COVID-19: Opportunity in the crisis

ECONOMY/ GOVERNANCE

Topic: General Studies 3:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

COVID-19: Opportunity in the crisis

The government’s measures to tackle COVID-19 pandemic has been designed to provide immediate relief. Nevertheless, the crisis provides an opportunity to bring in certain reforms that are beneficial to country in the long run.

Some of these long term measures suggested by Arvind Subramanian (Former Chief Economic Advisor) are:

• Revamping Macro-fiscal Framework
  1. Fiscal Expenditure in this crisis could entail 4-5% of GDP 
  2. Therefore, relaxation of FRBM limits (including for States) is advised
  3. Union government’s overall deficit could exceed more than 10 per cent
  4. Thus, there is a need to overhaul the entire FRBM framework given that the starting point post the crisis will be different.
• Remake Finance
  1. Largescale takeover of bad loans by RBI to support businesses(US Fed model during 2008 financial crisis)
  2. Technology-driven lending Model as advocated by Nandan Nilekani – It uses data rather than collateral, allowing nealry 10 million-odd businesses with deep digital footprints (for example, based on GST invoices), to get loans from the ecosystem of new financial players.
• Complete JAM: 
  1. Opportunity to fix the last-mile weakness of JAM system – transparency and geographical difficulties in accessing cash
  2. To be leveraged for welfare policies and eventually Universal Basic Income
• Re-shape India Agriculture
  1. Creation of pan-Indian market for agriculture across India.
  2. Elimination of restrictive legislations like Essential Commodities Act 
  3. Phasing out of subsidies for fertilizer and instead provide for efficient income transfer scheme (PM-KISAN yojana) to farmers using JAM 
• Make in India
  1. Intelligent industrial policy — incentives, regulatory help, trade policy – to provide direction in the changed scenario post crisis
  2. Focus on few sectors like pharmaceuticals (Drug Security)
• Establish migrants as Full citizens
  1. Need to move from immobile place-based benefits to mobile person-based benefits using JAM infrastructure
  2. Portability of benefits across States. Example: PDS, Ujjwala and Ayushman Bharat.
• Upgrade Health:
  1. Strengthening Disease Surveillance System by Creating an apex institution like the US’ Centers for Disease Control with a network across all the states
  2. Primary Public health and early childhood care to be prioritized over tertiary care
• Build National Solidarity Fund:
  1. To help the informal poor
  2. Funding can be from Wealth Taxes or elimination of Middle Class Subsidies

Conclusion

The prerequisites for the success of these actions is cooperation between the Centre and states. India should make use of crisis to bring in structural changes in the system (like we did during the 1991 BOP crisis)

Connecting the dots:

• Why e-NAM has not taken off?
• Challenges with Central Bank buying off bad loans
• Internal Migration and its consequence on demand for reservation of locals