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Opinion | The novel dilemmas presented by a wartime economy

A mix of fiscal and intellectual firepower is needed to address a peculiar set of trade-offs

It is obvious that the Covid-19 pandemic is a public health and an economic emergency for India and the world. For India, it is not the kind of emergency which can be imposed by the government under Articles 352, 356 or 360 of the Constitution. The first relates to national security, the second to a breakdown of law and order in a state, and the third to a financial emergency. Article 360 has never been invoked. The government instead has to use all its moral and persuasive powers to enforce an emergency-like situation for a prolonged period to tackle the pandemic. Prime Minister Narendra Modi used his moral authority to urge his countrymen to observe a 14-hour curfew on Sunday. A curfew can only be imposed by a district magistrate, and the central government has no role in it. Yet, because of Modi’s appeal, it was a nationwide success, marred only by the odd celebratory procession at 5pm, with people pouring onto the streets to thank caregivers. The lesson from this display of exuberance was that the gravity of the situation had not been adequately conveyed. Hence, moral appeals need to be accompanied by regular and authentic information updates, and trustworthy daily messages that tread lightly between alarm and complacency. Not surprisingly, over 75 districts of the country have gone into a complete lockdown since, 80 major cities included. The national railway network has been shut down, and many states have closed their borders for interstate traffic. Such drastic pre-emptive measures are the only way to stall a third phase of coronavirus transmission and “flatten the curve". The nation has no immediate precedents to learn from as it deals with the scale of the current challenge. There are examples like the Surat plague of 1994 or the Nipah virus outbreak of 2018. Comparisons have also been made with the Spanish flu of 1918, which is estimated to have killed between 17 and 18 million people in India. Of course, conditions in modern India are far from the impoverishment and malnourishment a hundred years ago that exacerbated the flu’s morbidity.

Yet, the trade-offs are not easy. First, by shutting down the movement of people and cargo, and insisting on social isolation, we impose a huge economic cost on daily wage earners, affecting their nutrition and food security, and eventually their survival. They need to be compensated with a universal basic income via direct-transfer mechanisms, or be given paid leave by their contractors. Second, government decision-making is usually slow, deliberate and based on adequate information and debate. But in the current context, it has to be quick, often a shot in the dark, and with constant re-assessment, re-adjustment and possible U-turns. The trade-off is between speed and correctness. Local trains shutting down in Mumbai, for example, has meant that even healthcare workers couldn’t reach their work places. So it had to be clarified quickly.


Third, and most importantly, while tackling this health emergency, we cannot suppress individual rights and liberties. There is a risk that the exigencies of public health and the need to enforce quarantines will trample individual rights. Countries like Taiwan and China have used QR codes, satellite tracking and surveillance cameras to mark out individuals who were deemed “safe" and “unsafe" by the state. They were successful in containing the pandemic, but at what cost? The Delhi government has started putting stickers on houses that have an infected patient. All these are examples of a slippery slope, and end up endangering personal liberties, apart from stigmatizing people and resulting in ostracism, or perhaps worse. Such can be the backlash that the plague commissioner of Pune, who was seen to have imposed harsh quarantine measures, was assassinated in 1897.

Fourth are the numerous inherent trade-offs involved in injecting the economy with a large economic stimulus. In the US, lawmakers can’t agree on a proposed $2 trillion stimulus package. Opposition leaders think it is too generous to corporations and too stingy to workers. The Troubled Asset Relief Program of 2008 aided banks and corporations, but not mortgage holders. In India, the dilemma is whether to offer interest subvention to all small and medium enterprises. Would that not reward even loan defaulters? But what if the default was caused by this pandemic-related downturn? Do we pay employers not to lay off workers? What if it is too generous to those who are already profitable and can afford it anyway? Why not commandeer all local areas development funds of lawmakers as relief money? Can the government place big emergency orders for sanitizers, masks and ventilators with idle industrial units without issuing tenders? Would that not be favouring a few? Can the Centre lavish largesse on a chosen few states where the pandemic is acute? But what if those states had a worse record on public health and hygiene? This would be like deposit insurance money bailing out only badly-run cooperative banks. Can a fiscal stimulus reward non-performers? Besides, won’t extra spending be unfair to the future generation from whom we will borrow? Such questions are hard to answer. As in a wartime economy, some businesses will get wiped out, and some will profiteer.

And this is now a wartime economy. We are fighting an unseen enemy that can kill millions, while leaving buildings, factories and forests untouched. We will need all the fiscal and intellectual firepower we can summon to address this war’s trade-offs.

Ajit Ranade is an economist and a senior fellow at The Takshashila Institution

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