Only direct cash transfers can revive economy

New Delhi: The Indian nation today is reeling under a double whammy—a twin crisis, as never before experienced after 1947. On the one hand, there is the continuation of the economic tailspin generated over the last four years. This has caused a decline of the economy. Upon this is now thrust the thunderstorm caused by the onset of an imported pandemic called coronavirus and its latest species—Covid-19.
As far as the coronavirus pandemic is concerned, the Narendra Modi government has handled the situation well and decisively. Coronavirus infection rates may be understated or underestimated in India, but the significant figure is of the number of deaths due to the virus. In a democracy like ours, this is not easy to underestimate: culturally, no Indian desires to hide the fact of a death in a family, so socially a death in the family becomes known to friends and acquaintances even if censorship were to be clamped on the country.
In comparison with G-20 countries, the coronavirus casualty numbers in India, presently at about 3,300-plus-minus deaths, are quite low; and this is so low in international comparison because the Prime Minister had constituted a team to assist him with as leader, a capable and experienced Minister of Health & Family Welfare, Dr Harsh Vardhan. This team acted swiftly despite fake news circulated by the “mainstream media”, nationally and internationally.
As for the economic impact additionally caused by the coronavirus pandemic, it needed a confident, deeply experienced and smart team under the Prime Minister to rescue the nation from a Covid-19 driven economic collapse. So far such a team has not happened.
In a nation-wide television broadcast, for this purpose, Prime Minister Narendra Modi proposed a plan based on what he termed as a strategy for Atmanirbhar Bharat [Self-Reliant India]. The Prime Minister further announced that an ambitious mobilization of 10% of the 2019-20 [or FY20] GDP, that is about Rs 20 lakh crores, would be provided as a stimulus to kickstart the economic growth process. He further informed the nation that the Finance Minister would meet the media over the week to disclose the details.
The FM did address the media subsequently on five or six different days, to unveil the Finance Ministry’s proposals. These proposals however did not enthuse the affected stakeholders in the economy, nor did it lift the spirits of the common man, who was already depressed by the consequences of the lockdown on his pocket book and on employment.
In fact the newspapers of 20 May 2020 headlined that the Finance Minister stated: “I cannot finish my story with these announcements…there are too many unknowns”. Economic Times [ET] even led with the Finance Minister’s statement that Government cannot arrange for cash payments to be directly made to the near starving migrant labourers and their hapless families because there are no data on migrants available with the government! The FM told the ET that “I don’t even have a basis, and won’t know how to reach them institutionally” [ET 20 May 2020]. So it means that the migrant labourers starve? This confession will go down in history on par with Marie Antoinette’s advice given during the French Revolution that “if the poor cannot get bread let them eat cakes”.
When the poor starve, Madam Finance Minister, Government to save them does not need an institution but a heart to spontaneously look for them.
On the other hand, institutionally visible sectors that employ and/or cater to a large number of skilled and educated middle class persons, such as in hospitality and airlines sectors, were left out of the proposals as perhaps these hapless victims too seem invisible to the Finance Ministry.
What is most distressing is that, despite the dishing out of Rs 20.97 lakh crores [or trillion], the five or six proposals said to be “for the consumers and producers” would barely qualify as stimuli! Most of the money was for economic reforms and “liquidity injections”.
About 14 foreign consulting companies [in one of which the present Finance Minister was employed in London for over several years], have published their estimates of the percentage share of the stimuli in the Rs 20.97 lakh crores package as being in a range from 0.75% [Barclays] to 1.3% [Goldman Sachs].
In a report circulated by the PTI on 20 May 2020, another favourite foreign consulting firm of the MoF—viz., Credit Suisse wealth Management—has made a severe indictment that five packages submitted to FM’s media conference “lack major near-term support for the economy and may not be adequate to restore the country’s growth”.
The Ministry of Finance and the babu lords of the PMO must realise that when the Prime Minister has laid down a vision document to take the economy toward self reliance, and has committed 10% of the current GDP for that purpose, it is the duty of his appointees to design a package for that goal. A priority need in this hour of distress is to enable the poor and the weak to stand up on their own feet. To enable this at this stage, genuine stimuli are a priority.
The stimulus required is direct financing for the affected. That is what we need today because such stimuli are not only dignity-savers of the poor and deprived, but they are also demand generators sorely needed today for the economy to recover and resume fast growth and generate employment.
When the coronavirus enters the body of a poor human already sick, there is a huge uphill task to save the human. But yet we have to go for it and not plead helplessness or hide behind blaming the poor for not have IDs and credit cards (as MoF officials have done). So if a family of five are seen walking distraught on the road with their miserable luggage on their heads, then they must be a migrant labourer with his family walking back to his village. We don’t need fancy IDs to recognise who they are and what is their miserable state.
If this family gets Rs 2,000 in cash they will become part of the demand stimulus for kirana shops and dhabas; and this will now be a family with hope restored.
Even in the rich country that the US is, President Trump has disregarded the liberals’ tear jerking and pontification, and has made sure that billions of dollars are transferred through bank accounts on direct transfers.
Credit guarantees and collateral waivers on the other hand are supply enhancers. Except for some MSMEs, they do not need direct stimuli—since if the buyer is there, then it is enough to provide credit guarantees and collateral waivers.
India today is the only G-20 country which is not just afflicted with a pandemic raging among its citizens, but is also debilitated by falling growth rates in output and rising unemployment.
Already the economic system of India has been seriously ailing for the last four years, that is, by the time the coronavirus arrived here in February this year.
By the time the Government’s lockdown policy manages to contain the coronavirus, the economy may become so emaciated that there may be a situation of mass unrest due to unemployment and poverty.
Regrettably, thus the Prime Minster has been let down by the Finance Ministry once again [remember demonetisation and GST?] since he did not specifically delegate the formulation and implementation of the stimulus package to experienced politicians in his Cabinet [those who can win a Lok Sabha election]—much as he had done in containing the coronavirus pandemic through a properly delegated team headed by an experienced minister, the PM here too should have delegated his stimulus package to an experienced politician in his Cabinet.
The problem for the nation today is not that we cannot defeat the coronavirus, and also revive the economy, but that (since there was already a decelerating economy since 2015), the economy would be shattered further by the lockdown. According to estimates available, in FY21 [i.e., 2020-21] the GDP growth rate could decline sharply to negative growth rates.
Therefore, post the coronavirus pandemic attack, the economy needed experienced and expert handling as a team effort by senior ministers of the Cabinet: it should not have been left to a novice aided by a bunch of bureaucrats. Business Standard [21 May 2020] reports that the MoF’s Expenditure Secretary told its correspondent that “Cash is not necessarily the immediate requirement of someone trying to get home”! Migrant workers are forced to leave their home for their village far away where they hope their relatives might look after them, because the government could not. MoF thus does not realize that migrant workers are not illegal immigrants who have to be deported.
We may win the coronavirus battle, and yet be badly defeated in the war to save the economy from turning turtle with large scale starvation. Social disorder is bound to ensue then.
We therefore first need a reality check. The economic reality of today can be assessed from the following facts:
[I] According to the media, the MoF’s Economic Advisor has said that the growth rate of the economy (with proper index number based GDP), will not exceed 2% on annual basis.
[II] But based on available data, I foresee that the growth rate of the GDP for 2020-21 will be the lowest since 1952—less than 2% annual rate. Most probably negative at -5% annual rate.
[iii] As for the $5 trillion target for 2024, it was a ridiculous target even when it was announced in May 2019. It would have required an average of 14.4 % per year for five years to achieve such a target.
[iv] Even while having faith in Prime Minister Modi, the overwhelming number of participants in social media and informal exchanges today think that the coronavirus pandemic economic rescue proposals are swinging Indian economy from one measure to another, without a comprehensive policy formulation.
[v] Today however is not when we should sell dreams about a Renaissance India in 2024 and thereafter. Today is when we should think about how to wipe the tears of those rendered destitute and empower the forces of demand. History records from Ramayana and Mahabharata periods to the “India Shining” days, that those who don’t want to listen to frank sage advice of the learned and also don’t delegate tasks to the able, will someday come to grief unsung.
Subramanian Swamy is an MP nominated by the President for his eminence as an Economist. He is a former Union Cabinet Minister for Commerce and Law.