Monday 25 October 2021
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Post-COVID-19 Growth Model Needs Recast

Sugato Hazra
Public policy analyst based in Delhi

When IMF chief confirms that the global economy has entered a phase of recession due to the coronavirus disease 2019 (COVID-19) that has turned into a global pandemic, the major economies including India have to prepare for the cataclysm. Reportedly, G20 nations have pledged $ 5 trillion to revive the global economy out of the crisis created by the novel disease exported by China. The question is whether this will prove enough to stimulate growth. Even a die-hard optimist will hesitate to answer in the affirmative.

Economists are said to be experts in telling us tomorrow what went wrong yesterday. Depending on their political leanings, they liberally attribute the faults to the government of the day. The COVID-19 outbreak is not the first one to bring this truism to light. What the virus brought to the fore for the first time in recorded history is the scale of the problem and the helplessness of policymakers, generous suggestion-giving economists included, in recommending bail-out packages. The problem that China has spread globally is but unique in complexity.

Before going deep into the economic cost of COVID-19, take two immediate responses to the crisis — that of Washington and New Delhi. While the US administration seems to be more concerned about its falling economy than the spread of the disease, India has been attending the task of stopping the spread of the virus in the thickly populated country. The economy has received little or no attention from the Indian leadership.

Prima facie, US leadership felt that its advanced system and institutional strength coupled with more knowledgeable citizens, compared to corona-affected China or Iran, would be enough to meet the challenges of the virus. What it required was some stimulus to boost the sagging growth rate caused by the slowdown in China and some other countries. The effect so far has not been very promising, with the disease spreading at a fast rate and taking the economy with it to a potentially bottomless pit. Effectively, the liquidity infused has failed to cure the economy of ailments caused by the spread of COVID-19.

The Indian government, on the other hand, made stalling the spread of the virus its priority. There will be shrill debates (Article 1 versus Article 2) on whether the actions had been delayed or inadequate when initiated, which are never-ending. But the fact remains that New Delhi prioritised controlling the spread of COVID-19 over the economic revival from its effect. The success of any government effort depends on the participation of its citizens where Indians have always shown callousness matching those exhibited by people elsewhere. In addition, the administration, too, has displayed its inability to think through all possible effects of the close down announced and therefore taking necessary measures.

Leaving aside the faults in the efforts of the administration, if one looks at the possible economic cost of COVID-19, the enormity of the task will overwhelm us. In any disruption, the first to suffer are those living at the bottom of the pyramid — casual workers, daily wage earners and small farmers. Close down has deprived them of their livelihood. With the cancellation of buses and trains, when instigated or misled, they chose the only available option of walking towards their villages from the cities which were locked down. The administration evidently did not provide for such a possibility in their thought process. This is curious, to say the least, of a sympathetic central government that was ready with a package to support the affected people within a day of the lockdown. Clearly, deep down, in the plan to fight the unprecedented problem of COVID-19, there had been elements of lack of homework — an urban bias.

The question is how this migration of casual workers, who provide the much necessary services to urban population and factory work, will affect the revival of the economy once the venom of the virus is contained. While Solicitor-General Tushar Mehta told the Supreme Court today that workers were no longer leaving the cities, it is unlikely that those who are gone already will be in a great hurry to come back to serve the privileged urban class. They will stay put in the native places at least for the next three months and live on the benefits announced by the government. Even when the COVID threat recedes in the next one month, it is reasonable to assume that the migrant workforce will not rush back to the cities at the same speed they left in March. This will hurt the economy in no small measure.

Labour shortage will have its matching effect on industry and commerce. As for industrial activity, which mostly has come to a standstill, resumption will take long. Apart from a labour shortage, there is another reason why productive sector will take time to come back in full steam. Even before COVID-19 had hit the Indian economy, demand was sticky at best and falling at worst. With the virus and its effect on the financial market, consumers have lost the value of their savings. Demand is unlikely to improve even during the festival time of October-November 2020. Industry will thus face two problems — absence of labour and absence of consumers.

The other problem that might not receive much attention is the failure of the institutions through which emerged a coalition of sorts generally referred to as globalisation and urbanization. The point missed in the process was the lack of transparency in the entire structure, busy as the developed nations had been in search of money and market and keenness of those who were left behind to receive crumbs from them. The same aberration was replicated at every level, even in India.

To explain, take the case of migrant workers moving over to cities for a better quality of and how they were left in the lurch by those very city governments in the wake of the COVID-19. Cities like Delhi are heartless and had little interest in helping out such casual wage earners when the activities stopped due to lockdown. The question that will haunt after the crisis blows over is whether these casual workers will trust and fall prey to the same exploitative system all over again. Will there be more stringent demand for a robust institutional mechanism for safeguarding interests of casual wage earners who keep trade and industry running? In other words, will the cost of doing business increase? To build a considerate society this is a much-needed trade-off.

Post-COVID-19, governance must change. It has to be more humane, addressing the majority who are at the receiving end. The government cannot merely increase liquidity and create a balloon of growth any more. It has to make this sustainable for which policies need to be reframed and made robust to help the majority. It is clear that the Washington model, that of keeping the economy running at any cost, is faulty. The New Delhi model, that of helping the daily wage earners, is half-baked since it lacks an institutional framework to help the target population — or else they would not have started walking back home. It is time the civilisation took a fresh look at future growth models. The Chinese virus has exposed the vulnerability of the present model, no less in a democracy like India.

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