COVID-19: A pandemic, an economic blow and the big fix

  • IASbaba
  • March 24, 2020
  • 0
UPSC Articles
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Topic: General Studies 2:

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  • Health issues 

COVID-19: A pandemic, an economic blow and the big fix

Context: Impending economic crisis due to COVID-19 pandemic

India is lagging when compared to other countries in announcing economic package:

  • US has announced a trillion-dollar economic recovery package.
  • U.K. announced biggest economic recovery package in its history, as an antidote to the crisis with no fixed cost to it. 
  • Germany too announced ‘unlimited government financing’ for the disruptions due to the outbreak
  • France, Spain, Italy and the Netherlands have all launched a half-a-trillion dollars combined in recovery measures.

Impending Crisis in Indian Economy:

  • One-third of all restaurants could shut down in the formal sector alone and shed more than 20 lakh jobs, in the coming months. 
  • Entire automotive sector is in the danger of complete halt, putting at risk the incomes of a million people employed in this sector.
  • Banking Crisis: When businesses close down, they default on their commercial obligations to their financiers which leads to increase in Bank NPAs
  • Vicious Cycle: Rising NPAs will further freeze up credit flow to the businesses further leading to halting of production. This leads to job losses and drying up of incomes and decreased demand in the economy pulling into recession.
  • No Scope for recovery in exports because this is now a global crisis and the condition is similar in other countries as well

India thus needs a comprehensive recovery package that will first cushion the shock and then help the economy recover. Some of the key suggestions are:

  1. COVID-19 Economic Recovery Package for India

Government should soon announce an economic package which is based on four pillar:

  • Providing a safety net for the affected – Through a direct cash transfer of ₹3,000 a month, for six months, to the 12 crore, bottom half of all Indian households. This will cost nearly ₹2.2-lakh crore
  • Addressing disruptions in the real economy – Especially the provision of essential services and announcing sector specific packages ex: Textiles, Construction, Automobiles, MSMEs.
  • Unclogging the impending liquidity squeeze in the financial system – Nudging the RBI to announce easy monetary Policy. RBI needs to set up a credit guarantee fund for distressed borrowers for credit rollover and deferred loan obligation.
  • Incentivising the external sector of trade and commerce – through reduced export taxes and forging better trade treaties with other nations, especially in the neighbourhood

2. Reforming the Right to Work framework

  • MGNREGA to be expanded and retooled into a public works programme, to build hospitals, clinics, rural roads and other infrastructure. 
  • One possible way is by integrating MGNREGA with the Pradhan Mantri Gram Sadak Yojana and the roads and bridges programme. 
  • These three programmes together have a budget of nearly ₹1.5 lakh crore. 
  • This must be doubled to ₹3 lakh crore so as to serve as a true ‘Right to Work’ scheme for every Indian.

3. Provision of Foodgrains

  • The Food Corporation of India is currently overflowing with excess rice, wheat and unmilled paddy stocks 
  • This excess stock can be used to provide 10kg rice and wheat to every Indian family, free of cost, through the Public Distribution System.

4. Expansion of COVID testing Infrastructure:

  • COVID-19 testing, treatment, medical equipment and supplies capacity to be expanded through the private sector and be reimbursed directly for patient care
  • This will need a budget of ₹1.5- lakh crore 
  • This will help create a large number of jobs in the private health-care sector, with trickle-down benefits.

In sum, the total incremental expenditure for the recovery package will be between ₹5-lakh crore to ₹6-lakh crore for FY2021.

The package can be funded largely thorough three sources — 

  • Reallocation of some of the budgeted capital expenditure, 
  • Expenditure rationalisation
  • Utilizing the oil bonanza.


It is time for India to think big, bold and radical to pull the economy out of this crisis. 

Connecting the dots:

  • Universal Basic Income – pros & cons

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