On Day I of the relaxation of the lockdown yesterday, in some parts of the country, there was so much pent up demand that e-commerce sites like Amazon, Snapdeal, Flipkart were flooded with thousands of orders, mainly for apparels, electronics, baby clothes, home and household products. On the first day itself, they said that volume of orders was close to pre-Covid days. And mind you, this does not include the big metros most of which are in the red zone where these come under non-essentials. So once the rules in the metros also start easing up, can you imagine the kind of demand surge one could see on these sites?
And then there was the other news – not so good, from CMIE which said that unemployment is now at a staggering 27%, an all-time low. When the lockdown began, unemployment stood at 8.4%. Some 14 crore people seem to have lost their jobs since the lockdown. This means, post this lockdown, every fourth person in India is today jobless. Once again, we do not yet know whether the lockdown will work or not; as most experts predict, once it is lifted, there will again be a surge. So we are trying out an experiment but we really have no option – we cannot lift the lockdown when so many people are getting sick. But the question remains whether lives or economy?
And it is here that we bring into perspective a few words of wisdom from Nobel Laurette Abhijit Banerjee. It is think-tanks like these which the Modi govt should enlist to help chalk out a well thought out and well defined path to get out of the lockdown and design a post-Covid strategy. At this point of time, it is very very imperative the Govt takes the right steps or else the mess we will have at hand will dunk the country into an abyss. Instead of an autocratic style of decision making, the path to revival has to necessarily be done in consultation with the best brains we can get; right from people at the grassroot to economists, it is only when all together give their thoughts that Modi can deal with issues facing every nook and corner of India. The migrant crisis would have never happened if more people had been consulted before the lockdown was abruptly announced. Or even later, once the crisis came to light, if the Govt had worked in tandem with all CMs, keeping all politics aside, maybe it would not have burgeoned to this shameful level. Unfortunately today, the migrant crisis has overshadowed all the good work done.
The interview given to Huffington Post is long and for the convenient of our readers, we have culled out what we think are some of his best:
On the lockdown:
He clearly stated that the lockdown is not a cure but just a means to buy us some time. It stopped things in a way that we had time to look around. If the pandemic is really going to hit India [in the coming weeks], then I think we are at the beginning [of the curve] because the number of people affected is tiny relative to India’s population. Either there is some reason that we’re lucky and the pandemic just doesn’t spread in India because we have no good theory of why this would happen.
The real issue is there is huge uncertainty. And given that there is uncertainty, the right thing to do is to predict where the new upsurges might be, and test, test, test, test, test.
We should really be thinking of a much, much more expanded testing. So I think the priority of the day is not to argue over whether the government is right or wrong, but that we should assume that we could be wrong, and if you’re wrong then it could be disastrous. Therefore we should proactively test. And if you’re wrong and we are lucky and the testing is useless - Fine. We will be safe and we will be happy.
The upside of testing is much bigger than the downside.
Go for increased printing of money:
Even given the current money supply, if the GDP falls a lot, there will be an inflationary pressure when the economy revives. If the entire supply chain collapses, there will be inflationary pressure and then the currency will depreciate. What we should do is to proactively work to restore the supply chains because I can’t buy if I don’t have any money and you can’t sell if I don’t have any money. Putting money in the hands of people is a way to restart the economy.
Risk of downgrade of sovereign rating:
I don’t feel there is a particular reason why we should be paying any attention to the ratings agencies. I would ignore them and do what it takes for the economy.
Current economic crisis bigger than 1991 BoP crisis:
GDP could easily go down by 10-15%. Look, we have no idea what a lockdown of this size does. It depends entirely on how smooth the recovery is. It’s been two months, so even if GDP goes down by 10% and recovers fast then it’s going to be a small proportion of GDP. But if economic pain from the virus goes on for a longer period of time and the interventions needed for the economy to recover fast are not made, then it could be very big. I think it all depends very much on the choices we make now.
On economic recovery:
Unless we make a series of policy mistakes which prevent the revival of the economy, there is no reason why the economy couldn’t recover fairly quickly. Presumably there is going to be a demand shortfall, but if the government wanted to, it could deal with the demand shortfall by injecting demand into the system.
Increased spending to revive economy:
That’s the reason, a lot of us have been saying that we need a stimulus package. That’s what the U.S. is doing, Japan is doing, Europe is doing. We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP.
Two key challenges post-Covid:
Preventing businesses from going bankrupt and reviving demand would be the two key challenges in a post COVID-19 world. Getting some cash into the hands of the population is the best way to kick start the economy.