Economic stimulus can wait

Senior Economic Analyst

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Since the beginning of the pandemic, there’s been a consensus amongst economists that the Modi government needs to spend more to revive India’s economy. Many commentators, including me, had been arguing for an economic stimulus well before Covid hit us. That’s because our economy had been doing badly for several years: coronavirus only made things worse. In the past one month, however, I have changed my mind. I submit that no stimulus package can work on the ground, until the pandemic is under control.

Restarting the economy in a country like India, without having a firm grip on the pandemic, is a recipe for disaster.

Let’s break down what a stimulus package means. There are two parts. The first is to directly put money in the hands of consumers so that they buy more goods and services. If that happens, companies will begin to produce more. RBI’s data tells us that, in the first three months of this fiscal, less than half the machines were running in India’s factories. CII’s survey from October suggests only about half the staff had any real work in service companies.

If consumers got money from the government and spent it, these factories and offices will work at higher capacity. People who have been sacked might be taken back. Some workers will be hired on short-term contracts. This will help bring overall job numbers close to pre-lockdown levels. Jobs mean more money in the hands of consumers, which will again be spent on goods and services. This is a virtuous cycle where stimulating consumption demand will ultimately revive production and employment.

The other way to stimulate the economy is to kickstart production. This can be done by the government spending more on big infrastructure projects. Construction companies will get government contracts, hire engineers, managers and workers. They will consume cement, coal, steel and heavy machinery. This will give a boost to companies which supply those inputs.

The government can also give financial aid to companies tied to the number of people they employ. Loans can be given at lower interest rates to businesses that hire more people, in key sectors. This will increase output and create jobs, and stimulate consumption demand. But all this assumes that Covid is under control and we won’t see another round of infections. This is contrary to what we are seeing in Delhi and Haryana, where cases have exploded. It also goes against the evidence from the US and Europe, which is facing a virulent second wave.

Till now, the fundamental way to deal with the pandemic has been social distancing. Masks, sanitisers, hand-washing are all secondary to the key practice of keeping 6-ft distance from the next person. This is the wisdom behind the global move to make people ‘work from home’. This is also the reason why all essential services have operated at one-third their capacity. Offices, where people were packed cheek-by-jowl, have had to be completely redesigned to ensure social distancing. Despite that, locker rooms, common rooms, coffee machine areas, have all emerged as infectious zones in even the best-appointed offices.

Transfer this scenario to India, where many factory shop floors are crammed with people working in close proximity. Think of construction sites where labourers have to pass stones, cement, bricks to each other. In most such places, there is either poor ventilation or excessive physical strain. In either case, working with masks becomes extremely difficult. Whether it is a factory or a construction site, noise-levels are extremely high, which makes people speak loudly or even shout. These are potentially super-spreader atmospheres. Think of small workshops where people sit close to each other, sewing, stitching, folding, packing apparel. If social distancing norms have to be maintained in such situations, the entire business will collapse. In other words, restarting the economy in a country like India, without having a firm grip on the pandemic, is a recipe for disaster.

What can the Modi government do in such a situation? It has to forget about economic growth and concentrate on welfare. It has to first create a database of workers who have already recovered from Covid, or show the presence of antibodies in their blood. These people will need to be centrally organised as frontline ‘Covid workforce’ to implement the government’s welfare schemes.

The most important of these is food for all — ensuring that each and every citizen, rich or poor, has access to basic rations — cereals, proteins, vegetables, milk, fruits and fats. This requires building a food procurement and distribution infrastructure, either within the government sector or through contracts to private companies. Restaurants and food delivery apps can be organised to deliver cooked food to people who cannot sustain themselves — the elderly, young students without kitchens, etc. For rural areas, NGOs can be roped in to supply food to the poor.

The second place where this workforce can be used is to build health infrastructure across the country. This is an ideal time to divert resources away from other productive expenditure towards health. The government can tie up with various health startups to both monitor and administer medical services to citizens. India also has a network of local health workers, who provide services to the poor, without any training. We would call them ‘quacks’, but deep in rural India where people have no access to doctors, these people play a very important role in keeping the poor alive. The government needs to tie up with startups and NGOs which can train these people, and use them to monitor rural populations and also administer basic medical aid.

The third place where budgetary expenditure should be redirected is education. It is time to build low-cost data-integrated schools which can teach students online. Millions of students do not have access to broadband or devices to access online education. The government could tie up with global tech companies to procure devices in bulk and distribute it to the poor. India’s world-leading ITES companies can be harnessed to set up the network.

Implementing this requires out-of-the-box thinking and political will. The BJP has just emerged from a narrow win in Bihar, and has the political heft to implement a radical plan. India does not need an economic stimulus from the Modi sarkar. It needs a welfare booster shot.