Financial resources have to be made more liberally available than hitherto

 

New Delhi: Today the lockdown continues in a modified form. The question is: what from now on? No one in the world today can say that the coronavirus, which has been gripping the globe, has been controlled, much less conquered. But we cannot give up that goal. In the meantime, immediate action is called for limitation of the continuing damage and restoration of normalcy.
The Narendra Modi government—that is both the Prime Minister and the Health Minister in particular—deserves praise for taking head-on Covid-19, which is a new and more deadly version of the generic coronavirus; and the government has managed to decelerate the earlier rapidly galloping spread of the virus.
While the United States is reporting 67,000 dead as of May 1, India, with more than four times the population, is reporting 1,075 dead. Of course this vast difference in deaths between a nation far away from China, the source from where the virus originated, and another which is a neighbour of China, will have to be researched by scholars of infectious diseases to determine how much it is due to native immunity of Indians and how much is due to government action.
At present, of the 739 districts in India, about 300 districts are unaffected by coronavirus. Another 300 districts are reporting only a few cases. In the last seven days, no fresh cases have been reported in 80 districts. However, in Gujarat, Maharashtra, Tamil Nadu, Andhra, and Telengana, 90% of the districts have reported cases. Kerala has cases in every district. So do Delhi, Chandigarh, Goa and Ladakh.
Hence, unlike Europe and North America, India is not ravaged nation-wide. Moreover, even though last year, coronavirus research was done clandestinely in Nagaland by a team of Wuhan University, US Department of Defense, and Tata Institute of Fundamental Research, Nagaland has reported zero cases so far.
In other words, we can now onwards progressively lift the lockdown in 600 of the 739 districts, provided we have an economic stimulus package ready for these districts and the stakeholders in the economy there.
That is why I have suggested in my earlier columns in The Sunday Guardian, that the lockdown should be lifted in a de-centralized way since we have to design the economic package, according to local conditions of infrastructure, raw materials, and availability of skilled labour.
Moreover, financial resources have to be made more liberally available than hitherto. As of now, the Finance Ministry has been wallowing in irrelevant issues and piecemeal overstated media announcements of convoluted relief measures.
About 50 young Indian Revenue Service officers, inspired by some insiders, came up with a document on how to tax more. Now the MoF has let down these over-zealous youngsters and put them out to fry.
According to my calculations, based on the loss in production and wages so far foregone, and expected to be over the next one and half years, the stimulus package we need starting June 1, 2020, is about Rs 8 trillion.
How do we go about finding this required money? Instead of doing this, the MoF is first looking for where the money is to come from and then trying to find out how much stimulus we can afford! We must get out of the traditional FinMin mentality, moaning and groaning about how much “do we have”, using the financial accounting measures of a shopkeeper.
Instead we must think like macro economic analysts, that is, we must think in terms of how much money we need to kickstart the economy, and then where to go to find it. For this we have three options:
(a) Printing more cash, which is unlimited since the Gold Standard is long over. The only precaution we have to take is to be sure that the demand does not exceed the supply. At present, in most sectors there is a supply glut caused by the pre-coronavirus mismanagement of the economy, and a demand anaemia caused by a sledge-hammer macho taxation policy.
Most sectors were afflicted with steep declines in growth rates. For example: sales of automobiles, motor cycles and other two wheelers, commercial vehicles, tractors;  railway revenue from freight  of coal, cement, pig iron, iron ore, petroleum, fertilizers, etc.; purchases of finished steel, non-food credit, gross tax revenues of the government—all the above were decelerating in a tailspin since February 2016, and especially steeply in the period April 2019 to February 2020, just preceding the onset of the coronavirus (recognised as beginning from March 8 this year). Hence, the coronavirus onset can be blamed only for accelerating the decline in economic growth indicators and not reversing the accelerating growth which was never there since the end of FY2016.
If we are serious, it is important to accept this sad reality: In 2011-12, National Sample Survey Organisation [NSSO] data released by the government showed that the number of Indians below the poverty line was 27 crore, or about 22% of the population. NSSO data for 2017-18 has also been collected but the government has yet to agree to release it. Based on the model I had developed in my Harvard PhD thesis under Nobel Laureate Simon Kuznets and in my research on the Theory of Index Numbers jointly with Nobel Laureate Paul Samuelson, I would estimate tentatively that pre-coronavirus poverty in India in 2018-19 would be at about 30 crore of the people, or 26% of the population. If no relief package is prepared for landless labour, migrant labourers, and the induced unemployed, then I estimate the post-coronavirus people in poverty in 2020-21 at 51 crore, or 40% below the poverty line—this  will be a national shame for a nation aspiring to be a global power.
Thus a national relief package exclusively for the poor is necessary. Assuming the coronavirus will depart after September 30, and MoF and PMO do not throw a spanner in the works by their usual hubris, I estimate that a sum of roughly Rs 50,000 crore distributed through the PM’s Direct Benefit transfers (DBT) can enable the candidates for “below poverty line” status, to escape the potential disaster.
Besides this Rs 5 billion relief package, the stimulus package for kick starting industry and for nullifying such outrageous MoF decisions as cutting DA of government employees, which is to net Rs 88,000 crores, will require Rs 8 trillion. How to go looking for it, now that I have presented what needs to be done?
Thus, the first place to go to locate funds is the RBI’s Reverse Repo Deposits of Banks [RRDB], in which accounts presently there will be by June about Rs 8 trillion deposited by banks to earn 3.5% annual interest.
All non-wage payments of industrial units and infrastructure projects should be made against this RRDB account by cheque, and notionally deposited in accounts opened by these units and projects.
As for payments of wages of these units, the government should print notes and arrange to pay half the wage amount in cash and the other half by cheque.
(b) The second source for this above referred stimulus package is to announce the abolition of income taxes in toto, freezing of all payment of due instalments on past loans, and a freeze for two years on GST dues. This is an indirect way to reach the stimulus.
(c) Regarding other possible sources for this required money, there are many such other innovative steps that we can take to help further kickstart the economy for which I have given two examples herein as above.
The MSME Stimulus Package was announced by the responsible Minister viz., Nitin Gadkari who even announced the amount calculated as necessary to  rejuvenate the MSMEs. The matter is with the Finance Minister to announce the availability of the funds. And the Ministry has taken a month and a half, and yet has not decided. Namo must know the buck stops with him. He has done well in combating the Coronavirus Pandemic. He must find a way to delegate authority astutely to work on getting the economy rescued from an imminent crash and national disaster.Dr Subramanian Swamy is an MP nominated by the President for his eminence as an economist. He is a former Union Cabinet Minister for Commerce and Law & Justice.