Faster Exit Needed

Restoration of transport and fiscal package to kickstart the economy are essential

1.5.2020

The initial 21-day lockdown was extended by another 19 days, and major relief was expected by May 3. Government has now promised some guidelines to dilute the current lockdown architecture. In this context, it would be wise to heed the observation of technology entrepreneur NR Narayana Murthy, that India could see more deaths due to hunger than to the pandemic if it persists with the lockdown. It’s time to accept the virus as the new normal, while realising that the Covid situation confronting India has two legs: a health crisis and an economic crisis. Dealing with the former alone is not enough.

The need of the hour is to move on from Prime Minister Narendra Modi’s older “lakshman rekha” exhortation to his more recent one of “do gaj doori hai bahut zaroori”. Thus, it’s necessary to deal with overreactions by states and the executive in their containment strategy. States sometimes barricade themselves through the construction of walls and arbitrary blocks to interstate movement, including of essential services personnel. Their approach has to change to facilitate economic activity. Cities and states must begin to restore public transport. Trains and flights must start up. Economic activity cannot revive without mobility.

The lockdown began with a fiscal package to cushion the immediate fallout on vulnerable sections. But the cost of one of the most stringent lockdowns anywhere has encompassed every section. It is precisely this aspect which catalysed a call from the government to private firms to avoid job cuts or salary reductions. If firms have to actualise the government’s wish, they need fiscal support. The support so far has come through monetary packages. But that has barely moved the needle because of the inherent limitations of that tool. India needs a large fiscal package to supplement the monetary measures.

Banks are frozen as they don’t have a clear idea when activity will resume. The longer the restrictions on activity, the greater the adverse impact on economic growth. UBS forecast that output will shrink by 3.1% this year if mobility restrictions stay till end-June. This will be catastrophic as it will push back millions of Indians below the poverty line and also prevent firms from taking advantage of the changes in global supply chains anticipated by government. The need now is for a clear and comprehensive road map for easing of restrictions accompanied by a big fiscal package.