The steps that the Union govt needs to take for India’s health and economy

All these measures will result in fiscal deficit escalation; however, the government should not be worried about it. Great problems need great solutions.

The effects of coronavirus have now been felt by every Nation on Earth. In India it is not just a health crisis anymore, but a full blown humanitarian crisis. COVID-19 in India will have a profound negative impact – much more than most other nations – because of our abysmal healthcare. 

Firstly, with a mere 1,28% of the total GDP allocated for healthcare, compare that with 11.2% allocated by Germany, India has one of the lowest health care spending.

Secondly, India is not testing as many people as it should be. The only way to control the spread of coronavirus is to test as many people as possible – not just those with symptoms, but those who are asymptomatic have to be tested as well. Experience from the rest of the world showcases that only by testing a wide range of people can we control the spread of this disease.

It is pertinent to note that symptoms for more than 80% of those who are affected will be negligible; only 10-15% of those who are affected will require hospitalisation, with a mortality rate ranging from 0.25% to 3%. So a wide range of people – even those who are asymptomatic – have to be tested. But as per various Indian news sources, as of March 31, only 35,000 have been tested.

That’s 0,003% of the population; in other words, only 3 per 1,00,000 people, one of the lowest percentages in the world.

Thirdly, according to Forbes, India has one of the lowest number of ICU beds in the world. Italy had 12.5 ICU beds per 100,000 population in 2012; Germany had 29.2 ICU beds per 100,000 inhabitants. India on the other hand has 2.3 ICU beds per 100,000 population, as of 2017, which numbers to just 29,900 for a country with 1.3 billion population.

Therefore our hospitals will be overwhelmed very soon. Even if 0.5% of the Indian population gets coronavirus – and going by the International statistics 15% of this number develop severe complications – India would be short by about 8 lakh beds.

Finally, in comparison to other countries, such as China and France, which have battled a severe coronavirus outbreak, our bureaucratic capacity is rather inchoate. This can also be evidenced by our lack of preparedness for COVID-19.

All the above mentioned issues are structural and we cannot improve our capabilities drastically in a short time.

Therefore, all these issues signal towards a strong counter action strategy such as the 21-day stringent lockdown proposed by our government, However, such stringent lockdown should be followed by a strong stimulus package from the government.

But what we have now is one the world’s most stringent lockdowns backed up by the world’s weakest stimulus package. India’s stimulus package totals 1% of our GDP, compared to the stimulus package offered by the USA, France or UK – which stand at 10% to 15% of their GDP.

Lack of homework

The Indian government has shown great disdain in addressing the plight of migrant workers, temporary workers and those employed in the informal sector, who constitute about 50% of the population.

COVID-19 was a disaster that came with prior warning; therefore, no excuse can be given by the government for being under prepared. The Prime Minister’s 8 pm lockdown announcement was high on platitudes, but low on relief measures. Four hours after the announcement, there was a complete lockdown of the country, but there was no clarity on what the future held for migrant workers. The migrant crisis is a clear indictment of the unpreparedness of the government.

India needs a strong economic impetus

Even before COVID-19, a major challenge for the Indian government was managing the economy.

Our growth has plummeted due to lack of demand, and unemployment has been on the rise. The fiscal crisis was looming large and even without the pandemic, the government was on its way to exceeding the fiscal deficit defined in the Budget. The crisis has only exacerbated matters for the Indian Economy.

Due to the Pandemic, the western world’s economy is contracting, leading to drastic reduction in imports which will drastically reduce the need for Indian exports – including in the services Industries.

This implies that India’s largest employers of fresh engineering graduates – Wipro, Infosys, TCS – will recruit far fewer freshers and may even have to lay off employees in certain cases.

Daily wage workers and temporary workers are already being thrown out of employment. With the country already facing high levels of unemployment, this pandemic will add salt to the wound.

The government should take drastic measures to stop these employees from being retrenched. It should offer subsidies in the form of government aid for ailing companies.

France, Germany and other EU countries, learning their lessons from the 2008 financial crisis, have come about with a novel strategy to abate the havoc caused by this pandemic on the Economy. In France, the government is paying companies upto $50 billion, to stop companies from laying off workers. On top of this the government has made available another $300 billion in terms of guaranteed loans. This has enabled the companies, in France and Germany, to put more than 6 million people in Furlough. Allowing people to remain in their jobs will allow them to consume the same amount thereby negating the drastic effect on the economy. This strategy will also enable companies to start off from where they left once the crisis gets over.

The Indian government should banish austerity and embrace expansionary fiscal and monetary policy.

Since Health is a state subject, the government should allow fiscal federalism. The first step in this regard is to relax the “Stringent rules under Fiscal Responsibility and Budget Management law” and allow the states to borrow more by 1% on top of the already set fiscal deficit of 3%. 

However, one issue that may crop in following an expansionary policy would be inflation. But inflation will not be an issue here; even before the lockdown the Indian economy was slowing down because of lack of demand. Now, the Lockdown will make people think twice before spending, thereby significantly reducing demand. So any increase in demand that is caused by pursuing expansionary fiscal policy would be taken care of by the above mentioned decrease in demand. 

According to “The Multiplier effect” whenever there is an infusion of additional demand in the economy, the net effect on the economy is usually a multiple, 3 to 4 times, of the demand infused, thereby providing the necessary impacts to the ailing economy. Therefore the government should indulge in extensive deployment of largess.

Economic stimulus packages should be coupled with food aid. Public distribution systems can be used to distribute food supplies to the existing households until the lockdown exists. This is the time to make use of India’s humongous food stocks under Food Corporation of India. 

Another needed intervention is a waiver for education loans. Every year, more than 15 million people enter the workforce; owing to the pandemic, most of them risk being not employed. A right step in this direction would be to postpone the student loan repayment for those who aren’t employed by at least one additional year.

All these measures will result in fiscal deficit escalation; however, the government should not be worried about it. Great problems need great solutions and this is not the time to be bothered about fiscal deficit escalation.

It’s a crisis that will inflict more harm on the poor. The government should remember that this shutdown is a luxury for Indian elites, constituting a small percentage of Indian population, who can afford to sit in their luxury apartments/bungalows, and tweet and preach. But for the rest, who live in destitute poverty, constituting the majority of Indian population, this lockdown is a battle between life or death. These are the people whom the government has disappointed so far the most. 

Dharanidharan has an MBA from the University of Oxford, and works on infrastructural policy. He also works with the DMK. 

Views expressed are the author’s own. 

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