Photo: PTI
Photo: PTI

Opinion | An economic and humanitarian disaster must quickly be averted

The current crisis could get much worse unless our rescue measures are expanded and revised

As India moves further in its fight against the Covid-19 pandemic, it is becoming clear that the battle is going to be a long-drawn one. As of now, the focus is on containing the spread of the virus, which has not yet infected rural areas in a big way. The government has imposed a complete lockdown across the country. Hopefully, this heavy clampdown will yield the desired result of keeping the virus from getting too far, thus minimizing infections and resultant deaths.

But while the nationwide lockdown could possibly help prevent an immediate health crisis despite a lack of health care infrastructure, it could also have serious other consequences. Its economic costs, both in the short- and long-run, could be huge. At a time when the economy is already on a downward spiral—marked by declining demand and incomes as well as rising unemployment—the lockdown and its associated effects will delay any prospective recovery. With companies shutting shop and the entire economy grinding to a halt, incomes will fall further, in turn hurting demand. Also, the breakdown of supply chains may create a peculiar situation of rising inflation in urban areas even as farm-gate prices for farmers decline. With no avenues for the sale or transport of farm produce, price realizations for farmers will be hurt, and harvests would likely be delayed. This will aggravate the agrarian crisis. As a result, rural wages, which have already been on the decline, would get further depressed.

That makes it important that countless workers and urban poor stranded in the midst of the lockdown be given immediate relief from the government. Many countries in the developed world moved quickly to initiate measure in aid of their poor, small businesses and other vulnerable sections. India’s challenge is far greater. Casual daily-wage workers account for almost a third of the country’s total workers and will be worst hit due to their access to jobs getting cutoff. Even for the self-employed engaged in small units, a loss of income could be catastrophic, potentially pushing many into a debt trap and consequent poverty.

On Thursday, the Union government announced a relief package for the poor, involving cash transfers and the additional distribution of free foodgrains and pulses to help avert a humanitarian crisis. Although late and insufficient, given the scale of the problem, it is certainly a good beginning. Of the various schemes, the free foodgrain scheme will certainly avert a crisis of mass hunger and starvation. However, to make it effective, it should not be restricted to only priority households but also be made available to migrants and others who may need it.

Given the large foodgrain stocks with the government, it will also allow the government to increase procurement during the coming rabi harvest. However, other measures, such as raising wages for workers under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), are insufficient and unlikely to help while there is a lockdown in place and no work available. It would have been better to give unconditional income transfers worth one month’s wages to all households that have done any work last year under MGNREGA. Similarly, cash transfers to vulnerable households via existing social security schemes may not be enough to compensate people for their loss of income, but will certainly protect them through this difficult period. This support needs to increase manifold for it to have a genuine impact on people’s lives. If not, the lockdown might stop a health emergency but end up stoking a humanitarian crisis.

The proposals’ efficacy also depends on how well they are implemented. While the short-term relief package is welcome and should be a priority, the government also needs a strategy to revive the economy, which is likely to slide very fast. For its long-term revival, an increase in spending, both by the central and state governments, will be required so that demand increases. Fortunately, a sharp decline in oil prices has provided the Centre a financial cushion. The availability of fiscal space, therefore, need not be too large a worry. The relief package announced on Thursday also implies the availability of a social security architecture that can be used to respond to the crisis. The need of the hour is to adopt an aggressive counter.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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