A comprehensive economic response to the coronavirus pandemic is perhaps the most unenviable task any finance minister would have ever faced. Even for the best number-crunching economists, estimating the impact of the deadly virus poses an indomitable challenge. Given its all-pervasive nature, the ‘Chinese virus’ may result in a complete wipeout of the projected 4-5% GDP growth estimated for 2020-21. A spillover would definitely be felt in the following year too. After the overwhelming support for the janata curfew, the Modi government will have to come up with a people-centric janata economic rescue package. The Covid-19 Economic Response Task Force headed by Union Finance Minister Nirmala Sitharaman rolled out a slew of measures such as extending the deadline for payment of taxes by individuals and companies to June 30. The waiver of charges on ATM transactions and the reduction or no late fees on delayed tax payment would have very limited utility but were necessary.
Getting the economic response right is far more important than the measures announced till now by the finance minister. For that, understanding the deep impact of the virus spread would be necessary. Just as the lockdown will protect people by containing the community spread of the coronavirus, the government’s economic package should have people, not industry, at the fulcrum. Over five crore people may have lost work opportunities either temporarily or in the medium-term in both the formal and informal sectors. This includes daily wagers to temporary employees and factory workers. Providing them with livelihood support apart from whatever their employers did should be the priority. Responding to industry calls for financial support, as has been the case with the electronics industry, or economists pushing for difficult reforms hitherto stuck cannot be the centrepiece of the response to the economic distress inflicted by the virus on daily-wage earners. For ideas, there’s no harm in analysing responses of other countries. Canada has promised $900 every fortnight to those without paid sick leave or access to employment insurance sickness benefits. Similarly, the Donald Trump administration in the US has plans to give out $1,000 to every adult citizen as immediate relief.
Back home, states such as Uttar Pradesh, West Bengal, Kerala, Andhra and Tamil Nadu have responded with relief programmes that include cash support for the poor. Further, from subsidised ration, the governments have moved to free rice and wheat supply to support poor families that have lost their meagre earnings. The initial response shows that governments need to provide direct succour to the poor. Cash and food support should be delivered through direct benefit transfers that minimise the transaction costs. The Union finance minister has unfortunately prioritised postponing tax collection or waiving ATM charges rather than immediately responding to job losses and the impending food crisis that will seriously affect those below the poverty line.
Can this virus-induced near collapse of growth be revived through a universal basic income support scheme? The then finance minister Arun Jaitley had put the proposal for such a scheme mooted by then chief economic advisor Arvind Subramanian in cold storage citing funds shortage. With modifications and amends, Sitharaman may consider a universal basic income support scheme for 660 million people who do not earn even $1.25 per day as wages. This could be dovetailed into the `6,000 annual income support provided to every farmer’s family through the Prime Minister’s Kisan Samman Nidhi Yojana. This amount could be doub- led as a one-time dole this financial year.More money with the urban poor and rural small farmers has the potential to revive consumption demand that is at the lowest ebb and will provide indirect stimulus to industrial manufacturing, which has seriously been faltering, especially after the spread of the virus. More money with farmers would also mean that it would boost farm growth that has the potential to cross 4%. The Aadhaar-linked Jan Dhan Yojana’s no-frills 356 million bank accounts opened in the last few years should be the easiest and fastest way to reach immediate liquid funds to people.
Broadly sticking to the path of economic prudence while allowing for some deviation, the finance minister should utilise the over Rs 2,00,000 crore savings from the fall of crude prices to just over $20 per barrel to fund the janata economic package. In this crisis situation, the around Rs 3 per litre increase in diesel and petrol prices through duty hikes last fortnight may have to be withdrawn forthwith. For the middle class, rescheduling repayments on housing and personal loans should be an option that the government can consider in consultation with banks. Interest and penalty waivers, and providing larger income tax exemptions along with late payments on taxes announced should be considered by the finance minister
Parallelly, the Centre should think of providing an economic rehabilitation package to the travel, tourism and hospitality industry that have taken a direct hit in the last few weeks. American experience in this regard should serve as a reminder while designing the package. Airlines in the US had used an earlier monetary support to fund buybacks and dabble in stock markets rather than use the money for acquisitions and expansion of capacities in infrastructure. Back home, the huge cut in corporate taxes by 25% last September to boost economic growth did not yield much in terms of new brown field projects or expansions. Instead, most industry players have utilised the lower tax liabilities to park funds abroad, undertake stock market operations and initiate buybacks apart from retiring high cost debt. Hence, the finance minister has to tread very cautiously and get the economic response package right. Frittering away meagre resources may have serious consequences for the Indian economy.
K A Badarinath
The writer is a New Delhi-based senior journalist and an economic analyst