Package of numbers, not relief

Deccan Herald, May 19, 2020 (Syndicate: The Billion Press)

The global economy and the national economy are facing a crisis which by scale and nature is unprecedented in modern history. On the one side, the pandemic and lockdowns have disrupted the supply chains. On the other side, millions have lost their livelihoods and consumer demand for goods and services has slumped. As a result, Japan has already entered the third consecutive quarter of negative growth and is formally declared to be in recession. All Organisation for Economic Cooperation and Development (OECD) countries are on track to recession. So are China and India. The International Monetary Fund (IMF) has indicated that the world economy as a whole would contract by 5%. During the current quarter, different economies are going to shrink by anywhere between 10–50%. 

How have the policymakers and economists worldwide addressed the above calamity? There is near unanimity, even among the conservatives, regarding the importance of income transfers to the people so that demand picks up in the economy. American President Donald Trump, who detests all notions of a free lunch, is implementing one of the biggest income transfer schemes ($1,200 to every citizen), besides unemployment allowance to more than 30 million workers who have lost jobs. In nearly all countries, there are various schemes of quantitative easing or helicopter money (as it is now called) with the central banks playing a direct role. Orthodox monetary policy is being given up, at least for the time being. Everyone is swearing by John Maynard Keynes. 

Perhaps the only country that has bucked the trend is India. Prime Minister Narendra Modi declared a Rs 20 lakh crore economic package, equivalent to 10% of India’s GDP. Even the stock market, to which the rhetoric of reforms should have appealed, has signalled that the package is a hoax. The Sensex, which gained 1,000 points after the Prime Minister’s announcement of the Rs 20 lakh crore package, shed 2,000 points as Finance Minister Nirmala Sitharaman peeled the packaged onion over the next five days. Everybody understood the package for what it was worth – it had very little to stimulate the economy in the short run. 

According to the research wing of the State Bank of India, the largest of Indian banks, the direct fiscal impact of the package was only Rs 2,02,660 crore or 1.01% of GDP. The rest are all loans of the financial institutions or monetary support to these institutions or, at best, expenditure to be incurred in future. Of the Rs 2 lakh crore of direct fiscal impact, only Rs 76,500 crore (including free ration) involved direct money transfer to the people.

This constitutes a paltry 0.38% of the GDP. This, in a nutshell, is what has been repeated by the spokespersons of several financial firms who have been quoted in the various reports explaining the strange behaviour of the stock market. 

The corporates have no reason to grumble after getting Rs 1.5 lakh crore tax concessions and a heavily subsidised lunch of the public sector, mineral resources and land. But for the farmers and MSME sector, additional loans have been promised liberally but very little has been done to compensate their loss during the lockdown or to ease their debt burden. 

The behaviour of the central government makes no macro-economic sense, let alone showing basic human empathy and concern for the poor who are today symbolised by the migrant workers – refugees on a flight by foot in their own country. Perhaps the same set of quacks who advised the Prime Minister on demonetisation are once again on the prowl. I was shocked beyond words to read a headline given to the statement of the government’s chief economic adviser. It read: “Big stimulus will cost big; there’s no free lunch”. It is the duty of the government to provide ‘free lunch’ to the millions of Indians who have lost livelihoods and incomes due to the lockdown. 

What makes no sense for individuals and corporates to do can be perfectly rational for the government to do from a macro-economic perspective. Was it not Keynes who famously said in the General Theory that “The government should pay people to dig holes in the ground and then fill them up again?” 

A new breed of “patriotic” leaders has fantasised that India in the post-pandemic world will be flush with capital, technology and jobs brought by firms fleeing from China if only we proved our unshaken allegiance to the fiscal deficit number game, demolished labour laws and privatised all sectors and institutions, including public health.

Everyone is free to have their own dreams for the long run, but we must first survive the short run. This is what even the market, which would have no problem in sharing the long run approach of the economic package, has said in loud and clear terms. Will the policymakers put forward a sixth installment of the package that would address the demand side of the crisis? 

The minimum we should attempt are the following: One, free public transport and food and pocket money for all migrant workers who want to go home. Two, transfer Rs 7,500 to every Jan Dhan account. Three, transfer half the last year’s wages of MGNREGS workers as advance into their accounts. Four, free ration to all, including those who do not have ration cards. 

Yes, while formulating policy during this pandemic, remember Gandhiji’s talisman -- think of the poorest person you have ever seen and ask how your policy would benefit that person. The time to act is now.