Opinion | The challenge of overcoming an extended crisis in our economy

The sense of drift and despair palpable today is eerily reminiscent of 1965, when there was the same lethal combination of military adventurism by neighbours (Pakistan then, China today); and adverse external shocks (monsoon failure then, covid today, with locusts on the horizon).

Going forward, there are governance obstacles that lie between policy intent and the realization thereof, and the immediate need is for these to be recognized and removed. There has been a lot of column space in the press looking back longingly at the 1991 reforms, and the close working relationships between the principal actors at the time. The ambit of the 1991 reforms limited the need for cooperation to just three ministries at the Centre—finance, commerce and industry—and therefore could be completed with the committed cooperation of a few key functionaries in each. States were not involved, since factor markets for land and labour, which fall within their jurisdiction, were left untouched.

The situation today is very different. The entire economy, with all its mutual interdependences, has to be kick-started. The need and difficulty of the Centre and states working in concert is well known. The power sector reform attempted in December 2015 through the Ujjwal Discom Assurance Yojana (UDAY), an ambitious and well-designed scheme, foundered at the last stages when states did not pursue the tariff restructuring needed. Now we have another power sector reform plank in the Atmanirbhar Programme, which will make good unpaid dues to independent power producers ( ₹90,000 crore) and thereby provide the banking sector relief as well. Since it will involve fresh borrowing with the default obligation falling on states, there remains a question mark over state cooperation in the new scheme.

But the problems are not limited to Centre-states cooperation. Inter-ministerial conflicts at the Centre can successfully kill reform initiatives. These can arise at the political level, even if the ministers in question belong to the same political party, or between senior bureaucrats, if there are turf issues at play.

Keeping this in mind, I see grounds for cautious optimism in the new Garib Kalyan Rozgar Abhiyaan announced on 18 June (the term “Garib Kalyan” has been used too frequently, including for a 2016 tax amnesty scheme; there is also the Anna Yojana giving free foodgrain, which has functioned well, and has just been extended by five months till the end of November).

The new Rozgar scheme, for a total of ₹50,000 crore, spans four months ending in October; covers 116 districts in six states; and specifically targets reverse-migrant labour. Finance minister Nirmala Sitharaman, in a press conference held on 18 June, stated clearly that the funding folds in pre-existing budgetary allocations for schemes originating in as many as 12 central ministries. It synergizes outcomes in employment, rural drinking water supply, drainage, irrigation and rail infrastructure, by front-loading budgetary allocations intended for the year for the schemes included.

The ministry of rural development is the nodal ministry and much of the funding is from the Mahatma Gandhi National Rural Employment Guarantee (MNREGA), which received an additional ₹40,000 crore in the Atmanirbhar programme (some of that additional allocation will support an 11% wage hike all over the country). The other schemes merely contribute supplementary construction material. The existing operating framework governing MNREGA in terms of household job cards and payment channels will hold for the new scheme. It is true that MNREGA man-days will displace the labour that would otherwise have been employed in partner schemes, but will also free those funds for additional asset creation.

Dovetailing of irrigation and other natural resource management schemes into MNREGA is not new. So, what is the advantage in packaging the whole thing afresh? Under MNREGA, a radius of 5 kilometres from the residence of a worker demanding employment is specified in the Act to ensure spatial uniformity of access. Drainage and de-siltation projects call for a minimum application of man-days during the relatively short periods over which the work has to be completed, but because of the spatially limited manpower pool, these typically remain incomplete and ineffective year after year. The present package offers an opportunity to break away temporarily from that binding rule, while at the same time retaining its applicability to other types of asset creation under MNREGA in the rest of the country.

Another commendable move has been the performance-linked incentive mechanism for manufacturing, extended to three sectors so far: domestic production of electronics hardware; medical devices including protection equipment and testing kits; and active pharmaceutical ingredients presently imported from China. These are very promising initiatives at a time when pharmaceuticals and medical equipment are the only buoyant sectors in a dismal global trade scenario. These kinds of nuanced initiatives with sunset dates are likely to have more stimulus content than a more aggregate expansion of the fiscal outlay without attention to the allocation and absorption aspects of its constituents.

Indira Rajaraman is an economist