Most Indians are so busy coping with the hardships unleashed by the Coronavirus that they can’t have much time to think about what their government is doing. It’s not only Covid-19 that is causing such hardship: The government national lockdown is also contributing severely to it.
In an instant, the lockdown took away people’s jobs. Those who are paid once a week or month must be obsessed with the fear that there may be no pay next payday. Day-to-day earners – casual workers, shopkeepers etc – are already deep into liquidity problems. Those who can, must have borrowed; those who cannot must have finished off their cash and reneged on their debts – and after that, starved.
Those who are going hungry must be thousands of times more than those affected by COVID-19. The number suffering from the virus in India – so far – is tiny, both in absolute figures and relative to other countries. But the instant economic depression caused by social distancing in a close-knit society is an extensive disaster.
The government of India finally realised this, and took some ameliorative measures. Those who get grains under the public distribution system (PDS) will get some more, free, for three months.
Cash will be passed on to workers, farmers, widows, self-helping women, workers of small and medium registered enterprises and so on. However, this help will go only to those privileged to be part of one of the specified schemes.
How will the expense be funded? By printing money. The closure of enterprises is going to reduce production and tax revenue anyway. Inflation may follow, but there is no other way.
The initial response of the Reserve Bank of India (RBI), two weeks ago, was equally clueless. It asked banks to devise a strategy and a monitoring mechanism, take stock of critical processes, take employees into confidence etc. It was all pretty much what bank managers would have done anyway.
Then, last week, it asked banks not to penalise or downgrade borrowers who reneged on repayment or interest payments and released a huge amount of money banks can access to relieve any liquidity problems they may face. And, surprisingly, it acted to unify the domestic and foreign rupee derivative markets.
Markets abroad were not subject to RBI’s rules and, consequently, had grown far bigger than domestic markets. But Indian banks, as RBI’s “slaves”, were not allowed to hedge risks abroad. Now they may not need to, because RBI has relaxed its liquidity regulations. But they will be allowed to play in Singapore or Hong Kong markets if they want to.
All these relaxations and concessions will go to those who have something to do with the government of India (GoI) or RBI. For those who do not have that privilege, GoI has nothing. For those unrecognised by the government. It has only good advice: wash your hands and keep away. That is because it does not have the machinery.
European countries that created social insurance systems have databases and institutions covering every resident, never mind citizen. India counts its residents once a decade and forgets them for the rest of the time. It gives grain to its poor, but its coverage of the poor is poor. This omission is going to be costly. As of now, GoI is not even aware of this gap. All it can think of to deal with the worst medical crisis of a century is to give sermon after sermon.
Its slogan is “minimum government, maximum governance”. On COVID-19, it is minimum government, maximum sermons. The Indian citizen deserves something more than this. It is time to look at what other countries are doing and make some of that in India – especially a medicine or vaccine. But a cure does not exist yet. Until it is invented, GoI should ensure that those who contract the virus are treated free. The country to look to for this is the one where the virus raised its bristly head: China. It is also the country that has controlled the epidemic best.
The writer is former chief economist, ministry of finance, GoI. ECONOMIC TIMES OF INDIA