IASbhai Daily Editorial Hunt | 3rd September
Hardships often prepare ordinary people for an extraordinary destiny. – C.S. Lewis
EDITORIAL HUNT #122 :“Flattening The Economic Curve | UPSC“
Flattening The Economic Curve | UPSC
Jayati Ghosh is a professor of economics at the Jawaharlal Nehru University (JNU), New Delhi
A guide to flattening the curve of economic chaos
Well-thought-out policies can reverse the results of incompetence; the onus is on the Centre to spend now
SYLLABUS COVERED: GS 3: Economy
Indian Economy has contracted the most in G-20 space. Critically Analyse -(GS 3)
- Relevant Data
- Fiscal Policies
- Quick Actions
- India is also worst performing of all major economies during the pandemic so far.
DATA ON THE DECLINE
- CONTRACTION : The estimated 24% GDP contraction in April-June 2020 compared to the previous year is the worst performance among G20 economies.
- EXTRAPOLATION : These numbers are likely underestimates as information is from organised sector, extrapolated to informal unorganised activities.
- INDUSTRIAL PRODUCTION : Physical indicators such as the index of industrial production declined by more than 20%.
- MSME : Many micro, small and medium enterprises (MSMEs) in manufacturing and services are still closed or functioning at a small fraction of their capacity.
- AGRICULTURE SECTOR : Every sector other than agriculture is declining sharply, especially the more employment-intensive sectors.
- FARMERS UNREST : The good rabi harvest , farm prices are unlikely to revive and ensure sufficient returns for cultivators over the year.
- CONSUMPTION EXPENDITURE : Government consumption expenditure increased by about 16% over the same period in the previous year, but since total investment fell drastically.
- VALUE ADDITION : Gross value added in public administration, defence and other services fell by more than 10%.Around 90% of this is salaries.
- RECOVERY RATES : All talk of “flattening the curve” has vanished, replaced by the completely meaningless indicator of recovery rates which are bound to improve with more cases.
- ECONOMIC COLLAPSE : The brutal national lock down generated economic collapse even before the disease had spread much.
- COMPENSATION : Then it provided no compensation and almost no social protection to those (around 80% of workers) who lost livelihood.
- MIGRANT WORKERS : Migrant workers were forced to return in terrible conditions to their homes, where they have unwittingly spread the disease in rural areas with poor health facilities.
- LACK OF NUTRITION : Working people have been impoverished and debilitated by lack of nutrition because they have been less able to afford food.
- THE DOWNTURN : Current quarter, and probably the rest of the year, so we are staring at the biggest economic crisis in independent India.
BLOW AGAINST STATES
- DEMAND : Lack of demand is a crucial reason for this.
- PRECONDITIONING : Consumption and investment were declining well before the pandemic struck.
- LIQUIDITY CRUNCH : The halting steps taken on increasing liquidity have been effectively useless: bank credit has declined overall.
- CO-ORDINATION : Despite the centralising imposition of the national Disaster Management Act, there was almost no coordination.
- CESS : The Centre is even denying the States their legal dues of the Goods and Services Tax (GST) compensation cess.
ROLL OUT A FISCAL PACKAGE
State must immediately provide a large fiscal package including the following:
- DUES : Pay the State governments their pending GST compensation dues .
- RESOURCES : Provide more resources in addition to deal with the pandemic and its effects.
- NUTRITION : Universalise the Public Distribution System (PDS) .
- EMERGENCY BUFFER : Provide free foodgrain (10 kg per household per month) for at least the next six months to anyone who needs it.
- WAGES : Provide ₹7,000 per family for three months as compensation for the incomes lost during the draconian lockdown.
- CREDIT EXTENSIONS : Extend the debt moratorium and convert into a standstill and make sure that fresh credit reaches MSMEs.
- HEALTH INFRASTRUCTURE : Provide much more dedicated resources for health.
- This will cost money, for sure; but not doing this will be even more costly for the economy and the people.
Not spending now will push the economy into a deeper hole, reducing incomes and, therefore, also taxes, and creating a bigger fiscal deficit even with lower spending.
SOURCES: THE HINDU EDITORIAL HUNT | Flattening The Economic Curve | UPSC