COVID19 Impact Causes Starvation and Deaths in India
By Romar Correa, retired Reserve Bank of India professor in economics, Bombay University
On March 26, the Government of India announced it will spend about $22 billion to tackle the economic problems arising from the spread of the coronavirus in the country. Not unexpectedly, the measures are a set of palliatives and also too little too late. The amount is about 0.6% of India’s GDP, tiny compared to the amounts being spent by other governments. South Korea, for instance, has spent at least $27 billion, 1.8% of its GDP, and has managed to contain the spread of the virus.
It is estimated that about 800 million poor Indians will be given five kilograms of food grains per month for free for the next three months, in addition to an existing allotment of five kilos as well as one free kilo of pulses. The increase in food rations will not fill many bellies, being less than half the monthly food consumption.
Political cash hand-outs
About 87 million farmers will get a grant of $80 each in the first week of April. Impoverished widows, senior citizens and the disabled, a total of 30 million people, will receive $13 a month for three months. Two hundred million women with bank accounts will receive around $6 a month for the next three months. This cash handout is a handwave to political correctness and will not be of much help, especially to the poor.
The hike in the daily wage under the MGNREGA, the world-renowned buffer-stock scheme in able and willing workers, is miniscule, from the current $2.42 to $2.69. What is sorely missing is any mention of a works detail for the country. The physical protection of medical personnel involved in the care of patients impacted by the virus is abrogated by an insurance product.
Some students of the Indian economy have forecast that it is moving from a recession towards a depression as a result of the viral epidemic. Both elements in that proposition might not pass the scrutiny of economics metrics and, in any case, the implicit assumption that a cycle underlies the rhythms of the economy has not been established.
Even if one subscribes to the notion of a cycle, the evidence about them in our times is that when a downturn bottoms out, the upturn begins at a lower point than the point of the previous upturn. The reason is the irreversibility of the processes that have endured the long night.
Indeed, rather than being trapped in a unique bad equilibrium, I regard the economy over the past few years as rolling down from the edge of a cliff but being forestalled at ledges. The Covid-19 virus has pushed us off our current perch.
Laborers face starvation
The middle class possesses assets in the form of stocks: we are replenishing our stocks of pulses and perishables from stores at regular intervals. The price of vegetables is going up as their transport into the city dwindles but we can afford the expensive organic varieties which we pay for with our credit cards, an imposition on wealth, a stock.
What about our fellow Indians? The national lock-down imposed by Prime Minister Narendra Modi since March 25 will likely slow the spread of the virus. But work for hundreds of million urban and rural laborers will have vanished. Millions of staff working on contracts will lose their jobs.
As daily work vanishes, regular income does too. The flow of cash to laborers is drying up and our countrymen are on the brink of destitution. Scores of workers and their families face starvation as they will soon have no money to buy food. If the lock-down continues for several weeks, the chances of which being high, there will likely be hundreds of thousands of deaths from other untreated ailments and a rise in suicides, as happened during the Great Depression of the 1930’s.
This is in addition to the large number of deaths likely to be caused by the spread of the coronavirus given the density of the population and the lack of medical resources to tackle such a massive pandemic.
News broadcasts in India and around the world are showing millions of migrant laborers walking back to their villages, bereft of livelihoods. Some of them will probably spread the virus to a wide area of the country. China had one region with coronavirus infections of over 1,500, namely Wuhan. While India currently has around 1,000 cases, it will surely end up with dozens of cities and towns with major cases of infections.
Long term, the scars inflicted by years of performing makeshift and demeaning tasks do not heal. Labor skills atrophy. Morale is broken. The decline in productivity is secular. In that case, a superior handle on the system is the concept of hysteresis, a black hole in which an economy might find itself.
Expand the employment guarantee scheme
The fiscal authorities continue to underscore the upper-class nature of the ruling dispensation. Every shade of opinion across the ideological board expected a big boost to demand in the last budget in the form of government expenditure. Shockingly, the expectations were dashed.
Adding insult to injury, the budget of MGNREGA was trimmed. We must be clear about the need for this employment guarantee scheme for an economy, also dropping the restriction that it applies only to rural jobs.
MGNREGA is normative policy. The task is to iron out the glitches in the program and widen the set of assets to which it applies in order to make it more successful. All we require is to dispense with the crude textbook stylization of markets to understand that government support of employment is indispensable to the proper functioning of an economy.
Policies aid businesses and the middle class
The Indian policy-making establishment has played true to script. Finance Minister Nirmala Sitharaman dithered longer than her compatriots in other countries over the colossal central response needed to try to reduce the economic impact of the coronavirus. After the implications of the pandemic were established in Delhi an eternity ago, in a woebegone format, representatives of the ruling class trooped to the capital to present their views. Apparently, the finance minister spent time collating their notes.
The monetary authorities have been generous with open-market operations and repo rate reductions will continue. It is likely that the bureaucrats at the Reserve Bank of India (RBI) are aware that for market clearing there must be a counterparty to the surge of liquidity being made available. Only the promise of smart returns will induce participants to match the easing of monetary conditions with their orders. However, the prospect of gloom has given way to doom.
The Governor of the RBI would plead helplessness when the need of the hour is illiquidity. Pre-virus, it was firms, irrigation schemes, roads. Post-virus, the distribution of food which is rotting in government warehouses has been added.
The official statement that we are fighting something akin to a World War is no exaggeration. On such occasions, men and women and materials are commandeered and sent out by the Commander-in-Chief. The Prime Minister and the Finance Minister assume moral and technical leadership. The outlays are material and provide immediate relief, not financial contracts which assuage with a lag, if at all.
Overall though, the back of the Indian government will continue to be resolutely turned to the working class and rural poor. It does not take long for the dispossessed to fade out of sight and statistics. We will not see those dying of starvation in our neighborhood. Perhaps the precipice has a bottom after all.
* Romar Correa retired as the Reserve Bank of India professor of economics at Bombay University.
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