Political Economy

With the Lockdown Extension Coming, It’s Time to Turn Our Attention to the Economy

To save the economy, a phased relaxation of the lockdown is needed. If a COVID-19 calamity is not to be replaced by an economic one, this must start well before the new lockdown period ends.

The happy consensus between the prime minister and all chief ministers that the national lockdown needs to be extended for another two weeks cannot hide the fact that when Narendra Modi ordered the shutting down of all ‘non-essential’ activity on March 24, neither he nor his  advisers had thought through what the consequences would be – and when and how it could be lifted.

In the past couple of days, it has become obvious that the state governments, with one or two notable exceptions, have no idea either.

China had done a lockdown in Hubei province, and succeeded in containing  the virus.  Five other countries – France, Italy, New Zealand, Poland, and the UK – had, or were about to declare a similar lockdown. Modi’s India had to be among the first.

It is clear that, so far as the economy is concerned, no decision-maker in India has the faintest idea of what to do next. In the first days of the lockdown this was excusable: the tacit assumption was that the number of new cases would start to come down after two weeks of its imposition, as had happened in Hubei. The government would therefore be able to lift its punishing restrictions when there were no more new cases

Instead, the opposite happened, and the number of active cases  ballooned from 519 on March 24 to 7,367  on April 12. The lack of a contingency plan – in fact of any plan whatever – became apparent when millions of migrant workers who had been thrown out of work and dwelling began a desperate march home to villages hundreds of kilometres away with the little money they had saved and what their employers had given them. Had it not been for the prompt action of the state governments, and the kindness of people on the roads, this could have turned into a major humanitarian disaster.

Since then, the evidence that India’s economy is crashing is piling up day after day: 350,000 trucks, carrying an estimated 350,000 crores worth of goods were on the roads when the lockdown began. They are now stranded at dhabas along all the major highways, because Modi gave the country only four hours’ notice before imposing it.  What has happened to the perishables that they were transporting?

For that matter what has happened to the non-perishables? To what extent have the production and distribution chains of the country already been disrupted as a result of  their failure to reach their destinations?

The first blush picking of Darjeeling tea has already been lost because tea pickers have not been allowed to work in the tea gardens. The second blush could go the same way. Similar things will happen in the tea gardens of Assam. How, then, will the tea companies  pay their workers?

The wheat crop is ready to be harvested – in fact the harvest  is  already  overdue in some parts of the country. But precisely the two states where most of it is grown – Punjab and Uttar Pradesh –  seem bent upon keeping a hard lockdown in place. Till very recently this had meant  that people could not  leave their homes in the villages even to work in their own  fields. This has been relaxed to allow the crop to be harvested, but farmers now face several other problems:  who will thresh and bag the crop to take it to the mandis? Who will handle it in the mandis? And who will transport it from the mandis to the towns and cities, especially across state borders, where all trucks are now being routinely stopped? As these issues have not been resolved, the farmers are facing a huge drop in the prices that the traders are offering.

Nor is this the only challenge that an already crisis- ridden agriculture faces, for hard on the heels of wheat will come the mango crop, notably India’s famed Alphonso mangoes. Is that too fated to rot in the orchards?

The most alarming  impact of the lockdown is already being felt: according to the Centre for Monitoring the Indian Economy the unemployment rate has jumped from 8.4% in mid-March  to 23% in the first week of April. This means around 100 million workers have been thrown out of work and are no longer earning anything. The ILO has warned that up to  200 million workers in the unorganised sector of the economy will sink into abject poverty if the government does not act to safeguard their incomes now.

Modi cannot be wholly unaware  of where the country is heading: how could he be when migrant workers from Odisha are up in rebellion in his own home state. But so far,  lacking any Central direction and support, even the state governments’ responses have been purely reactive, such as intercepting and quarantining, (and also feeding) the migrant workers who have been trekking home and  allowing combine harvesters and some farm workers to work in the fields. But such patchwork remedies will not suffice.  To save the economy, a phased relaxation of the lockdown is absolutely necessary. Indeed, if a COVID-19 calamity is not to be replaced by an economic one, it must start well before the new, extended lockdown period ends.

Key concerns need addressing

As officials gear up to implement an improved system of testing and take urgent  steps to address shortages of personal protective equipment for hospital staff, it is essential that the Central and state governments shift their attention from simply fighting the spread of the disease to minimising the impact of this fight upon the  economy.

To do this they have to ask themselves and answer several questions:

1. Will they allow farm labour and combine harvesters to move about freely?  Will they  open the mandis, and allow the grain to be loaded for transport to the cities? Will grain markets in the cities be allowed to operate?  As this may require inter-state transport, will the Centre issue guidelines, or will this too be left to the states to settle between them?

2. What should the state governments do with the migrant workers whom they have intercepted and quarantined as they tried to  walk to their villages. Should they not at least be provided buses to take them home ?

3. And should the recipient governments not be given the fiscal help they will need to quarantine them in their villages till they have been tested or have served out their 14 days, so that they are not forced to camp outside their villages, or live in trees and boats as many are doing now? And should they not be allowed to   join the labour force in the fields when they have been cleared?

4. In the urban centres, manufacturing has come to a near halt. Employers are not making any sales, so they have laid off their workers. More than 80% of their workers are from the unorganised sector. They have no pensions and no provident fund to fall back upon. The cash transfers they have received so far will take them only so far. State governments are trying to feed them: Delhi, for example has been feeding 582,000 persons every day. The Central government has also doubled the permitted purchase of food from the ration shops. But many workers, and particularly the migrants, do not have ration cards. How long will these workers survive  in the limbo into which they have been cast?

5. The people who have been truly forgotten in the preoccupation with containing the disease are the employers, on whose willingness to take risk the entire growth of the economy depends. 90% of them belong to small and medium sized industrial establishments, almost all of which are in the informal sector. They produce more than 40% of the total industrial output and are an essential part of the supply chain of industry.

6. Manufacturers in the organised sector , of everything from bicycles and motor cycles to Fast Moving Consumer Goods,  depend upon them for a range of intermediate products ranging from components to packaging materials. If they are allowed to perish then, as the president of Hero Motors, Sunil Munjal, warned on television a  week ago, even his giant company will not be able to restart production till it has found other suppliers. Ensuring the survival of informal sector of industry is therefore an absolute necessity, but how will the sector  survive if it is unable to produce anything? For apart from a small deferral of debt repayment, and of payments into their employees’ provident funds, nothing has been done to ensure that they will survive.

7. Then there are the airlines, road transport companies, malls, restaurants, hotels, construction companies, petrol stations and 12 million kirana shops that provide the bulk of the employment in the country. As Google’s tracking service has pointed out, except for food stores these have suffered a significant – 60 to 80 percent –fall in the volume of business since the lockdown. How long can they survive if it is extended?

The sheer range of issues that the Central and state governments face makes it virtually impossible to deal with them piecemeal. It is the Centre’s responsibility to lay down the guiding principles for sustaining the growth capacity of the economy and protecting the working class. These must be simple and easy to implement.

What needs to be done

The first policy decision that the country needs is to lift the lockdown in the rural areas and allow all agriculture-related activities to resume, with the usual precautions of face masks. I believe this poses a relatively lower risk of a spread of the infection than work in an urban setting because the nature of most agricultural tasks makes it easier for workers to stay two metres apart while working in the fields and orchards. Second, while more research is admittedly needed, studies have shown that the COVID-19 virus is sensitive to high temperature and humidity.

Relaxing the lockdown in the urban areas is now feasible because state governments have  identified COVID hotspots and clusters in every major city, where the lockdown may need to be maintained for  a good while longer. They now need to decongest these as rapidly as possible, using schools and colleges, stadia, parks and other open spaces as quarantine facilities. If they use some of these  for segregating and looking after the elderly, they can  save more lives and lower  the risk of transmission.

Second, it is not only labour that has been hard hit, but also the proprietors of shops, industrial and service establishments. While their revenues have fallen to near zero, their costs have not, because they still have to pay rent, interest, amortisation of loans, and the maintenance cost of their fixed assets.

Deferring the repayment of the principal of the loans, as finance minister Nirmala Sitharaman has done, can give some immediate relief but at the cost of higher equated payments in the future. This  is therefore a drop in the bucket of their needs.

There is a moral obligation upon the Central government to help them because, like the migrant workers,  the entrepreneurial class too is an  unintended victim of  its containment policy. It can meet this obligation by taking over  the fixed costs of large inter-state and international enterprises, such as airlines, road transport companies,  hotels, and large-scale capital-intensive, industry while giving state governments the financial freedom  to meet the fixed costs of all small and medium scale enterprises for as long as the lockdown lasts. If the Centre and the RBI also enable them to keep paying all the workers who were on their payroll before the lockdown, they will kill two birds with one stone.

Wait longer for mass transit, large offices

Finally, in any phased lifting of the lockdown, relaxations for centrally air-conditioned buildings and mass travel need to come last, preferably only when no more new cases have been reported for the stipulated quarantine period of 15 days. This is because centrally controlled air flows seem to have facilitated transmission in some settings, and mass transit makes social distancing difficult.

Aircraft travel too could be risky. Although their ventilation systems use the same HEPA (high-efficiency particulate air) filters that operating theatres and intensive care units in hospitals use – thus minimising the risk of communicable disease transmission through the ventilation system – passengers sit in close proximity to each other for long periods.

However, as some studies from Singapore have confirmed, central air-conditioning in buildings may pose risks,. Could the ubiquity of air-conditioning in Singapore and the Gulf countries like Bahrain, Qatar and Kuwait, therefore account for their much higher infection rates than India? Or the fact that they have higher ‘expat’ populations that may have been exposed to the virus in their home countries?

Either way, with the summer upon us, it may be necessary to keep centrally air conditioned establishments and offices locked down and limit travel in air conditioned trains and buses – whose filters are not as efficient as those on modern aircraft – till no more new cases have been reported for some time. The travails of the well to do  are not therefore going to end soon. But that does not mean the poor have to suffer with them.