At the time of writing this, India is in a lockdown. The streets are empty, trains and flights are not running, schools, offices and factories are shut. We are trying to fight a global pandemic, which even the richest, most developed nations are finding hard to beat.
The lockdown is justified. The Covid-19 coronavirus, which can grow exponentially, was stalled in China with the help of similar lockdowns. No wonder big parts of Europe and the US are following the same model to stop the virus.
Fear is the overriding emotion right now. We cannot control the virus. We don’t have a vaccine for it yet. We know it can kill, particularly old people. We also know it transmits easily. It may slow down on its own, hot weather may calm it a bit, certain drugs may work, someone might invent a vaccine — we just don’t know when and how all that will happen. Faced with such uncertainty, the natural human response is fear. To counter this fear, we want to do “everything we can”. Because, after all, “what is more important than life.” In Hindi, there is a saying ‘jaan bachi to laakhon paaye’ or ‘if life is saved, millions are made.’
It’s a nice quote. It even makes sense. Except, right now, to save lives, it is costing us not just millions, but billions, tens of billions. When fear drives us, we don’t want to even talk about costs.
At a vegetable vendor, a person might bargain hard for ten rupees. The same person, if he gets a gun to his head, will simply empty his wallet. Corona is doing that to us. It is literally making India empty its wallet with a gun to our head.
Is it worth it? Well, it isn’t even the right question. Until the gun is on our head, we have to comply. Other countries like China and Korea have succeeded in removing this gun, and so hopefully we will too.
However, it might be the right time to think about — how will we eventually refill this wallet? Or, how will we pay the bill for the lockdown?
Because a lockdown is like emptying the wallet. It chokes the economy to the core. Certain sectors are instantly hit hard — local travel, hospitality, aviation and retail come to mind. Companies in these industries will fire people. Many won’t repay their banks, adding to the bank NPAs. The banks will become wary of lending, which will then impact all other sectors. A snowball effect ensues, jobs are lost and more companies incur losses. More jobs are cut, demand is suppressed and it leads to a bad recession. Since profits and revenues are low, government tax collections drop and don’t meet targets. It’s a nasty scenario, and the nastiness of it depends on how long the gun stays on our head. If the lockdown is two weeks and things go back to normal, we may bounce back. If it lasts more than two months, India will struggle for years thereafter. In fact, if it lasts that long, we will have to confront the ugly question — is it worth saving the lives when we are going bankrupt? We hope it doesn’t come to that.
The US and Europe are barely able to afford the shutdowns. India is a relatively poor country and we never had a great economy to begin with. But Indians need to be prepared. These shutdowns will have a bill, and we must know how to deal with it.
What can we do about it? Well, as an urgent first step, the weakest and those suffering the most should be given direct financial help. Daily wage labourers, street vendors, cab drivers with EMIs — people who had their livelihoods snatched from them have to be compensated first and fast. The second step would be to come up with a plan to help industry — so we have as few bankruptcies as possible. Companies have to be able to tide over three months without money running out or mass layoffs. It’s not easy but can be done. The cost of this will be massive inflation, as the government prints money, but someone has to pay for it.
The third and last step would be post winning the war with Covid-19. And that would be to really, really open up the economy. Budget after budget, government after government, no real big bang reforms have been done in India for a while. An obsession with tax evasion, tinkering with rates here and there, hounding achievers and those who make money, and little understanding on what creates wealth means India has lost the battle of being a competitive economy.
Maybe this crisis will make us take the big reforms — as we may have little choice otherwise. We last did genuine big reforms in 1991, when we had a huge economic crisis and had our backs to the wall. The 2020 coronavirus is another huge crisis, which may lead us to the reforms we need. And that might be, the one silver lining of this crisis.