India does not seem to have a clear pathway out of this pandemic. Much of this can be attributed to over-centralisation and over-concentration of decision-making and public funds
Since the world is undergoing a challenge of a magnitude not seen since World War II, writing column after column on the topic of the pandemic is unavoidable. Four months after the initial global realisation that this event was going to be a major shock to humanity, some broad features are emerging. Countries have had varied responses to the novel coronavirus, both in terms of active health policy actions and preventive measures that halted economic activity.
While predictions of very high death tolls have not been borne out, refuting the accuracy of these predictions is impossible, since they were based on not responding, and every country has taken some steps to mitigate the health impacts of the pandemic. On the other hand, there seems to be enough evidence to refute those who have sought to downplay the severity of the virus, or to question the need to respond with extreme caution and assertive policies. The disaster in Brazil is one example to support this latter statement, as is the varied experience of different American states (much of it also disastrous), as well as the failures and successes of America’s federal government.
On the whole, in these global comparisons, India’s record looks reasonably good, given its initial conditions of lacking resources and infrastructure. Despite the botched lockdown—particularly the pain inflicted on poor migrant workers and some unnecessary disruption of transport networks—India’s response was sufficiently speedy and severe (even if overdone on both dimensions) to provide breathing room for action. Even though case counts and deaths are still rising, rates of increase and absolute levels still look manageable, and compare favourably with many other countries, rich and poor, large and small.
On the other hand, India has done less well since that initial lockdown decision. There are numerous areas where the central government could have done better, and can still improve. My sense is that not enough is being done to strengthen the quality of the public health response. Part of the problem is slow decision making and slow action. But, another problem is that some kinds of decision making are overly concentrated and overly politicised. State and local officials have no choice except to deal with the realities on the ground, but the central government is not doing enough to provide funds for those actions, or to provide physical goods or expertise where there are shortages. Unlike the US, where the federal government has almost completely abdicated its responsibilities, India has an odd mix of too much centralisation for decisions where local knowledge should be the guide, and not enough centralisation where unified action would help.
The issue of funding for public health actions is symptomatic of a much wider problem. The central government is caught in a mental time warp, where it was worrying about fiscal deficits, tax receipts and overall spending, and the opinion of ratings agencies. It has failed to realise that none of this matters in the very short run—that there must be aggressive spending to control the pandemic, to sustain incomes for the poor, to lift aggregate demand, and to overcome supply bottlenecks created by responses to the pandemic.
The central government took almost two months to start announcing significant relief measures and a reopening plan for the economy. Its claims of fiscal stimulus appear to be significantly overstated. Indeed, it seems that the central ministries are being told to avoid spending their budgeted funds. The Indian government’s approach is reminiscent of the US policy at the beginning of the Great Depression, which only served to prolong that downturn.
Of course, fiscal deficits do not come for free—they will have consequences down the road. But, one has to remember that deficits are endogenous to the level of economic activity, and making sure that the economy recovers rapidly will do much to mitigate the effects of deficit spending now. There is also the issue of stoking inflation, but the worst case is to have higher inflation without growth, if supply constraints are allowed to linger. Here the Indian government should be paying attention to trade and transport very carefully. The government has taken steps to loosen internal restrictions on agricultural trade. But, a 2013-14 report on transport produced by a committee chaired by Rakesh Mohan is still to be implemented effectively. And, much of the recent rhetoric on self-reliance goes against the need to strategise on how to overcome possible new constraints on international trade.
To summarise, the Indian government’s short-run response has been adequate, avoiding a true catastrophe. But, it has not done enough to plot as rapid a pathway out of the pandemic as it should have. Some of this shortcoming is because of a lack of capacity at the Centre, but much of it comes from over-centralisation and over-concentration of decision-making and public funds. These have been persistent problems in India, which have increased in the last few years. The central government needs to spend more in the short run, and strategise better for the medium and long run, if the pandemic is not to end up crippling India’s growth prospects for many years.
The author is Professor of Economics, University of California, Santa Cruz. Views are personal