India’s Covid 19 crisis response: Challenges are greater, getting money to individuals and firms is not as easy

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Published: April 3, 2020 3:01:22 AM

The prime minister has emphasised the costs of not responding adequately to the coronavirus crisis, saying it could otherwise set the country back by decades.

Testing is important to guide individuals and public authorities in targeting social isolation .

India is only now beginning to fully recognise and respond to the coronavirus crisis. It has the advantage of learning from the mistakes of other countries, where the health crisis exploded earlier. Here are some thoughts on what India is doing and the challenges it faces, bearing in mind that viewing the crisis and commenting from afar may have limitations.

First, almost every country has been slow to act to control the spread of the virus. Even China did not respond as quickly as it should have. Though it had the disadvantage of being the first country to get affected, it also had on-the-ground knowledge that should have triggered a faster response. One problem for every government is taking responsibility, and suffering political fallout from overreacting.

But, by now, it seems that the dangers of being slow are much greater than those of overreacting, even allowing for the costs of economic disruption. India went for the national lockdown, not a day too soon. However, it remains to be seen if has implemented this lockdown in a way that will prevent panic and shortages. The messaging and the planning—again, observed from far away—seem to be less than optimal. If supplies of food and other basic commodities are disrupted, it will lead to chaos and other kinds of health problems.

Second, there has been a wide variation of the speed with which different countries have ramped up testing. Testing is important to guide individuals and public authorities in targeting social isolation and allocation of health supplies. As the head of the World Health Organisation said, responding to the virus without adequate testing is like fighting a fire blindfolded. Most accounts suggest that India has been way behind the curve in scaling up testing. If testing is not increased rapidly, the lockdown could be longer, more widespread and worse than it needs to be.

Third, ramping up the production of health supplies that are needed to treat coronavirus patients is critical, as the number of identified cases starts to jump—New York City is an example. One of the richest cities in one of the richest nations in the world is already finding it difficult to treat just over 20,000 patients.

It is not entirely clear if the Indian government is doing enough on the front of manufacturing the health supplies the country may need over the next few weeks. And, this is in a situation where India is not as well-endowed with doctors and other medical professionals as are richer economies.

Fourth, the health crisis comes on top of a continuing, slow-burning financial crisis. For several years, the government and RBI have been chasing the expanding difficulties of the financial system, without getting them under control. Whereas the US financial system is in relatively good shape compared to 2008 (for example, far fewer problematic mortgages, and financial firms that are better capitalised), India is in much worse shape than when the global crisis erupted in 2008.

So far, the response of the Indian government and RBI to the added strains of the health crisis appears to have been slow and timid. The US Fed has already launched massive attempts to provide liquidity to financial and non-financial firms, and the national government, after a few days’ delay produced by its polarised politics, is poised for an enormous fiscal stimulus, meant to shore up both supply and demand. By contrast, India is in danger of doing too little too slowly. The challenges in India are greater, since getting money to individuals and firms is not as easy when so much economic activity is in the “informal” sector.

Finally, the thinness of talent at the top (for example, the number of IAS officers relative to the population has not improved since colonial days, despite increased complexity and demands of governance, and vacancy rates are high), the geographic over-centralisation of decision-making, and the tendency to rely on relatively few loyalists for decision-making, make it difficult to marshal expertise for responding to the crisis, whether it is designing a lockdown that minimises suffering and economic harm to the extent possible, figuring out monetary and fiscal policy responses, or organising the health sector to control the core problem of treating the illness. India is a poor country, it is deficient in human capital, and it does not use its human capital effectively.

The prime minister has emphasised the costs of not responding adequately to the coronavirus crisis, saying it could otherwise set the country back by decades. But his focus was on the lockdown only. How will people be kept alive and healthy with the economy at a standstill, how will testing be rapidly scaled up, how will health services be organised for treatment of the ill, and how will the government and the central bank make sure that demand, supply and credit are not disrupted to the extent that the economy collapses even as the virus is controlled? For this observer, the answers are not yet clear.

(The author is professor of economics, University of California, Santa Cruz)

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