We Now Need A Rapid Response To Economic Revival

India is enforcing one of the largest and strictest coronavirus lockdowns in the world and it is showing the desired results. To ensure that the medical crisis does not snowball into a potentially devastating economic crisis, the government will have to restart the economy after May 3 with adequate safeguards and surveillance.

The shock waves unleashed by the COVID-19 pandemic are estimated to lead to a loss of USD 9 trillion to global GDP over 2020-21. Organisations like the IMF have already declared a global recession.

In India, we could lose 30-40 million jobs by the end of the year if we are unable to bring the economy back on track.

Going forward, India needs to respond rapidly to the looming economic calamity, get into crisis management mode and prepare a plan to revive the economy and get back to normal growth at the earliest.

Protecting Health after Easing Lockdown

India has done a phenomenal job of ‘flattening the curve’ and current data indicate that the country is entering into a safe zone.

As of April 19, ICMR reported a Test Positivity Rate (TPR) of 4.4% (i.e. 1 in 23 people tested were positive). Compared to India, U.S. had a TPR of 19.3%, Spain’s was 18.2%, Italy recorded 13.2% and Japan’s figure was 8.8%.  However, there is a caveat that TPRs are not accurate projections of infection rates as it all depends on testing rates. Perhaps, India’s TPR could be even lower.

Furthermore, whilst total confirmed cases continue to grow in India, crossing the 21,000 mark on April 22, the growth rate of active cases was at ~6%. This means, the number of active cases are doubling every 10 days instead of every three days before the lockdown.

If we look at the mortality rate, India is much better than the western world where the mortality is much higher due to their ageing population. The world over, about 80% deaths have been reported among people aged 60 and above. India has a demographic advantage with 90% of its population being under 60.

Therefore, after the lockdown is eased, our focus should be on protecting the vulnerable sections, especially those over 60 years of age.  The rest of the young workforce under 50, should be allowed to go back to work to sustain the economy.

Opening up the lockdown needs some lifestyle changes which we must all adopt.  The government should continue to enforce social distancing measures and must not allow large public gatherings. Malls, cinemas and restaurants should remain closed, and permission should not be given for big sporting events. Wearing of masks, regular sanitization of public places, disinfection of common surfaces and temperature screening of people in public places should be mandatory.

Testing should also be scaled up to include general public, especially asymptomatic cases. Widespread antibody testing is  a critical step towards  determining onset of herd immunity.

Giving the Economy a Boost

On the economic front, India needs coordinated fiscal and monetary policy making to tide over the crisis and lay the foundation for a growth revival.

We will need some amount of quantitative easing to enhance liquidity in the economy.

The government will also have to provide a huge financial stimulus to boost industrial production, across small, medium and large enterprises. India’s oil import bill could halve from the USD 105 billion estimated for FY20 on account of the collapse in global crude oil prices. This will give the government the firepower for announcing a big bang stimulus package to prop up the economy. Allocating USD 20 billion (0.3% of GDP) of the oil savings to provide a stimulus package for SMEs is imperative.

The government should also look at introducing investment-linked and job-linked incentives tailored to the needs of a specific sector. For example, the real estate sector that has been one of the worst affected by this crisis should get the flexibility to re-purpose their residential projects into commercial ones especially given the success of remote working.

SMEs and Start-ups must receive funding for manufacturing, services & innovation. The government may provide such stimulus through advance purchase contracts for COVID-19 specific needs like tests, biomedical supplies, hospitalization and immunization.

Funds should be earmarked for a big infrastructure push both in terms of physical and cyber connectivity.  A significant part of healthcare investment ought to be directed towards providing Universal Healthcare and upgrading primary health centers.

Also, debt-equity ratio norms need to be eased to provide more liquidity to the industry.

From the geopolitical perspective, this crisis has given India an opportunity to position itself as a strategic partner of importance. As the world looks to de-risk supply chains originating from China, India can state its competencies and advantages much more emphatically. Today we are in a position to negotiate as equal partners with the U.S., EU or Japan. We must rise to the occasion, open the lockdown to revive the economy in a calibrated manner.

We have done a great job in saving lives now we must work towards saving jobs and livelihood.

Conclusion

India has an opportunity to be among the front runners in economic recovery ahead of many of the Western economies, including the U.S. The IMF expects India’s FY21 GDP to grow 1.9%, making it the fastest growing major economy in a recession-hit world. It forecasts a 7.4% growth for India in FY22, assuming the pandemic is brought under control, significant monetary and fiscal stimuli are announced, and a tailwind from lower oil prices.

We now need a mid- to long-term strategy that balances the economic, social and public health benefits and costs, while allowing for a gradual easing of restrictions.