Measures initiated now must fit into a longer-term strategy.
To provide immediate succour to those affected by Covid-19 after the recent second wave, both the Union Government and the Reserve Bank of India, have now stepped on the pedal. Amongst the notable assistance-measures are the extension of the useful Pradhan Mantri Gareeb Kalyan Anna Yojana till November 2021 (the program gives gratis 5 kg of food grains per month to each of the 800 mn citizens under the public distribution system), making the Covid vaccine free of cost, and launching two credit guarantee schemes, totalling Rs 1.7 trillion, for pandemic impacted segments and borrowers of micro finance institutions. The Central bank, which for some time now has maintained primary rates despite looming inflation, has also assured markets of an accommodative monetary stance for the foreseeable future. This includes opening an on-tap liquidity window to provide cash support and aid credit flow of Rs 150 bn to the contact intensive sectors. As an incentive to commercial banks to park their excess funds with it under this arrangement, the RBI has offered an extra 40 basis points interest above the reverse repo rate up to the size of their loan book.
While such interventions—predominantly oriented towards keeping the body and soul together—call for a continuation for as long as the ongoing health crisis warrants, the primary concern must remain on containing the pandemic at hand. The Delta variant of the virus, first identified in India, is reportedly 60% more contagious than the Alpha, which had devastated the UK and most of Europe last summer, and twice as contagious as the original coronavirus. Health experts fear another equally severe wave may set in soon since dangerous variants like the Lambda are fast surfacing in South America, and the unvaccinated population continues to remain large. As per Dr Maria Van Kharkhove, who leads the WHO’s coronavirus response team: “More than two dozen countries have epidemic curves that are almost vertical.” Such concerns are increasingly being voiced by leaders of the developed world too who concede the real possibility that the new variants, combined with a slow vaccine roll out could upend any economic recovery.
Suggestions to add a third dose of the available vaccines to check the Delta variant is yet on specious grounds. With limited to no proven scientific evidence to support the idea’s efficacy, vaccine makers in favour seemed more guided by commercial considerations. To add to complications, youth and infants are no longer considered immune to getting the virus. That said, there is now incontrovertible evidence that two doses of the vaccine provide powerful protection against all known variants in terms of lowering the possibility of affliction, their intensity and the need for hospitalisation.
To reach a stage of herd immunity (70% of population) vis-a-vis the original virus, 580 mn Indian adults above the age of 18 years are to be vaccinated. With the eligible age now lowered to 12 years, the number goes up by 20% to almost 700 mn. Given the two-dose requirement, the rough math puts us at a requirement of 1.4 doses. With the current understanding that immunity may wane after 6 to 9 months, this number of vaccines would be required on a recurring annual basis. Currently, a reported 370 mn doses have hitherto been administered, representing 21% of the 1.4 bn population with a single dose and 6% with a double dose. Even a cursory examination of these numbers would show that the number of unvaccinated remains significantly high, and that till more effective vaccines or meaningful therapeutics come out, vaccination in India will remain a challenge of epic proportions—both in scale and expense.
The recent Covid outbreak has revealed deep gaps in the Indian medical care set up—inadequacy of hospital beds in intensive care wards, lack of medical doctors, inadequate trained nursing staff and a shortage of ready to use oxygen and ventilators for breathing-support have very clearly been deficiencies. Equitable and timely distribution of oxygen and ventilators amongst states and districts was also found woefully wanting. Given this critical need for robustness and promptness, the entire medical supply chain needs an overhaul. The responsibilities of the Centre and States need greater clarity, with clear demarcations along with an understanding of who picks up the tab for all specific materials and service. With explicit indications that we may run out of the current budgetary provisions in Central and provincial budgets, authorities need to tend to this matter urgently. The World Bank’s recent soft loan for pandemic relief to India, and the IMF’s $650 bn worth of reserve funds for countries to buy vaccines and finance healthcare initiatives, should come in handy.
Greater utilisation of the well thought out MNREGS is another desirable measure. Given the national scheme is over a decade old, the earlier teething problems are mostly behind us with most wrinkles straightened out. Despite the low wages offered, the scheme has come to serve as an effective back-stop in many disadvantaged pockets of unemployed and poor households, where it has prevented people from slipping back into abject poverty and hunger. There is compelling reason to raise wages offered under it, both for unskilled manual and skilled work. The Centre, in consultation with the states, must also consider giving the welfare-measure a statutory basis; such a change will make for a fundamental job guarantee.
It is worth highlighting that Maharashtra, the first state to start an Employment Guarantee Scheme way back in 1972, had a few years later extended such a legal guarantee. The initiative was an enforceable assurance of providing a job, within a fortnight, to every person registering for work in a nearby location. In case of failure to do so, the law mandated paying the individual the minimum daily wage. That singular provision of the law had led local officials involved in the designing and implementation of EGS to keep ready scores of work programmes that could be offered on short notice lest they get hauled up for having to pay out vast sums to “demandees”. While the actual details of a national job guarantee could differ, there are certainly lessons to be learnt from Maharashtra’s experience.
Emphasizing a rural focus to the economic recovery strategy would also have several additional advantages. 60% of the Indian population lives in villages with agriculture as their main pursuit. All out efforts to induce them to continued staying rather than migrating to urban areas in search of work are warranted. The public cost of keeping an influx of new people in towns and cities is decidedly higher and environmentally less sustainable. Fortunately, most rural vocations are less capital demanding and more labour intensive. Farming, dairying, animal husbandry, poultry raising, and fishing are essential operations because of the very nature of their produce. While statistical evidence points to the persistence of lower wages and greater incidence of poverty in rural areas over urban ones, it is clear both need to be remedied. However, the reality is current public funding and institutional flow of funds to urban areas far exceeds provisions for villages and their residents—this only exacerbates the underlying problem.
Add to this dynamic that the average less well-off rural folks have a higher propensity to spend than his urban counterpart who earns and saves more. Such characteristics call for raising public spending in rural areas including on agriculture and related pursuits. Doing so would cause a greater contribution to building the national aggregate demand in comparison to most items of urban expenditure. There is a real ongoing need to build up such demand so that the significant under-utilised capacity in Indian manufacturing and areas such as surface transportation, civil aviation, and hospitality decline. For ensuring future economic growth and creating employment opportunities, the overall investment rate as a proportion of GDP requires quick ramping up from the current twenties to the mid-thirties we had once attained in 2009-10. Even in industrialised nations with large urban populations, government-spending in rural areas tends to be significant. Paul Krugman, a Nobel Laureate economist, had recently observed that the rural US provinces receive significantly more benefits—mostly by way of social security benefits and medicare—than the taxes they pay to the federal government. He elaborates: “In Kentucky, the most extreme example, the annual flow of federal money per capita is $14,000 greater than the outflow.” This is in addition to the development works of various kinds taken up by the state administrations there.
Alongside these changes are the other “essentials” which must remain centre stage. Better primary health care including safe drinking water, improved primary education and basic income assurance to the poor and vulnerable are initiatives that must be prioritised for the reason of their significant personal and external benefits to the community and economy. While goals for attaining these objectives have been set often times in the past, seldom has it been backed by the requisite resources. The common man has come to look at pronouncements like Health for All, Food for All, Housing for All and Garibi Hatao (Eradicate Poverty) more as slogans to seek electoral support by successive governments than a meaningful commitment. Past domestic experience has also reinforced that such desirable public policy goals cannot be left to market forces or private initiatives and warrant direct public intervention and funding.
The intended implementation of the recently conceived National Infrastructure Pipeline cannot be permitted to slow down. Infrastructure development has huge multiplier benefits which need harvesting to the hilt. To ensure they get off the ground quickly with fewer interruptions in implementation, urban employment guarantee schemes designed on the lines of the tried out MGNERGS is a worthwhile option to consider. The wage portion of most infrastructure projects can come out of it, with bills being picked up largely by the Union Government. Devising ways and means to involve specified local municipal corporations in their execution, within their jurisdictions, should facilitate the securing of support and numerous clearances of local agencies; a task invariably found tedious and time consuming. Over time, it would be desirable to reach a situation where Central agencies concern themselves only with execution of interstate and nationally important infrastructure projects, while large municipal bodies, with proven track record in project implementation, execute a majority of schemes for the benefit of their residents.
The Union government will undoubtedly need more funds to undertake the above initiatives. Tax revenues, both corporate and GST, will largely remain muted in the short run given the state of the economy and there is limited scope at this juncture for raising them. However, in the prevailing buoyancy of the equities’ market, privatisation of identified central undertakings can be pursued relentlessly with the anticipated finances raised. Containing the fiscal deficit to around 6.5% of GDP as estimated in the Union Budget 2021-22 may also be difficult. Hopefully, even if breached, rating agencies may not view this adversely as long as spending is not wasteful and part of a well-drawn out longer strategic plan. In addition, part of the additional borrowing should be effected in the overseas capital markets, that are currently awash with liquidity and low interest rates. In this process, greater reliance may be placed upon the RBI which has a healthy balance sheet of its own, and a large foreign currency reserve to boot.
Dr Ajay Dua, a progressive economist and a public policy expert, is a former Union Secretary.