"Economy was already rolling downhill, now it's been pushed off a cliff": Economist Jayati Ghosh on COVID-19 lockdown
Jayati Ghosh, Professor at the Jawaharlal Nehru University speaks to Asiaville to point out what kind of impact will the lockdown have on Indian economy, Nirmala Sitharaman's relief package and the enforcement of the lockdown is bringing out existing inequalities in the society.
As India trades through an unprecendented lockdown in the wake of the Coronavirus pandemic, our economy has been severely affected. With the daily wage workers and the poor facing the worst consequences, we tried to understand how much does the lockdown affect the economy on various levels.
To have some light shed on that and help us understand if the measures taken by the government and the RBI are enough, Jayati Ghosh, Professor at the Jawaharlal Nehru University and a prominent development economist spoke to Asiaville:
Asiaville: What effect does a lockdown for 21 days have on the Indian economy?
Prof. Jayati Ghosh: Well, it’s an absolute disaster. We are not even beginning to realise the extent of the catastrophe. As you said some of us are stuck at home and are bored and frustrated - that’s nothing. What the poor of India and specifically the workers in the informal sector are experiencing in unbelievable, it’s unprecedented. We’ve never had anything like the devastation that is happening. We have people who have lost their jobs - suddenly. At the stroke of just a few hours’ notices. Small producers, micro-entrepreneurs or self-employed cannot get any income. They cannot go out and produce, or provide any services - in effect, they are stuck without any kind of support.
We have migrant workers, who have not only lost their jobs, but even where they live. Because for many migrant workers, their place of living is associated with the jobs. So they lost a place to live and we’re telling everybody to stay at homes. Then they have cut all the transport so they cannot even get to their homes.
That’s why we have the pathetic and dreadful sight of these poor labourers, their families - elderly women, 92 years-old walking for hundreds of kilometers, to get to some kind of safety, so they at least have some kind of roof over their heads and something to eat.
Asiaville: You had said that 2 days of lockdown has already sent a greater shock than demonetisation. Our economy was already going through a slowdown, in that context where are we now?
Prof. Jayati Ghosh: Not slowdown, but I would say that in the last quarter we were already in recession. Because all the indicators suggested so. Production was down, demand was down, wages were down, employment was down. Sales of basic goods, sales of fast-moving consumer goods - everything was down. On top of that, now you have this big push. So we were rolling downhill and now we’ve been pushed over a cliff.
That’s the kind of terrible thing that has happened. Now I am not saying that the lockdown wasn’t necessary. Probably for public health reasons it was essential. But remember that the lockdown is only buying us time until we can create a public health infrastructure that will allow us to cope with the spread of this virus. Meanwhile, it has put a stop to all economic activity. This is now technically an economy in decline. GDP is definitely falling right now and it will continue to fall over the next quarter. So GDP is falling, people are bereft of livelihood and that will have such negative multiplier effects - that it’s unimaginable. Demonetisation was a sort of an attack on demand. This is a simultaneous attack on demand and supply. So it is something unprecedented in our lifetimes.
Asiaville: When the supply chain gets disrupted what happens to the manufacturing sector?
Prof. Jayati Ghosh: See manufacturing has closed. Most factories across the country have closed. Most producers of all kinds of things have shut down. Now quite soon that is going to generate shortages. The government has assured us that they’re going to provide essential goods and services, but that’s easier said than done. Because it’s not like you’ll say that "we’ll allow food and medicine". To produce food and medicine you need a bunch of other things. You need a whole range of inputs, you need supporting services, you need intermediate goods and those have to be provided. So ensure these supplies so that people don’t go hungry, or without essential medicines. People also need other things that make life possible and reasonably comfortable and so on. But for that, you need to actually create the ecosystem that enables that production. And that requires planning, that requires coordination between the centre and the states and that requires fiscal stimulus, that requires money to be provided to all of these sectors. I don’t see any evidence that the government is doing that. That’s why I am genuinely and majorly worried that in two week's time we’re going to see major shortages.
Asiaville: How much reality is there to the statement “If Coronavirus doesn’t kill us, hunger will”?
Prof. Jayati Ghosh: I think it’s better to say poverty will. Because it may not be hunger per se, but the bodies will be so weakened that they will get other diseases. It might be migrant workers picking up cholera, or TB or malaria. Let’s face it, this is a virus that doesn’t’ know caste and class distinction- it gets everybody. And that is why it has created terror among the upper caste and upper class. We’re throwing half our population to the wolves. We’re denying them minimum livelihood, we’re denying them access to the minimum decent conditions, we’re throwing them in situations where they are vulnerable to other kinds of diseases.
Asiaville: How else would you have liked to see this lockdown being executed?
Prof. Jayati Ghosh: Perhaps it’s true that this lockdown was inevitable, required and necessary, but there are many ways to do it. Let’s consider the New Zealand Prime Minister. She announces a lockdown but she gives people 48 days. And she spells out very clearly that this is exactly how this is going to occur, these are exactly the things that are allowed and these are the things we’ll make sure are provided. Not just a general statement like “trust me” and so on, but very very specific details. Something similar has happened in Kerala where the state government has made very specific statements. So that there’s not much confusion about which goods are allowed, which are not, who can be out on the streets and for what purpose - there’s no confusion about all of that.
That’s the first point. Now coming to how we are treating these migrant workers. When people were stranded in Italy or Wuhan, China - we sent planes, we sent chartered planes to go and collect them. When it came to these poor migrant workers- our own people, our own citizens, we leave them to walk? And then we beat them on the roads as they’re walking because they’re breaking curfew?
So there many more ways to do it, in a humanitarian way, in a sensitive way. Basically the way this lockdown has been imposed, it reinforces the existing inequalities. What is a public health crisis has become a law and order crisis - which is not fair. This is a time when you involve the citizenry. It’s a public health issue - you explain, you send out messages in mobile groups as what they should do. You inform people, ensure that there is enough water and soap in slums for people to wash their hands. You make sure that in this situation, five people are not sleeping in a room. You do the kind of things that are sensitive to the conditions people live in.
It (the lockdown) has been imposed and then it has been very brutally enforced. In fact, the enforcing is really keeping people away from the middle and upper classes. Because the poor are still congregated in slums. Those who have to go to the night shelters or the community kitchens, they are still crowding.
We’re not worried about them. It’s almost like saying that we are going to preserve ourselves and we’ll not let you near us. If you come near us, we will beat you.
I am saying that the upper castes and classes are reinforcing their sense of privilege and hierarchy, and adding to the absolute nightmare the poorer people are facing.
Asiaville: You spoke about how the GDP might not be growing anymore, we might be declining-
Prof. Jayati Ghosh: -There’s no might, we are definitely declining. You tell me when you stop producing everything, how on earth can this be a growing economy?
Asiaville: Recessions can follow pandemics and there is a very strong possibility of a global recession. How do you think India might fare in that and what could be the worst-case scenario?
Prof. Jayati Ghosh: Let’s not pretend that it is anything else. There’s not a ‘possibility’ of a global recession, we’re in it. Because across the world the production has more or less halted. So these are economies in decline. Now, this can different scenarios playing out in India, depending on how long it takes to contain the virus, it depends on how long the lockdown has to be maintained, it depends on what kind of proactive measures that government takes to allow us to recover more rapidly.
The worst-case scenario is so bad that I don’t even like to think about it. But it’ s real, major economic devastation for at least a year, maybe two years. And a lot of associated material distress.
The best-case scenario would be the discovery something to immunise against the virus or a vaccine is found, its spread is curtailed and the government brings proactive measure in both demand and supply.
Asiaville: Before we move on to discuss the Finance Minister’s relief package, could you tell us about the impact on MSMEs (Micro, Small and Medium Enterprises) - which constitute a large part of our GDP and how does the job situation look after the lockdown, since we were already at the highest unemployment rate in 45 years?
Prof. Jayati Ghosh: See, MSMEs constitute about 40% of GDP, 85% of employment, 80% of exports - so they’re critical to the economy. They are in a state of collapse. They have not really recovered from demonetisation and GST and now there’s this blow that has destroyed the demand and destroyed their supply chains. So it’s a real, real mess for MSMEs. Now this means that the kind of unemployment we’re going to be experiencing in the coming months is way beyond, many multiples of what we’ve seen already. When we say that we were already at a 45-year high, after this probably we will have the highest rate of unemployment in a century. It’s a very, very dire situation. And it’s likely to persist unless very string and proactive measures are taken.
Asiaville: What could those measures be?
Prof. Jayati Ghosh: Problems for the government on both sides. They have to do something to make sure people are still buying. But first of all, they have to do something to ensure public health. We now have a window because of the lockdown. But the government should not just sit back and say “oh we’ve done the lockdown”. They need to use this time to make sure we’ve enough testing kits, make sure we’ve enough treatment, enough masks and protective gear, enough hospital beds, enough arrangements for when the peak happens. Because we know that there will be a peak. The WHO (World Health Organisation) Director-General said to the governments: don’t waste time. You have a crucial period to take steps to deal with this.
I haven’t seen that we’re doing this. This is something we should be doing more on a war-footing.
Then the government should see that people don’t die of other causes because of the economic devastation and inadequate supplies. Because we don’t know what kind of medical supplies will be available in two weeks from now and whether people who desperately need treatment will have access to it. Whether poor people not only die of hunger, hunger-driven diseases. And even if they don't die, they might get so weakened by this, that they are unable to work.
So the government has to step in and provide direct benefit transfer immediately. It has to do cash transfers. Normally I’d prefer work schemes to cash transfers, but there’s no question of a work scheme now. You have to directly put money into their bank accounts now.
Asiaville: But hasn’t that been proposed already in FM Sitharaman’s 1.7 lakh crore relief package?
Prof. Jayati Ghosh: No. Let’s be very clear. The 1.7 Lakh crore is not 1.7 lakh crore. About 40,000 crores of that are existing schemes. Read the details and don’t just believe what the government is telling you.
Asiaville: That was my follow-up question - is the government going to pump the money into the economy or just rearrange existing schemes?
Prof. Jayati Ghosh: Well, about 40,000-50,000 crores are just rearrangement of exciting schemes. Another part of it is just allowing workers to access their own money. Like this EPF (Employees’ Provident Fund) thing. The workers are just being allowed to use their own EPF funds earlier than they would otherwise. That’s not any big incentive. What they should be doing is putting at least 7,000-10,000 rupees per month for the next two months into accounts. Be it Jan Dhan accounts or MNREGA woke accounts, to all those who are registered under National Food Security Act.
The governments (centre and state) know who these people are, who are more vulnerable. Just put money into their accounts.
It’s a good measure to give out 5 kilograms of food grain to people, but you can give much more. You are sitting on about 35 million tons excess food grain stocks right now. You can distribute at least half of that immediately. That would ease the hunger. That will ease the crisis that they are going through right now with people who are not even getting one square meal a day. These things can and should be done immediately. But as I mentioned, it’s very important to keep the supplies going.
Also, let’s be clear what essentials are. These vague terms - food and medicine - which types of food? Is that a balanced diet that you’re providing everybody? Which medicines? How do you ensure those medicines are produced? Batteries are essential commodities, then how are we ensuring that batteries are produced, supplied and distributed? We need to have a full understanding of what they are and what those producers require as inputs and intermediates. And make sure sure that all of that is available and distribution is properly organised.
Maybe you need to bring the army in. Maybe you need to give fiscal incentives to those providers to make sure that they can continue to produce. Remember we have to make sure that this distribution happens while maintaining physical distancing to contain the virus.
This is going to cost money and the government must keep money aside for all these things.
Asiaville: If the government does more of DBTs, then what are the downsides? As in what do we lose? Several experts speak about the fiscal deficit, where does that go?
Prof. Jayati Ghosh: This is no time to be worried about the fiscal deficit. No government in the world is now thinking about the fiscal deficit. The US has just announced a $2 trillion stimulus. They are not thinking that this will cause this much increase in the fiscal deficit. The UK government, or the German government - they’re all saying that “we’re gonna do whatever it takes. We are not looking at the money right now”.
That’s what this government also ought to do. The downside of it is something you can talk about in normal times. These are not normal times. In fact, there’s such a downside of not doing this. If you don’t do this then you’re getting into an economic slide that you can’t get out of. If you don’t do this, the economy collapses. Then your fiscal deficit to GDP ratio will go up anyway because even if you don’t spend any more, the GDP will have collapsed.
This is not a time to say that we’ve to worry about the fiscal deficit ratio.
Asiaville: What are your overall views on the relief package that the finance minister announced. Do you think it’s an eyewash or they rushed into pre-setting it because of the media pressure?
Prof. Jayati Ghosh: I don’t know what their thinking was but I can tell you what they’ve given. It’s completely inadequate. Even the 1.7 Lakh crore is less than 1% of the GDP. But as I told you it’s not 1.7 Lakh crore, it’s more like 1.2 lakh crore and that’s only half a percentage point of GDP. Other countries are giving 5%, 6%, 3% of their GDP. They’re all making big, big investments. That’s what you need. 0.5% doesn’t cut it. It’s nothing. It’s not going to make a dent.
It’s too small overall, secondly, it’s not addressing the most vulnerable. Regarding the food grain, I would say it should be 10 kilograms per person or free. Not some part paid, some part free. We should immediately have a moratorium on all debt payments, or interest payments or tax payments. Just have a moratorium until the lockdown is over maybe two weeks after that. Because how do you expect people to pay when they have no incomes? You can’t do that. If we don’t do this now, we’ll be in a much worse situation. So this is not the time to be thinking about the usual things we worry about in a normal year.
Asiaville: What do you think about the RBI’s announcements? Have they done enough to keep the banking sector moving at a time when there’s not much business happening?
Prof. Jayati Ghosh: No. Fiddling around with interest rate is okay, but that’s not the solution right now. Who’s going to borrow when you can’t spend. You cannot go out, you cannot invest, so how can you borrow? And why would you borrow more because the interest rate is lower right now? Which investor, right now, is going to invest anything? What the RBI should have done is to sit down with the banks and talked about a moratorium.
Everything is on hold in India, why should credit payments be the only thing not on hold?
Asiaville: Do you see any silver lining that we can cling onto in this grim situation?
Prof. Jayati Ghosh: As I said a lot depends on the response of the government. So far the central government has been disappointing, but a lot of state governments have stepped up to the plate. I think the Kerala government has shown by example how to deal with something like this. The Delhi government has come out with more measures in the last few days. A number of other state governments too, are showing sensitivity and willingness to do as much as they can. But they must be given the power to do that. The centre has to make more funds available to the states because they’re the ones doing all the heavy lifting in this case.
First of all, let's realise that the central government owes the states a lot of money. It hasn’t paid GST compensation, it hasn’t paid MNREGA’s 12,000 crores and funds for a host of other schemes. First let the centre pay what it owes to the state, legally. That will already give them a little more resources.
I think that the central government, in general, should allocate more funds to the state because they are the ones who are being forced to deal with all the welfare measures that I mentioned. Even if they declare a national-level welfare measure, then it will go to the states per capita. That will give them more leeway.
In a situation like this, the centre should allow the states to borrow more. They should remove the very rigid limit on borrowing because right now state governments are literally day to day. They have to have cash, spend it that day or else their cheques bounce.
This is once in a lifetime, once in a century kind of event and you cannot go by the usual federal rules.