This may be the 'whatever it takes' moment for Modi

As governments struggle between public health and economic choices while battling Covid-19, one view seems to be gaining ground: that trade-offs between public and economic health are different in the developing and developed world.

Global investor Ruchir Sharma wrote in The Times of India last week (bit.ly/2UGe7Ou), ‘India needs to recognise that it cannot face [these] brutal choices in the same way as more developed nations with fully functioning welfare states… Low income countries have a more fragile economic and social fabric and cannot afford the same choices’.

Social distancing is impractical in poor, crowded societies, he continues, adding that some medical experts contend a lockdown-induced economic depression could conceivably prove deadlier than the virus. This is ‘doubly true for India, where government lacks the means to support a vast population of idled young workers for long’, he says, pointing to GoI’s much smaller economic support package compared to developed countries.

Sure, India has a fragile economic and social fabric compared to advanced countries. But does it follow that we should prioritise economic growth at the cost of human life? More importantly, is that reason enough to lift/ease the lockdown until the purpose for which it was imposed in the first place -- to flatten the curve and slow the spread of the disease -- is served? Are lives in India less important than in advanced countries?

Yes, social distancing is impossible in urban slums. But in the absence of a lockdown, chances are the disease will spread much more rapidly. Worse, it will reach rural areas, where the potential risk is greater and access to healthcare much less.

True, a lockdown comes at enormous cost. And in a poor country like India leads to untold human suffering, especially for the unorganised sector and migrant labour. The longer it continues, the greater the cost and hardship. Which is, perhaps, why former RBI governor C Rangarajan in this paper (bit.ly/3dVaBaH) cautions against lockdown extension, saying GoI must think of alternatives, and why GoI is mooting a staggered exit.

But what are the alternatives? Countries across the world, including nay-sayers, the US and Britain, have veered around to the view that there are none. Once a country has missed the bus of early testing and isolation (India is not the only one here), a lockdown is the only measure (although neither foolproof nor costless) of containment. It is the best bad deal. Early lifting, even a staggered phase-out, could negate any respite we may have got. Most importantly, there can be no turning back. Re-imposition, after a temporary break to test the waters, is not possible.

As for our ability to handle the crisis, the reality is after the initial bumbling, GoI and state governments have got their act together and are working overtime to deal with the fallout of the lockdown. Migrants are being housed in empty school and college buildings, railway compartments, makeshift tents etc. Some of the initial panic has subsided, though an enormous amount of work remains to be done to ensure essential supplies reach the needy.

True, there are enormous gaps. But advanced counties, too, are struggling with the unprecedented scale of the crisis. The good thing is, unlike many countries, we are self-sufficient in most food items and have buffer stocks to meet basic needs for the next few months. We also have forex reserves of about $450 billion. Our Achilles’ heel is logistics. But remember, we’ve always been better at managing crises.

Which brings me to the last sticking point: resources. Contrary to widespread belief, GoI does not lack resources. In any case, as the sovereign, it can always print money. But for reasons hard to fathom, it has been incredibly niggardly to date. Its support package of less than 1% of GDP pales in comparison with most countries, including developing ones, and is a fraction of the US’s package of 10%. As Rangarajan points out, the fundamental principle of war finance is that nothing should be decided on the principle of finance.

It is not enough to tell business to keep labour on their rolls, or to tell landlords not to charge rent from those unable to pay. GoI must provide lifelines to businesses -- extend loans and tax waivers to small businesses and the self-employed to retain staff -- give direct support to severely affected industries and provide more funds to states, tax waivers to households etc. Apart from printing money, GoI can float NRI bonds and revive schemes like the 1970s compulsory deposit scheme for high net worth individuals (HNWIs).

For now, the economy will have to be put in a deep freeze. The fight will have to be led by GoI. RBI can cut interest rates and announce forbearances. But monetary policy lacks the punch of fiscal policy. Only the sovereign can go the whole hog and do ‘whatever it takes’.

Yes, there will be enormous economic pain if the lockdown is extended. But in weighing the cost-benefit trade-off, GoI will do well to think back to World War 2. Economies, devastated after the war, went on to enjoy unprecedented prosperity. But lives that were lost, were lost forever.