India--already in war mode on containment and lockdowns--has so far made hopelessly feeble attempts at tackling the crisis economically. At a time when the world economies are squeezing every penny at their disposal to create a coronavirus war chest, India's economic response not just appears belaboured but also lacks gravitas and urgency.
It's now nearly 2 days since Prime Minister Narendra Modi announced setting up of the COVID-19 Economic Response Task Force to work on a package to deal with the coronavirus crisis under the leadership of Finance Minister Nirmala Sitharaman. However, FinMin is yet to announce the members of the task force, let alone the objectives or any timeline.
The reasons are not hard to decipher. The coffers are running dry. Emergency funds are too puny for the enormity of the pandemic gripping us. RBI has been squeezed as far as possible. The earlier cash-rich PSUs are a pale shadow of themselves with more debt than reserves. Public sector banks reeling under the NPA burden may not be able to withstand another shock. And with the economy already in a deep, deep slowdown, government's additional revenue generation ability is severely constricted.
Most global economic superpowers have allocated up to 1 pc of their GDP totting up to $3.28 trillion already. Accounting for all the central bank interventions, tax and interest payment holidays and stock market sops the world has set aside over $7 trillion--nearly 8 pc of the global GDP. US has pledged 5 pc of GDP towards fighting coronavirus.
In contrast, India has very little allocated towards emergency or disaster management at its disposal. Should the need arise, we'll be scrambling! The Prime Minister's Relief Fund has all of Rs 3,800 crore (barely $500 million at current rate). For FY21, India could dig into the State Disaster Response Fund's (SDRF) Rs 20,000 crore provision for the year as defined by the Finance Commission every year (but last year's grand-in-aid towards SDRF stood at just Rs 10,937 crore). Or, Centre could draw from the National Disaster Response Fund's (NDRF) Rs 25,000 crore provision which is meant to supplement the SDRF. But most of NDRF and SDRF funds end up in capacity building after previous disasters. Such as roads, bridges, irrigation, power or tourism infrastructure. For instance, reconstruction expenses since the Uttarakhand floods of 2013 are still being met through these.For instance, reconstruction expenses since the Uttarakhand floods of 2013 are still being met through these. Besides, the calamities covered under NDRF are explicitly defined and do not include a pandemic. NDRF can fund natural calamities such as cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst and pest attack of severe nature.
Coronavirus would require captive allocation. India's dedicated allocation for FY21 purely for disaster management (towards infrastructure for disaster management, national cyclone risk mitigation and other disaster management schemes) is a puny Rs 482 crore ($63 million).
Hence, the current corpus of $563 million from PM Relief Fund and disaster management will not be enough to deal with the crisis even in one state, let alone the nation the size and population of India. When the positive cases spike beyond control, India will need more hospitals, beds, supplies, oxygen cylinders, medical equipment, masks, body-overalls and above all, state-led human body and medical waste disposal logistics to minimise contamination from the dead. This is besides the funds needed to provide sustenance-living resources to the lowest earning sections of the society; liquidity to the small and medium enterprises ravaged by the lockdowns and fall in demand and, perhaps, tax breaks and interest payment breaks to the larger enterprises.
The enormity of the task ahead is mind-boggling. And financial requirement--almost Budget-busting. At 1 pc of GDP, it amounts to Rs 2 lakh crore--just the stimulus apex industry body CII has demanded to be pumped into the economy. At 2 pc, it will be over Rs 4 lakh crore.
But these are unbelievable circumstances and require unprecedented measures. India needs to urgently redraw budgetary priorities on the lines of 'whatever-it-takes' philosophy that most world economies are adopting.
Hence, it is now time to make the most agonising choices. The questions these choices will throw up are among the least palatable for policy makers but will have to be made in the interest of our economic well being. Interestingly it is the Department of Agriculture and Cooperation of agriculture ministry that monitors relief measures for calamities such as drought, pest attacks, cold wave or hailstorms while natural calamities are monitored by the home ministry.
Should the 3 lakh crore Central infra spending planned for FY21 wait for the next 3 months until coronavirus recedes? Or, can India afford to draw from the Rs 4.3 lakh crore defence budget? Then there's the Rs 1.95 lakh crore spending on consumer affairs and Rs 1.39 lakh crore in agriculture! Both hot potatoes in their own right.
Can any or part of these funds be allocated towards a coronavirus war chest for India?
Or, should the government be forced to go for the more fiscally imprudent choices such as borrowing an additional Rs 2 lakh crore? A measure that risks inflation, ballooning debt and higher interest payouts and, perhaps, higher taxes in the future to pay up the debt.
Or, hold your breath, does the common man have the appetite for another one of PM's charm offensives demanding a COVID CESS? If introduced, this would be over and above the National Calamity Contingency Duty (NCCD) imposed since 2010-11 which has been funding the National Disaster Response Fund.
It's a choice between the devil and the deep blue sea with a gorge thrown in the middle. There are consequences for whichever path the Centre opts for. But what it chooses will define what its priorities are under these trying circumstances.