Opinion | The opportunities thrown up by Covid-19 that we could take
PremiumThe crisis offers a chance to push reforms that were proving tough under the usual circumstances
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PremiumThe Covid-19 pandemic is going to devastate economies and damage wealth creation across the world. Practically no sector will be spared, given the kind of dramatic reduction in consumer confidence and spending we are seeing even in the initial 100 days. Barring segments like home entertainment, telecom, online retail and related logistics, healthcare, and everyday consumer non-durables, it is difficult to think of any sector that is going to remain in decent health.
This means governments all over, including India’s, will be asked to deliver relief packages to scores of affected sectors—which they will not adequately be able to. It is one thing to extend help for a month or two to all and sundry, quite another to put the entire economy on the government’s drip. This means that governments must prioritize what precious taxpayer money should be spent on.
But there is a way to convert every threat into an opportunity, if only governments can think imaginatively. If we assume that tax revenues are anyway going to take a hit, fiscal deficits are going to balloon, and interest rates will crash, we can convert fiscal inevitability into opportunity. Consider a few such specific opportunities.
The goods and services tax (GST), for example. Everyone knows that the current GST design is neither optimal nor simple. The Covid-19 recession provides us with a chance to fix it completely in one shot, especially given that tax revenues will anyway take a hit. It should be possible to quickly move to a simpler three-rate regime (5-15-25%) which will not only provide relief to many sectors, but also simplify the rates. The cess can be retained for now, and imposed only on products with highly inelastic demand (tobacco, alcohol, uber luxury goods, etc). This is also a terrific time to bring petro-goods under the ambit of GST, with a very high cess rate being imposed to compensate for the loss of revenues to the Centre and states. If Prime Minister Narendra Modi pushes states hard enough, a consensus should be possible, since this changeover can be explained as necessitated by Covid-19. State revenues can be protected since we already have a Central compensation regime.
Another opportunity may lie in job creation. The coming recession is going to devastate jobs across the board. While top-end and low-skill jobs may remain relatively unscathed, most companies in the organized and informal sectors will use the drastic fall in consumer demand to shed labour. We are thus going to face an urban jobs crisis of unprecedented proportions.
This is the right time to try, on a pilot basis, an urban jobs-and-skills scheme that is roughly the equivalent of the Mahatma Gandhi National Rural Employment Guarantee Scheme, but with a skilling component added.
This is how it could be designed. Any unemployed urban youth in the 20-30 age group could be promised 100 days of employment and/or skilling options paid for by the government at a fixed daily rate of ₹300 (or thereabouts, depending on city). At an outlay of ₹30,000 per person annually, the unemployed can be put to work in municipal conservancy services, healthcare support, traffic management, and other duties, with the money also being made available for any skill-acquiring activity chosen by the beneficiary (driver training for Ola-Uber, logistics operations, etc). All companies could be given an opportunity to use the provisions of the Apprentices Act to take on more trainees, with the apprenticeship period subsidized to the limit of ₹30,000 per person in 2020-21. If the pilot works, it could be rolled out as a regular annual scheme for jobs and skills. Skilling works best in an actual jobs environment.
Lastly, there is an opportunity in reforming banking and finance. When several sectors go under water, it is the banking system that comes under pressure. In short, no matter how short or how long the Covid-19 recession lasts, banks’ non-performing assets are bound to rise. In addition, as depositors start worrying about the safety of their money in some of the weaker private sector banks, the Centre will clearly need to offer open-ended guarantees to recapitalize all banks.
The time may also be ripe to pilot a watered-down Universal Basic Income (UBI) scheme. India can’t afford a meaningful UBI, but it can—and should—opt for Universal Basic Income Support (UBIS). The rural sector can be given another round of the PM Kisan Samman payout of ₹6,000 per annum (raising it to an annual ₹12,000 per beneficiary household), but this time the costs will be lower, as it could replace the fertilizer subsidy. The net additional cost of ₹60,000-70,000 crore on PM Kisan will not be much higher than a one- or two-stage elimination of the fertilizer subsidy of the same magnitude.
To be sure, the immediate focus should be on stopping Covid-19, whatever the cost. But, simultaneously, governments must keep an eye on what needs to be done once the outbreak is contained. The last thing we need is an end to the Covid-19 pandemic only to realize that we have a jobs and banking crisis building up—an economic malaise that could prove worse than the disease we are currently fighting.
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