It’s almost a cliché, but still merits reiteration: It is easier to break things down than building them all over again. The lockdown by fiat was easy, but now comes the hard part of putting the economy back together again. An abrupt shuttering-up was perhaps necessary to get the rate of corona infection under control, but there are vast gaps in what the Centre has done to tackle its economic impact. Conspicuous in its absence is a well-defined fiscal stimulus programme befitting the magnitude of the catastrophe. Consequently, economic revival now faces additional challenges. The Reserve Bank of India (RBI) recognizes the complexity that lies ahead. In the minutes of its monetary policy committee (MPC) meeting held on 20-22 May, governor Shaktikanta Das states it bluntly: “…the risks to growth have become far more severe than in our assessment at the end of March 2020." As the lockdown is lifted, the first challenge is to harmonize and synchronize the resumption of activity across states. With each state’s reopening calibrated differently, depending on covid severity, efforts at value generation will run into a web of controls that call for varied responses by economic agents. This spells greater complexity than it might seem. Till recently, for example, Delhi’s borders had barricades that simply invalidated the concept of a national capital region involving three states and acted as a spanner in operations needing free movement. Various other curbs could yet riddle our recovery path with further uncertainty. Expect a long haul, marked by fits and starts.
As India struggles to resume normal activity, returning the economy to its pre-covid levels will require a broad strategy and then some sector-specific responses. As a priority, our demand problem calls for an urgent solution. The RBI governor’s observations at the MPC meeting reflect the enormity of the task: “Even as the supply side is expected to ease gradually as the lockdown related restrictions are phased out, it is the demand side which will continue to weigh heavily on economic activity for some time to come." It is, therefore, still not too late to deploy the fiscal pump and thus transfer resources directly to people. For efficacy, our infusion plan should go by what multiplies money the fastest. To this end, the government could also jump-start key infrastructure projects that are stuck on drawing boards or tied up in red tape, get construction work going on a war footing, and release payments to small units that remain blocked.
At a more granular level, among the three major sectors of India’s gross domestic product pie—manufacturing, services and agriculture—the pandemic and reverse labour migration have refocused attention on agriculture. This is now seen as the only bright spot in these bleak times, with a record rabi crop on its way to the market and improvements reported in kharif-sowing this season over previous years. The Centre’s interventions to re-awaken a bruised economy could get greater returns in agriculture. This is not to say that others can be neglected. But, given how strapped India is for funds, the government has to make strategic choices. For an agrarian boost to pay dividends, the government must ensure that the farm sector has easy and unhindered access to all the inputs needed for a bumper kharif crop: loans, seeds, water, fertilizers and markets free of middle-men taking big chunks of the value that crops generate on their way to being consumed. A big slump in overall demand, though, must not let farmers down.