K.P. Kannan*
These are not normal times for any country in this world. In one swoop Covid-19 virus has proved how fast it can globalize and integrate all countries and people, but in a disastrous way. While the western countries are paying a very high price for their initial lackadaisical attitude, one shudders to think what price India will have to pay should the situation assume the pace and proportions of those in western countries. India’s neglect of the public health care system is nothing less than proverbial. Public expenditure on health (Centre and States) is only 1.28 percent of national income as opposed to 2.5% for defence (external security) and another 2.5% or so for internal security (home affairs). With two-thirds of its 1.34 billion people having to make do with a hand-to-mouth existence the Covid-19-induced health crisis could easily transform itself into a hunger crisis for this vast unimaginably large mass of people. With 90 percent of its workforce without social security worth the salt, a lockdown means no work and hence no wages and thus no means to support the family unless the state steps in decisively and in full measure. A rough calculation of no work-no wages for this 90 percent of the workforce translates into a wage/earnings loss of at least Rs. 3.5 trillion ($50 billion) per month for these insecure, or what is called, informal workers. We are already witnessing this with the current lockdown, which is set to go beyond one month.
A lockdown in economic terms means a simultaneous demand and supply compression that has already halted this large economy consisting of a very large number of very small units of production and services. Strangely enough it is the expenditure for keeping the health system in an overworking mode and the attendant support system, along with a minimal distribution of food and medicine, that are now helping to maintain a part, albeit small, of the national income. The biggest crisis India is now facing is: how to avert mass deaths and probable social unrest due to starvation and fear of death in its quest for halting the spread of Covid-19?
Extraordinary times call for extraordinary measures. Despite the neoliberal rhetoric of minimal government and the blatant sale of the ‘family silver’ to the big private corporate sector, it is the state – both its national (Centre) and regional (States) manifestations – that are called upon to save the people, their livelihood, the economy and, in sum, the country at large. While the State governments are the ones that struggle to respond to both the health and livelihood crises, the initiatives from the national government are minimal, at best, and scandalous, at worst. An economic relief package equivalent to less than one percent of the national income has now been revealed to be a mere 0.5 percent or so once it is adjusted for existing budgetary allocations. The financial allocation of a mere Rs.150 billion for fighting the spread of Covid-19 sounds like a cruel joke given the enormity of the battle that is slowly but surely emerging in one State after another. Despite having a President known for his open and extreme bias towards business interests, the United States has managed to announce an economic relief package close to 10 percent of its national income. A similar conservative political populist regime in the United Kingdom did not prevent it from announcing a relief package of 375 billion British Pounds, equal to around 17 percent of its national income. Similar responses have already emerged from a number of countries. The Indian government’s timid respond is nothing but a political tragedy, one that the Indian people – ever patient and willing to wait – don’t deserve. Is this because there are no options for the Indian government to mobilize the required resources?
In reality a sovereign national government has an enormous number of options to raise resources, including creating new money and spending it in such a way as to maintain the effective demand of the working people, which will be less import-intensive because it would be mostly spent on wage goods that would support the local economy. The government also has the option to cut down on non-essential expenditure. Budget reallocation would be a much-needed exercise in a time of national crisis. States are reeling under financial pressure and that should be immediately taken care of by transferring money to them. Let me put forward a few examples to provoke a discussion. An amount close to at least ten percent of national income should be treated as the target for fighting the twin crises of Covid-19 and the loss of livelihood that generates the effective demand in the economy. That gives a target of Rs. 20.1 trillion.
If the fiscal deficit is doubled it would give an additional amount of Rs. 10.9 trillion (another 2.2% of national income for the Central Government and another 3% for the States). This will be new money. To this the Government of India should add the Rs.1.44 trillion that was recently gifted to the private corporate sector by way of tax reduction, by rescinding that decision. That would be a small acknowledgement of its primary obligation of protecting the lives of the vast masses of working poor and their families in this hour of crisis. And then there is the oil bonanza. Reports suggest that the profit of the Government of India as a result of declining oil prices since 2014 has been a staggering Rs. 20 trillion. The latest decline is expected to net around Rs. 3.5 trillion this year. And at least this much could be diverted for meeting the current crisis.
As for budget reallocation there should be a reduction in non-essential expenditure as well as reallocation of priorities. Do we realize that the Ministry of Home Affairs, with its large and several contingents of para-military forces, gets the second highest priority in the Union budget? The budget allocation of Rs.1.39 trillion in 2019-20 was hiked by 41 percent to give Rs.1.67 trillion in 2020-21. This hike can, and should, be rescinded and given over to the Ministry of Health, which has a mere 41% of the budget allocation of the Home Ministry! Policing the people seems to trump their health security. Similarly, the recent proposal to re-build the Central Vista in and around the Indian Parliament in Delhi can wait, and the allocation of Rs. 200 billion can easily be added to the economic package. Likewise the frequent travel of the Council of Ministers and bureaucrats. Shaving off 15% from the budget allocation of all Ministries except Health, especially when no worthwhile expenditure is incurred in times of lockdown, should not be a pain at all. A sum of Rs.4.5 trillion could thus be diverted to protect the lives of people and the demand and supply systems in the economy at the same time.
An amount of Rs. 20.34 trillion thus mobilized will be equal to 10 per cent of national income, with 2.1% coming out of budget reallocation, thus lessening the effective mobilization to around 8 percent. This would set an example, hopefully, for the big private sector to pitch in with contributions in money and/or in kind that will ultimately turn out to be in their self interest. Many civil society organizations, numerous as they are across the breadth and length of this country, have already come in with meagre resources but enormous empathy and labour to provide some succour to the suffering people. That needs more encouragement, recognition and elevation to a higher order of politics of humanism in these troubling times.
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*The author is a development economist. He was a Member of the erstwhile National Commission for Enterprises in the Unorganised Sector, Government of India. The Hindu Business Line, 09 April 2020 (Revised on 16 April 2020)