By Harihar Swarup
Prime Minister Narendra Modi is in an unenviable position. He has to attempt a ‘quantum leap’ on the economic front while walking the Covid-19 tightrope. There is considerable risk involved. But it’s a risk he has to take simply because there are limitations to what India can afford by way of options at this point.
Tempting as comparisons may be, the current situation is not like that of 1991. The social disturbance from the pandemic is much more pronounced. The economic impact of this displacement is, needless to say, debilitating. But the political consequences could be equally far-reaching. The politically agile Narendra Modi government is aware of that. Which is why it has stepped in to make arrangements for migrants to reach home, rather than delay their travel any further. But even as it takes those urgent steps, GoI knows it will soon have to find ways – and probably incentivise – to bring them back to their workplaces in the cities.
The problem of lack of finances is not as acute as, say, it was in 1991. As a result, GoI can set aside funds for cash transfers for migrant labour and others in the informal sector whose livelihoods have been severely affected by the lockdown. A functional direct benefit transfer (DBT) system also makes it easier to carry out these transfers to beneficiary accounts. In other words, GoI has instruments and options for direct intervention when it comes to the poorest of poor. This is a big systematic improvement from the past. Which is why GoI believes that it will be able to cope with the humanitarian crisis of fleeing migrant labour in the short term.
But the same cannot be said for other parts of the economy, especially the middle class, or more precisely the ‘EMI class’, having to pay their equated monthly instalments. With growing uncertainty on the income and employment front, this section will come under increasing stress. GoI does not have a similar capacity to make any direct intervention with this tax-paying segment of the population if the problem turns into a bigger crisis.
The only option before GoI in such a situation – a fact that it may have realised at the end of the Lockdown 2.0 – is to jump-start the economy. But how? On this account, the PM has clearly bet on big-ticket economic reforms to provide the necessary impetus, that extra fuel for ignition.
Just like the pandemic, there is no certainty of even bold reform decisions being a guarantee for delivering the goods for the economy. Politically, however, those decisions are the big leap on which a lot depends in what is, otherwise, a tough tightrope walk that is desperately trying to balance the interests of all sections of the economy.
The worry is compounded by the fact that the challenge is truly global. The pandemic has affected all economic powerhouses of the world, leaving them stumped. In 1991, when India initiated reforms, the west was doing well, as were the east Asian economies. Now, all countries are looking inward. There’s no one successful model – healthcare or financial – to emulate or use as a guide. This makes Covid-19 a challenge for every nation-state.
In that context, GoI’s political impulse for national ‘self-reliance’ to cope with economic distress is not surprising. However, let’s not confuse the political desire to look inward as a step towards a closed economy. Quite the contrary, the objective seems to be to give a new direction to manufacturing through large-scale structural reforms that will help Indian entities become bigger players in global supply chains (GSCs).
From the health perspective, the lockdown strategy has helped slow the pandemic. Unlike the economic side, the government system is now a bit more prepared to handle a surge in infection numbers, while increasing the focus on individual awareness. The relatively lower numbers have given GoI the latitude to ease restrictions. And from here on, with the exception of Mumbai, it’s the recovery rate that will determine the load on the healthcare infrastructure.
In fact, the two signature initiatives from Modi’s first term as PM – Swachh Bharat and Make in India – have suddenly found political relevance in his second term due to the Covid-19 pandemic. They are no longer an aspiration, but a necessary condition for economic recovery.
But just like the imposition of lockdown, the economy strategy will work only if states become stakeholders in the process.
As of now, the Centre is trying to achieve this through competition among states by getting the BJP-ruled ones to take the lead on some of the structural reforms. It will, however, require more than that. Effective communication across the political divide, as well as across institutions, is critical to make any reform work. Rough edges will have to be smoothened, acrimonies set aside to give reforms non-partisan support.
The idea that every crisis should be turned into an opportunity is welcome. But in the kernel of that thought lies the important assumption that it’s easier to sink differences and find common ground in times of crisis. The political groundwork to find that common ground is what will need to be done now. Eventually, the success of any reform is through political will – the wider the support, the greater the chances of a favourable outcome. (IPA Service)