20/03/2020 7:42 PM IST | Updated 21/03/2020 5:44 PM IST

What Modi Govt’s COVID-19 Task Force Must Do: Economists Weigh In

The task force announced by PM Modi and led by FM Nirmala Sitharaman must look into some of these measures to lesson the impact of the coronavirus pandemic on the Indian economy.

Prime Minister Narendra Modi speaking about the coronavirus pandemic on Thursday, 19 March 2020.

NEW DELHI—Prime Minister Narendra Modi on Thursday night announced the formation of a ‘COVID-19 Economic Response Task Force’, led by Finance Minister Nirmala Sitharaman, to look into the “economic challenges arising from the coronavirus” and for ensuring that steps are taken to “reduce economic difficulties” faced by the people.

This was a significant departure from the government’s stand just a day earlier in Parliament, conveyed in writing by junior finance minister Anurag Thakur while responding to questions raised by two BJP MPs—he said that “latest available data on trade and indicators of domestic output do not suggest any adverse impact on the economy”.

But in his address, PM Modi conceded, “It is clear that this pandemic is deeply hurting the economic interests and well-being of our nation’s middle class, lower-middle class, and poor segments.” He added an appeal to the “business world” and the “high-income segments of society” to treat their employees with “empathy and humanity”. 

Speaking about the job assigned to the task force, Modi said that it will take steps in the near future to “reduce the economic difficulties” based on interactions with and feedback from “all stakeholders”. 

But beyond these broad assurances, Modi did not specify any immediate economic relief measures to address concerns nor point towards any which may be planned. 

Given that Prime Minister Modi said that the Sitharaman-led task force will take steps based on feedback from stakeholders, HuffPost India spoke with four economists who have been consulted by the union government and its various organisations on various occasions about specific aspects of India’s public finances and economy.

This reporter asked them all one question: what specific measures must the COVID-19 economic response task force consider and seek to implement to address the adverse impact of the pandemic on the Indian economy?

Their detailed responses follow:

Pronab Sen, former Principal Economic Adviser, Planning Commission

At the moment, yes, there have been production disruptions but those are still not serious. Most companies will have sufficient inventories tied over a couple of months. So production and availability in and of itself is not a problem. 

There are, I think, two sets of problems which I think are really critical. The first is, the delivery chains. Now, you can have all the big production in the world, but if you have a non-functioning delivery system then it does nobody any good. The whole problem is delivery chains in India and, in fact in the rest of the world as well; is that these are extremely labour-dependent. These are very labour-intensive activities. These are places where a large number of people have to get together. There is no option.

When you go to a mandi (wholesale market) so that’s a place where aggregation and disaggregation takes place, you have to have large numbers of people. If those people are not there, then the delivery chain just breaks down completely. This has to be a high priority. This is a very difficult trade-off, that if you are going to keep delivery chains functional, you have to be prepared that the people who are working there are likely to get infected and they are likely to spread infection around. So it is a very hard ethical choice to make. 

But in the larger context, to my mind, this should take the first priority: to say that there’s enough stocks is not good enough. You have to be able to make sure that those stocks get delivered to the last point of sale. But as I said, this is tough. My personal belief is that the first thing they should focus on is keeping the wholesale mandi system open and protected. A lot of focus should just go in that. 

My personal belief is that the first thing they should focus on is keeping the wholesale mandi system open and protected. A lot of focus should just go in that.Pronab Sen, former Principal Economic Adviser, Planning Commission

So you know that these people are going to be vulnerable, you know that it’s going to spread so you have to do both containment and treatment. And you have to do it at that point. So they have to be given the confidence that you are looking after them. 

For instance, if you are looking at Delhi, you have the fresh vegetable and fruit mandi at Azadpur. Then you have the Chawri Bazaar area for non-perishable items. So you have various mandis and state governments and municipalities know what these places are like. The workers there have to be registered, they have to be given both, as I said, preventive and curative and testing... all of these facilities should be made available right there. These people should not be allowed to move into the larger community, which means you will have to make provisions for their stay, you will have to make provisions for their food and upkeep, money they will have to send home, so anything that protects them and makes them continue to work, I think, should be the first priority. 

Otherwise, given the kind of hoarding and stocking that’s going on, what’s going to happen is, you are going to start running out at the retail point and if the mandis are not functional, it’s not going to get replenished. Which means people who rely on their supplies on a day-to-day basis, particularly the poor, they are going to get wiped out. The heart of this system is the mandi system. I would say just focus on it. The government doesn’t have the bandwidth to look at the entire chain. For the mandi level they can and should do something about right away. That should be, to my mind, the number one critical focus. 

I am not talking about the production side at all, I am just talking about keeping the distribution system going. If that shuts down, the whole economy shuts down. They should, in fact, focus on that. You shouldn’t be looking at textiles, automobiles as sectors. You should be asking the question: what is it that I need to do to keep these sectors going? And the answer in most cases is the distribution chain. No distribution chain, no production.

Sudipto Mundle, Distinguished Fellow, National Centre Of Applied Economic Research

We will have a recession. I think that’s unavoidable. But to moderate that as far as possible, I think the main thing the government needs to do is to provide income support—not to everybody. We are all going to be hit but we can handle it probably. It’s the really poor people, those working in the informal sector, rural sector—income support for them is very important now to the extent that we can afford it. 

I have written about it—you can give Rs 12, 000 per household per year. That’s about Rs 1,000 per household per month. It’s not much but it is something affordable to us and means a lot for a family earning Rs7,000-8,000 per year. 

And we should not worry too much now about the deficit and all that. Those are routine concerns but right now we are in a war. It is a different ballgame. That would be my main suggestion. 

Then there will be obviously supply chain disruptions. One has to look at it case by case; I think essential commodities and so on, to try and restore them as quickly as possible. And also industrial production generally anyway was in such a mess. These will be case-by-case details, so no point saying anything further. Supply chain disruptions need to be addressed. I will leave it at that. 

Of course, there is some opportunity there because supply has shifted away from China so some of that might come our way. 

Lekha Chakraborty, Professor, National Institute of Public Finance and Policy

Recognition of the “care economy” in the PM’s speech is laudable. But it should not be just confined to symbolic appreciation. Care economy needs serious public policy recognition and I hope the PM’s Economic Task Force will take this issue seriously! When the ‘market economy’ (8 hours paid market-time) is in doldrums, the severity of the crisis falls on the care economy (non-market time work). This care economy work so far is statistically invisible in India A. Think of designing a UBI (universal basic income) transfer to care economy B. Incorporate care economy providers’ perspectives in the health policy because the physical and psychic costs of the care economy in crisis are severe. 

R. Ramakumar, NABARD Chair Professor, Tata Institute of Social Sciences, Mumbai

The crisis demands that the government should raise public expenditure in the economy. There has to be a carefully designed fiscal stimulus package with focus on protecting jobs and restoring livelihoods. There should be an immediate expansion of the public distribution system (PDS) in the rural and urban areas of all districts. The government should universalise the provision of subsidised food grains under the PDS till the crisis recedes. 

The costs of expanding the PDS should be considered a part of this package. Wages paid through the MGNREGS should be raised, and work should be assured for at least 200 days per job card in the next year. Many sectors in the economy are in dire need of revival packages and the government should consider providing the acutely affected sectors with exemptions and subsidies. Care must be taken to provide priority in these packages to small and medium enterprises. RBI and banks should be asked to step in, identify distressed loans and provide moratoriums and debt relief. 

The required amount should be raised primarily by the central government through borrowings. If the state governments are involved, their borrowing capacity should be concomitantly expanded to enable them raise the required resources. In other words, fiscal conservatism should be discarded and the government should not worry about a rise in fiscal deficit.

There is one opportunity in this crisis, which if realised could be a major advance in a country like India. I refer here to the health sector itself, where the crisis has struck.R. Ramakumar, NABARD Chair Professor, TISS

There is one opportunity in this crisis, which if realised could be a major advance in a country like India. I refer here to the health sector itself, where the crisis has struck. The coronavirus crisis has exposed, once again, the extremely poor state of our public health sector. Currently, the Indian state invests just about 1.5% of its GDP in health. By 2021-22, this should be raised to at least 2.5% of the GDP. That is, about ₹1.5-2 lakh crore should be invested to expand and deepen India’s public health care in the next two years. Of course, this is not to be a one-time investment in health; it has to be sustained over the future years though some of the costs of physical infrastructure creation can be expected to taper off.

Such a rapid expansion of public health will create jobs for healthcare personnel directly (like doctors, nurses, care staff, administrative staff), and in related sectors with strong linkages to the health sector (like drugs, medical equipment, laboratories, surgical gloves). A study says India has a shortage of 600,000 doctors and 2 million nurses. It will also create a healthy workforce over time, and raise the productivity of workers. By reducing out-of-pocket expenditures, it will free up money for consumer spending by households, which in turn will raise demand. Currently, out-of-pocket expenditures form at least 70% of the total health expenditure. For a single item like hospitalisation, an Indian household annually spends ₹6,120 at a public health institution, but ₹25,850 in a private health institution. Let us Imagine a scenario where access to health becomes cheaper, and households are able to save on a part of this expenditure to spend in the market. Studies also show strong economic association between health investment and GDP growth in India; for instance, the Lancet Commission in 2013 estimated for India that a $1 investment in health will yield a $10 increase in GDP by 2035.