An economist proposes ways for India to revive its economy in the wake of the Covid-19 pandemic

There was much that was wrong with the Indian economy, society, and polity before the pandemic struck; and this book has suggested that much more has gone wrong since. It is easy to feel horror at the inequalities exposed and accentuated by governmental and societal responses to the pandemic, despair at the apparently widespread loss of moral compass and minimum ethical considerations especially among those in positions of power, and anger at the unnecessary human tragedies that have unfolded as a result.

Yet there is still much that can be done to remedy and improve the situation; and there are signs of hope on the horizon. The famous Cambridge economist Joan Robinson, who was a frequent visitor to India in her later years, once remarked that ‘for everything that can be said about India, the opposite is also true.’

Perhaps this is only to be expected in this vast and diverse country, but there is no doubt that both the Indian economy and Indian politics have at different times confounded sceptics, proven both optimists and pessimists wrong in different ways, and shown patterns of change that were not always expected.

Within India, however strong the current pulls in the opposite direction, there is still tremendous progressive energy and desire for change towards a more just economy and a more inclusive yet diverse society.

This belief in the capacity of the country to step back from the brink and change course in economic strategy, so as to enable people’s livelihoods to recover and enlarge human capabilities, underlies the proposals that follow in the rest of this chapter.

So what can be done? Two major concerns have been highlighted throughout this book: the weak fiscal response and inadequate public spending, which have added to contractionary tendencies within the economy and have very severe implications for the future economic trajectory; and the near-absence of meaningful social protection, which renders the vast bulk of the population completely vulnerable to external or internal shocks. These concerns are related, as are the solutions.

Since the pandemic was just the first major shock in what is likely to be a very uncertain future in a country already affected by climate change, ensuring resilience must be a central goal of economic policies. This means that all future strategies have to be evaluated in terms of environmental costs and benefits, with a strong focus on pollution reduction and strategies to mitigate climate change. Employment generation strategies will need to be linked to the restoration and creation of ecological commons in urban and rural areas.

At the moment, as described in the previous chapters, we are dealing with an economy in decline, where the ‘output recovery’ is weak and confined to the upper strata, while employment, wage, and self-employed incomes and mass consumption languish at levels much lower than before the pandemic.

It is urgent and essential to raise public spending, particularly in employment-intensive sectors.

The widespread increase in absolute hunger and decline in access to nutritious diets means that alleviating hunger has to be a central plank of economic policy, both through direct public provision and by providing income transfers and wage incomes to enable private food purchase. In addition, employment revival is essential, and this too can be done through a combination of direct public employment and support for MSMEs that provide the bulk of employment opportunities in India.

The health crisis is acute, well beyond the specific concerns with Covid-19, and this too requires immediate policy attention, through direct public provision.

In a country like India, with a vast informal labour force, the social protection floor should consist of the following four elements: universal access to basic nutrition; universal access to good quality basic services such as health, sanitation, and education; universal access to basic employment through an employment guarantee scheme in both rural and urban areas; and universal state-provided non-contributory pensions for those who cannot work, and do not receive pensions from other sources.

This combination would be more suited to the specific requirements of Indian society, than the Universal Basic Income (UBI) that is often advocated, for several reasons. First, the amounts provided as cash transfers for a UBI in India are likely to be very small if they are truly universal, while targeting such cash would give rise to the well-known problems of unjustified exclusion and unwarranted inclusion.

Second, even these small amounts of cash could be rapidly eroded by inflation. Third, in India there is a real concern that such cash transfers would be seen as a substitute for publicly provided essential services, rather than an addition, as they are in most countries. Indeed, there are already plenty of indications in previous statements of the central government, suggesting precisely such a substitution.

This would drastically undermine equity, inclusion, and the quality of essential services. Fourth, the only employment benefits of cash transfers are indirect, operating through the impact on demand.

By contrast, a social protection floor consisting of the combination of food, universal basic services, employment programmes, and pensions would directly generate significantly more employment (through the employment guarantee and because social services in health, care, and education are all labour-intensive activities) and create more secondary employment through the multiplier effects of spending by those who receive the wage incomes. It would improve the quality of life and the health and skills of the population, which are essential for future progress.

The employment schemes would self-select those in need, rather than requiring various administrative attempts at exclusion. Cash transfers would be in the form of pensions (ideally at half the minimum wage) for those who cannot work for reasons of age, disability, or other constraints.

Universal public food distribution is now an essential requirement. In the current situation, because of the continuing crisis of livelihoods and reduced food access, there should be free provision of 10 kilograms of wheat/rice to every person for six months, without requiring ration cards. This is essential to combat hunger and ensure basic nutrition without excluding some of the most needy and vulnerable people.

Biometric identification of beneficiaries, which has generated significant exclusion of the really needy, must be abolished, and alternative ways of ensuring access (some of which are already being experimented with by some state governments) must be developed. Universality does not mean that everyone will avail of this; various studies suggest that such free foodgrain from the Public Distribution System would be taken up by at most 80 per cent of the population.

With an estimated population of 1.3 billion, providing this for6 months would require 62.4 million tonnes of grain. This is a maximal estimate: the actual requirement would be lower. In early 2022, the FCI was holding 85 million tonnes of food grain stocks, nearly four times the buffer stock norms of 24 million tonnes, and would soon procure more after the 2022 rabi harvest. Therefore, such free food distribution would be easily possible even while maintaining the required buffer stock.

Apart from cereals, some pulses, cooking oil, and other necessities should also be provided over this period. Where Mid-Day Meals and cooked food in Anganwadi centres cannot be provided, there should be arrangements to deliver food to people’s homes. There should be expansion of community kitchens, canteens, and other such arrangements to provide free or heavily subsidised cooked food for those (homeless and others) who are not in a position to cook food themselves.

Since the economy had not been creating jobs well before the pandemic, it is clear that the government must actively undertake employment generation programmes itself, in addition to creating conditions conducive for good quality job creation by private employers.

The rural employment guarantee scheme must be expanded to offer 150 days of employment to all willing adults. It should be expanded to cover the possibilities of training and some skilled work, and extend beyond creation of basic rural infrastructure (as at present) to include all activities that improve the well-being and living conditions of people.

A new urban employment programme, which includes caregiving and building water-supply, sanitation, and shelter for the urban poor, must be created and put into place; useful templates for this already exist, including those being instituted by some state governments.

Excerpted with permission from The Making of a Catastrophe: The Disastrous Economic Fallout of the Covid-19 Pandemic in India, Jayati Ghosh, Aleph Book Company.