The future looks dire for India’s economy.

The unemployment rate has hit 26%, according to the Centre for Monitoring Indian Economy. Many analysts are now expecting the country’s growth rate to become negative, meaning the economy is contracting for the first time in four decades. An industry body’s survey found that more than 70% of companies expected to cut jobs and more than 50% were likely to cut salaries.

Even as authorities around the country struggle to deal with the virus itself, with 19,984 cases and 640 deaths as of Wednesday morning, the 40-day lockdown forced the bulk of India’s businesses to suspend their activities. The haphazard, violent implementation of the restrictions has meant that even the companies deemed to provide essential services have had a tough time operating in this environment.

The Centre’s failure to plan for India’s migrant workers led to an exodus from the cities, a potential humanitarian crisis for those who will go hungry and a series of knotty policy problems for authorities everywhere. Research suggests that as many as 500 million Indians have already run out of their cash reserves, while another 500 million have burnt through half of their cash reserves.

Crisis package?



A few days into India’s lockdown, the Finance Ministry unveiled a package of relief measures, including additional rations and limited cash transfers, and the Reserve Bank of India announced a series of measures aimed at supporting the economy. Yet, even if they disagree about the specifics, the vast majority of chief ministers, economists, analysts and industry leaders have concluded that more will need to be done.

The Centre’s handling has not inspired much confidence.

A task force to deal with the economic fallout of the Covid-19 crisis was reportedly not constituted for days because of bureaucratic confusion. When the government did finally announce its initial package, Finance Minister Nirmala Sitharaman made it clear that her ministry had been forced to respond to the prime minister’s lockdown announcement, rather than be part of the decision-making.

The specific moves so far seem to have had large gaps relative to their stated intent.

The Centre has insisted on trying to charge states for extra grain, even though it would cost the government less – and to a long way to alleviating hunger – if it simply gave the food for free or at a nominal rate. Research shows that the small Rs 500 per month handout to women who have Jan Dhan accounts will miss out half of India’s poor women – more than 160 million people.

No direction



There has also been little direction about what will come next.

Report suggest that India will not have one large stimulus package but several small ones. The Centre has made piecemeal efforts towards paying what it already owes the states, rather than offering a roadmap for how borrowing and spending should work going forward. States seem to have given up asking for help or expecting leadership.

Since there is no national economic strategy in the offing, no word on the economy from anyone in Central government, and a deaf ear being turned to the pleas of States MSMEs etc. for resources, this is fiscally sensible. Telling others what to do is not expensive. https://t.co/948zAzWpH6 — rathin roy (@EmergingRoy) April 21, 2020

One conclusion that could be drawn from this is that the Union government is simply overwhelmed. The challenge is massive, and it doesn’t seem up to the task.

This is not an unreasonable assumption to make, primarily because it was evident that the current government’s economic policymakers appeared to be overwhelmed even before the coronavirus crisis hit – as we have reported in our Hard Times series.

Escape clause



It may seem like ages ago now, but at the start of February – well before there was any indication that Covid-19 would affect India in a huge way – Finance Minister Sitharaman triggered an “escape clause” in India’s laws allowing the government to run up a bigger deficit than legally mandated because Gross Domestic Product growth had fallen to the lowest in a decade, unemployment had hit its highest numbers in four decades and there was a giant hole in tax collections.

The economic misteps can be traced all the way back to 2016’s disastrous demonetisation effort followed by an extremely flawed rollout of a national Goods and Services Tax and an unwillingness to acknowledge the magnitude of those failures, including by suppressing reports and data. Over that period, the government also displayed its unwillingness to listen to criticism, even the constructive sort, an attitude that saw everyone from NITI-Aayog vice-president Arvind Panagariya to Reserve Bank of India governors Raghuram Rajan and Urjit Patel choose or be forced to leave.

In an ideal world, the government would acknowledge its missteps and failures, be transparent with Indians and open itself up to advice from renowned economists all over the world who are more than willing to assist the country. But transparency appears to be anathema to this government, while asking for help would first require admitting that it is needed – and admitting failure simply does not figure in Prime Minister Narendra Modi’s worldview.

New leaf



Fortunately there is another way.

As more than a few have observed, public memory is short, and it is quite likely that the Modi government will use the economic fallout of the Covid-19 crisis to paper over its massive economic failures.

If that is indeed what the government ends up doing, we can only hope it goes all the way: turn their backs on economic failures, sure, but take the opportunity to also chuck the old toolkit – centralised decision-making with no wider consultation and active vilification of those who ask relevant questions – in the bin.

The Covid-19 crisis gives the government an opportunity to draw on economic expertise from around the world without having to admit to its own failure, since this is a global calamity and not an Indian one.

Some have argued for a national or unity government, though the chances of that happening with the personalities who run this government seem less than nil. But the government has shown some willingness to solicit advice from scientists on health matters, even if it isn’t always actually listening to them.

Modi and Sitharaman should do the same, inviting renowned economists wherever they are to offer their expertise, the way the Rajasthan government has already done. This should come with an explicit understanding that these experts and the government will have differing views – which would be natural even in normal times, let alone in the middle of an unprecedented global pandemic.

India’s policymakers are facing what may well be the greatest challenge the country has had to deal with since independence. Ego and a fear of contrasting opinions should not stand in the way of a broad-based response that taps into the expertise and experience that the current thinkers in government clearly lack.

Subscribe to the Political Fix, our weekly newsletter that acts as a guide to Indian politics. Sign up here to get it in your inbox every Monday.