How to pull the economy out of the Covid-19 pit
The immediate priority for policymakers is to address the health crisis and contain economic damages with support for households, firms and essential services.
The pandemic has changed the lives of 7.8 billion people in the world, prompting nations and people to start rethinking about the new normal of life. The world faces a severe public health crisis of Covid-19 pandemic along with various socio-economic emergencies due to the extended lockdowns. While these measures were necessary to slow the spread of the virus, they were also accompanied by a sharp reduction in economic activity. The surge in coronavirus infections of nearly a lakh of cases and the ever-increasing tally of active cases in India can be attributed to increased testing on the one hand and opening of the economy on the other, accompanied by complacency among people towards following appropriate precautions.
The pandemic has, no doubt, resulted in demand-and-supply chain disruptions, thereby bringing the global economy to a halt. Majority of the countries are expected to plunge into recession this year, with their per capita output contracting in the largest fraction since 1870. According to the Global Economic Prospects Report, June 2020, advanced economies are projected to shrink by seven per cent in 2020. Widespread social-distancing measures, constrained financial conditions, and long term after-effects of a closed-down economy will start to result in income drop, lost jobs across sectors, states, even social groups. India itself saw a tremendous downfall in Gross Domestic Product (GDP), of 23.9 per cent, in the April-June quarter of 2020.
The informal sector of India with daily wage workers, labourers and small enterprises who are not often registered with the government, have the least access to government benefits. This informality is associated with underdevelopment along with widespread poverty, lack of access to financial systems, deficient public health and medical resources, poor social protection in India. These vulnerabilities in the country have amplified the economic shock to innumerable livelihoods pushing large numbers into extreme poverty. Globally, 40-60 million people will be pushed into extreme poverty and about 1.6 billion informal workers lost 60 per cent of their income, with little to no savings and no access to the safety nets in this pandemic. The International Labour Organization has projected that 400 million people in India risk falling into poverty which is an alert for the stakeholders of development in the country and provide a security to these ‘new poor’ in the economy.
The impact of the economic crisis has profound implications on the global and national level, affecting both economic and social empowerment of women specifically leading to unemployment, part-time and informal jobs to maintain financial stability, ever-increasing gender pay gaps and gender inequality at workplaces as well as male dominance in a majority of sectors and human psychology around the world. Women working in the rural sector are burdened with many vulnerabilities like malnutrition, neglected education and health rights. The suffering economies tend to strategise policies in a way to reduce public spending which often leads to rising costs of health and education that largely impact women. Women are therefore often the first to lose jobs or see a reduction in salary as compared to their male counterparts.
The urban unemployment is at the all-time high in 2020. With the return of the daily wagers and migrants to the cities, it will eventually create a demand mismatch with closing down of many employment generators. Looking at the rural economy, where agriculture plays a major role, the issues of unemployment were largely dependent on schemes like MNREGA and good crop productivity in the agriculture sector, which in itself is a seasonal source of income for the daily wagers and small farmers.
The decline in global trade and the Indian trade deficit with our inability to export more and import less is responsibly adding on to the crisis. Lack of export dynamism and excessive imports of oil and electronics have worsened the situation. The fallen commodity prices during lockdown due to reduced demand driven by steep drops in oil prices became a stepping stone to long-term inflation until the correction of demand-and-supply mismatch. People facing food crises and risk of acute food shortage along with dramatic fall in service sectors like tourism, hospitality, entertainment and aviation will face the long-term impact of the ruined economy in the coming years. This multifaceted crisis has directly reversed the hard gains made by various countries against the Sustainable Development Goals (SDGs), making their targets even more challenging, which will require different sets of policies and solutions to respond in the post-Covid era. The shortfall in the revenue collection (GST) is estimated to be Rs 2.35 lakh crore due to nationwide lockdown. While the effects of the crisis continue, unconditional support programs would be the need of the hour, and given a limited-resource country like ours, effective implementation of such programs will again be a challenge.
The immediate priority for policymakers is to address the health crisis and contain economic damages with support for households, firms and essential services. They need to undertake various sustainable socio-economic recovery and healthcare reforms in a comprehensive way to improve the economy as well as healthcare once the crisis lifts. Rebuilding social protection schemes like MNREGA to combat rural distress and introducing similar employment guarantee schemes for urban poor migrating for jobs, cash transfer schemes and subsidies on food and essential items to poor households along with strengthening of Poshan Abhiyan to fight malnutrition is the need of the hour, with special focus on women who are facing ‘double discrimination’ in this crisis.
India has ample of schemes and programmes running for the people involving all, but the challenge remains in the implementation, execution and the awareness among the beneficiaries. We shall come out of this one day with the hope of a much better world and a society than we live in today.