource, though there could be challenges for the supply of pulses. But there will be huge logistical challenges in distribution.
2. The challenge of physical delivery has gone beyond the scope of existing distribution channels that are further curtailed by the lockdown. It is time to get India’s large defence forces out of their barracks and deploy them into the mammoth task of speedy physical delivery. To preserve some hope of social distancing, we may need to engage the defence forces in the task of managing distribution at PDS outlets or even door-to-door distribution. There will also be an urgent need to provide the necessary support to the public and private transport, communication and distribution networks.
3. In relation to free distribution of food, this is not the time to worry about errors of targeting. There will be many in great need (including many who are stranded away from home) who may not have a ration card. At least half of the announced free allowance of rice/wheat and pulses should be offered on simply the production of an Aadhaar card. For provision of food as well as other essentials, in times of extreme distress insistence on targeting can easily lead to socially explosive and potentially violent situations when those excluded resist their exclusion.
4. In relation to the slew of measures of financial support in Nirmala Sitharaman’s relief package, there are several issues. The 11% increase in MNREGA wage is welcome (was perhaps overdue even before the COVID-19 induced crisis), but the ability to maintain, let alone ramp up, MNREGA projects is going to be highly compromised in the short term. More importantly, the government should invoke the provision in the MNREGA Act for an unemployment allowance in case of unavailability of MNREGA work to offer cash allowance on the production of a MNREGA job card.
5. The bringing forward of the next instalment of Rs 2,000 to farmers under the Kisan Sammaan Yojana as well as the proposed direct transfer of Rs 500 per month for three months into the Jan Dhan accounts of 20 crore women is also welcome, but the starkly meagre magnitude of this support needs to recognised.
Note that the Jan Dhan transfer amounts to less than Rs 17 per day per household or less than Rs 4 per day per person. It does not take long to imagine how far that will go. There is a clear need for a higher level of support of the order of several times that amount.
We also know from past experience that there are many logistical challenges even in normal times with the delivery of direct cash transfers including delays in deposits into bank accounts and the ability to access bank accounts directly or through bank correspondents. We also need to worry about those without such Jan Dhan accounts.
6. Given the massive loss of livelihoods due to the restrictions placed on economic activity, there is a need to scale up the level of income support ought to be approximately equivalent to the national minimum wage for each day of the 21-day lockdown. The current national floor wage is Rs 178 per day, though an internal panel of the Union labour ,inistry (Anoop Sathpathy Committee) had recommended Rs 375 per day.
At a minimum, an income support equivalent to Rs 200 per day, or Rs 4,200 for the 21-day period should be announced immediately for one adult per household with an Aadhaar card. Back of the envelope calculation suggests that given that India has about 300 million households, this income transfer if all households availed of it would amount to Rs 1.26 lakh crores or about 4.1% of the Central government’s budgeted total expenditure for FY 2020-21. This is a commitment worth making immediately.
Some of this outlay could be shared with the state governments, the modalities of which could be worked out with the states.
7. The offer of increasing the limit for collateral-free loans for Self Help Groups (SHGs) is also welcome, but a more important need for the SHGs is a waiver on repayments and for the government to support this through necessary assistance to the micro finance institutions through the banking system.
8. An assumption underlying all offers of financial support is that people can use that support to buy food and other essentials. Thus, modalities will have to be worked out to somehow allow people to use the income support to purchase basic goods that they need for sheer survival through the market system.
Hence, basic elements of the market mechanism for the distribution of necessities have to remain operational alongside the public distribution system. Necessary infrastructural support for maintaining supply chains for private distribution channels ought to be arranged on a priority basis, deploying the services of defence forces as needed.
9. Sooner or later, the limits of social distancing will have to be recognised. Witness, for instance, the queues and throngs of people outside makeshift shelters and food distribution points. Access to private market outlets for basic necessities will also compromise social distancing in practice. Excessive zeal in enforcing social distancing that decimates people’s access to local markets will defeat the very rationale for financial support.
The Rs 1.7 lakh crore tag on the announced relief package looks impressive, but it is only 5.6% of the planned budget outlay of the Union government for FY 2020-21 and only 0.8% of GDP, an order of magnitude lower than the 4-10% of GDP commitment in countries such as Germany, Australia, New Zealand, Canada and the US.
In a crisis like this, government is the spender of the last resort, and there is an urgent need for the Indian government to rapidly scale up its financial commitment to the COVID-19 response beyond what has been announced. The greatest need, however, is to ensure speedy delivery of the committed support.
Ayushi Bajaj, Gaurav Datt, Lata Gangadharan, Asad Islam, Sisira Jayasuriya, Pushkar Maitra, Vinod Mishra, Jaai Parasnis and Ranjan Ray are associated with the Department of Economics and the Centre for Development Economics and Sustainability, Monash University, Melbourne, Australia.