Economic Recovery Post Lockdown

The on-going lockdown has further delayed the prospects of a much-awaited economic recovery in India. It is now far more critical for policymakers and businesses to ready an aggressive policy for a faster economic revival as soon as this situation subsides. The economic bailout package of Rs. 1.7 lakh crores and other measures for specific sectors and purposes announced by the Union Government recently and additional resources to be spent by the state governments during the lockdown are intended towards necessary and immediate relief of the most vulnerable people and businesses rather than any strategic economic plan for revival. The lessons learned during this time perhaps offer an opportunity to redraw and re-align the short- to medium-term plan for the economic development of the country. The current situation has brought forth the two most important issues of India – i) absence of economic security of a large number of people, and ii) the healthcare inadequacies to face national crises and emergencies. A post-lockdown stimulus package is imperative for a quick revival. However, what the nature and magnitude of this economic stimulus is remains a point of debate. This article ponders and advises certain principles of autonomous spending as most desirable.

Revival Plan

The revival plan may contain a two-fold investment package.
1. To boost the consumer demand at the bottom of the pyramid in the rural, farm and informal sectors
2. To pin the infrastructural bottlenecks, administrative and social woes to lower business costs and insecurities.
The former is like redistributing wealth among the masses of economic agents - individuals, households and firms while the latter is to guide a smoother supply-chain to enhance the macroeconomic aggregates rapidly.
Ensuring Longevity of Actions
- Measures to boost the economic outcome of rural, farm and informal sectors shall be based on the principle of continuity.
- The same principle must also be directed to enhance development at the core of human and societal aspects.
Any investment without this principle, say in the form of populist one-time schemes, will not spill over the benefits to influence long-term development. Though one-time expenditures add value to the farmers and the needy during the time of delivery, they cannot impact the long-term wellbeing of the population.
First among the measures suggested is to ensure a continuous flow of income to the rural farm and wage-earning households that guarantee the necessary consumption and minimum calorie intake of the population. Regular income flow to the most vulnerable would act as a ‘safety valve’ and ensure the necessary economic protection of people at critical times in the future.
Second, to ensure access to quality education to children up to the secondary level and free healthcare facilities at all three levels (primary, secondary and tertiary) to the rural and urban poor. These two measures complete the necessary foundation required to realize a vibrant welfare state and possibly towards realizing the true potential of India’s youth power to achieve a sustainable economic growth rate of 8-10 percent. This would require a substantial public investment of about 12-15 percent of India’s GDP. Public investment of high magnitude in the social sectors would nudge and attract the private sector to make sufficiently large investments in the education and healthcare facilities in the rural and semi-urban areas.
On the front of urban infrastructural advancements, India has done relatively well in the last two decades, thanks to the rapid economic growth and technology during this time. The economic reforms on ease of doing business, foreign direct investment, goods, and services tax and digitization by the Modi governments have further enhanced the entrepreneurial capabilities. The recent corporate tax cut and credit easing measures were significant advancements to rejuvenate business sentiment, though the ongoing pandemic has temporarily off-set them, will yield favourably for businesses after the end of the pandemic. The social sector reforms mentioned here will also help meet both the immediate and long-term requirements of the economy to put it back on the track of its natural growth path. The only caveat is that the government should end its obsession to see its nationalistic and political ambitions all through the prism of religion and communities.

The author is an Associate Professor of Economics at FORE School of Management, New Delhi