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Mainstream, VOL LVIII No 18 New Delhi, April 18, 2020

Moving in a blind alley

Saturday 18 April 2020

by Arun Srivastava

A bleak future stares at India’s economic revival. The country which has been deep in the slowdown before the outbreak of the coronavirus, will find it tough to come out of the economic crisis once the corona curve flattens and situation turns normal.
Already the International Labour Organisation (ILO) has come out with a report that COVID-19 crisis has the potential to push around 40 crore informal sector workers in India deeper into poverty, with the lockdown and other containment measures affecting jobs and earnings. India had imposed a three-week lockdown till April 14 to contain the pandemic but it is yet not absolutely clear that how far this has proved effective in curbing the malaise.

Lockdown was necessary but it mainly fascinated the rich and urban middle class. It could be emphatically said that the huge population of poor and daily wage earners, who constitute around 103 crore of the total population, did not benefit from the lockdown. On the contrary the abject and whimsical imposition has simply ruined their lives and severely endangered their survival. The ILO report underlines that India is among the countries less equipped to handle the situation. It is quite natural that the first preference of the Indian health care system would be the politically and electorally important section of the society, the middle class.

According to the report by McKinsey and Company, the cost of stabilising and protecting households, companies and lenders could exceed Rs 10 lakh crore, or more than 5% of GDP in such a scenario. The report, titled ‘Getting ahead of coronavirus: Saving lives and livelihoods in India,’ said that restarting supply chains and normalising production and consumption can take three–four months if the lockdown goes till mid-May as the virus ligers on.

If the lockdown continues for additional two–three weeks it could mean an even deeper economic contraction of around 8 to 10 per cent for fiscal year 2021. It is said that a looming economic crisis triggered by the coronavirus pandemic is a chance for India to enact sweeping reforms to attract more foreign investment. But the chances are remote as this government is not prepared to meet the needs of economic resurgence.

One thing is absolutely clear that once the crisis is over Modi government would adopt rightist economic policies on the plea to revive the economy. It is worth taking note that UK research consultancy Capital Economics projects India’s growth will slow to just 1 per cent in this fiscal year, the lowest pace in 41 years. “Coronavirus and measures to contain it will ravage the economy over the coming months,” said Capital Economics economist Shilan Shah. Fitch ratings agency, meanwhile, has slashed its 1920-21 growth projection to 2 per cent, a 30-year low.

Nevertheless poor people fear that they will not be able to survive much longer if all economic activity remains in a state of total suspension. According to McKinsey in case the lockdown period is extended till mid-May, the potential economic loss in India would vary by sector, with current-quarter output drops that are large in sectors such as aviation and lower in sectors such as IT-enabled services and pharmaceuticals. "Current-quarter consumption could drop by more than 30 per cent in discretionary categories, such as clothing and furnishings, and by up to 10 per cent in areas such as food and utilities," said the report. "Liquidity risk would also need urgent attention as payments begin freezing in the corporate and SME supply chains,” the report mentioned.

There are also fears that if road travel becomes more difficult, the village grocery shop could soon run out of supplies. There is a consensus that if the lockdown continues then it should be made less severe so that small shops and businesses can start opening their doors again.

Like others around the world, the economists are urging Modi government to provide as much support to the economy as possible. In India’s case, the RBI’s already loosened monetary policy significantly and opened the door to further rate cuts. A similarly bold fiscal response is needed to prevent the dramatic economic slowdown from “spiralling into something even more malignant”.

Not only India but most of the major economies are in a state of complete shutdown to break the chain of the viral infection, which has infected over 1.5 million people across the world. On March 24 Prme Minister Narendra Modi announced a nationwide lockdown to check the spread of the virus. On April 11 while interacting with the chief ministers he dropped the hint that the lockdown may be extended. The manner in which the lockdown impacted the lives of the poor and labourers the question has arisen: How will the virus affect India economically?

It is absolutely clear with a fragile financial sector it would be a tough task for India to salvage the situation soon. India did not feel the pinch of the severity of the 2008-09 USA economic crisis as its banking system was robust. But during the Modi government it has been weakened considerably. The banking system in India is not in the position to help the economic system to the point where it could salvage the situation. India has been imitating Trump. But the fact is in the case of the United States, banks are very well capitalized, held low levels of NPA. In contrast the NPA level is quite high in India.
Former governor of RBI, Raghuram Rajan holds; “In India it’s a little different because we start with a fairly fragile corporate sector as well as financial sector, slow growth over the last few years, the additional worry is that this time around retail loans, which have been around where the banks have lent a lot because they’ve shied away from corporations, that if people start losing jobs, if companies start reducing their workforces, that may not be as robust this time around, you could see many more retail defaults.”

Rajan says; “I think the broader point is, at least while they are in trouble, they have to be helped with cash flows. Now you have to be more careful because one man’s debt payment is another man’s income. The assumption is the person to be returned money is richer and more fortified than they are, but you have to be careful if you propose moratoria, propose bans on evictions during this time, etc, that in fact is going from the weaker to the stronger. Some way from cushioning of this blow of time also makes sense, no point giving them cash transfer if it goes directly to their other payments, leaving them with nothing.”

Rajan holds: “we entered this crisis in a very different situation than the West. One of the things going on for the West right now that’s benefiting them is the fact that their financial sector has largely recovered, with exceptions like Italy not that strong. But most banks are much better capitalized than they were before the global financial crisis, and corporations, they have been taking on some leverage, but since then what you see is, despite this, they’re doing their level best to fuel money into markets. Today the Federal Reserve announced that it would buy junk points, effectively supports companies that have been downgraded to junk, so I think there is, there are significantly more resources in countries.”

The ILO report also mentions; "In India, Nigeria and Brazil, the number of workers in the informal economy affected by the lockdown and other containment measures is substantial." According to it the crisis is expected to wipe out 6.7 per cent of working hours globally in the second quarter of 2020 — equivalent to 195 million full-time workers. Already workers and businesses are facing catastrophe. The Indian political leadership, especially Narendra Modi will have to look beyond the periphery of the electoral politics.

According to yet another study, 1.25 billion workers employed in the sectors identified as being at high risk of "drastic and devastating" increases in layoffs and reductions in wages and working hours. Many are in low-paid, low-skilled jobs, where a sudden loss of income is devastating. The research report of United Nations University’s World Institute for Development Economics Research warns that poverty levels in developing countries could receive a set back by up to 30 years. Andy Sumner, international development professor at King’s College London warned of a “poverty tsunami”.
A shocking incident that took place in Jeghangirabad in Uttar Pradesh’s Bhadohi district reinforces the apprehensions being expressed about a bleak future. A labourer woman on Sunday, threw her five children into the Ganga river as she was unable to arrange food for her kids. As she has no job, she was not having money. Money inflow had stopped because she was a daily wage earner.

Lockdown is likely to be extended for some more weeks but sad enough the Modi government has once again not shown any inventiveness in evolving a policy on how to ensure the livelihood of crores of poor and daily wage labourers. Most of the chief ministers with whom he interacted spoke of immediate task of saving the lives. But they did not speak word about the livelihood. Ironically their approach was out and out populist.

Two words “life” and “livelihood” have been dictating the recent public discourse throughout the world following coronavirus ravaging the country. In India while most of the leaders and chief ministers of states have been advocating extension of lockdown to protect the lives of the people, they are least bothered of the livelihood challenge. This pack of leaders is led by the maverick Delhi chief minister Arvind Kejriwal.

Telangana’s chief minister K Chandrashekar Rao echoes the same view; “Economic recovery can come later. In the given situation, with India’s poor health infrastructure and big workforce, we have no other weapon.” Though crores of migrant workers have returned to their villages, the government so far has not come out with the figure that how many of them were positive and susceptible of spreading the virus in India’s hinterland.

It is indeed shocking that the chief ministers who have been now showing extra concern for the poor and labourers, were least bothered of the welfare of their people till March 15. In the perception of leaders like Kejriwal or Chandrashekhar livelihood problem is not a major challenge. Their understanding of the crisis also unravels that they utterly lack a holistic approach to the livelihood and economy. They are completely inept to foresee the post-corona scenario.

Probably they nurse the view that after the pandemic is over the economic activity would return to normal and the labourers who had fled the cities and work place would once again immediately come back. The production process would kick start at once. All the leaders, like Modi, has been mainly concerned of their political image and their middle class voters and not for the poor and labourers.

The manner in which the prime minister, Narendra Modi has been handling the crisis it fails to enthuse, boost and strengthen the level of trust. He has been primarily concerned with his own image and even after the virus attained the character of pandemic he has been least bothered to evolve a mechanism to fight it. Like his good friend Trump he has been resorting to gimmicks. By now every one knows how he ruined the lives of crores of daily wage labourers and messed up the economy by announcing lockdown without taking other issues into consideration.

The scenario today is poor and labourers do not have cash. They immediately need cash. They are literally facing the threat of starvation. Survival has become a major challenge for them. He is not bothered of the livelihood of the crores of the labourers. What is worse they are being ostracised and are not welcome in their own villages. Notwithstanding the state governments caution to the police they are being hounded and are forced to live a wretched life.

They returned to their villages nursing the illusion that their lives would be protected and live a decent life. But this is not happening. They are starving and have turned beggars. The immediate task before government is remonetise the poor; put cash in their hands.

Surprisingly the Indian urban middle class, which has developed the art of screaming, has refrained from opening its mouth against the failure of Modi. It could not visualise the impending threat probably for the reason that its messiah has no clue of the hovering pandemic. Modi became conscious of the threat on March 14, coinciding with Trump’s initiative to check the spread of the disease.

There is no denying the fact that India is facing its biggest crisis in decades, with a three-week lockdown in a nation of 1.3 billion people likely to result in economic recession, millions of job losses and starvation among the poor. During the lockdown the worst sufferer was the poor and daily wage earner and in case of the extension of the lockdown the poor will have to bear the hardship.

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