Economic recovery likely to be slow, not 'V-shaped' one

Arun Kumar is a veteran Indian economist. He studied at the Delhi University, Jawaharlal Nehru University (JNU) and Princeton University, US, and taught economics at JNU for three decades, until 2015. Kumar has written widely on various subjects, both in the popular press and in academic journals.

At present, he is the Malcolm S Adiseshiah Chair Professor at the Institute of Social Sciences, New Delhi. His book, 'Indian Economy's Greatest Crisis' is creating ripples. In an exclusive interview with Bizz Buzz, he says that post Covid-19, the economic recovery of the country will be slow and not 'V-Shaped one, as it is being suggested by the central government

We did face great economic crisis of 1930s and the Global Financial Crisis starting in 2007. How the ongoing Covid-19 crisis is different from those crises?

Great Depression of 1928-1933 and even the recession of 2008 were basically demand problems. Demand was short in the economy. Now, because of the lockdown, it is a voluntary cessation of economic activities. So, production came to a halt, except for some essential commodities. As a result, save for sectors such as agriculture, pharma, FMCG and IT, everything else came to a halt.

In April, the economy declined by 75 per cent, compared to a year-ago period. Roads were empty, offices and factories closed, etc. Due to the lockdown, supply of inputs froze and also demand declined. Lots of people lost their jobs and/or their salary was cut, so that their income came down substantially.

What is so unusual about the coronavirus, especially since viral attacks - H1N1, SARS, MERS, Zika, Ebola and Nipah - have taken place in the last two decades?

You are correct, we have been witnessing a new virus every-3-4 year. The only difference being that these viruses were not so virulent. But, this one (corona) is spreading fast but the redeeming feature is that it doesn't kill so many people. In the case of Ebola, 50 per cent of people who were affected by the virus, died. Whereas, in the case of Covid-19 about 2 per cent of the affected people have lost their lives. We also know that coronavirus is resulting in long-Covid, that is, there are long-term side effects, even after recovery. The Covid-19 victims have faced neurological, heart and kidney related ailments post recovery.

Which sectors of the country's economy have been hit the hardest?

Only 25 per cent of the country's economy was able to function during the lockdown period. Services sector was largely at a standstill. The unorganised sector had also been hit badly. Even agriculture was in difficulty because demand declined and produce could not come to the markets.

Are there any sectors that have got benefited out of it?

Parts of organised sector which produced essentials and those parts that could work from home did well during the lockdown period. Then, there are sectors like pharma where demand increased due to the disease or those that are to produce vaccine or those producing masks, temperature gun and medical equipment, which did well. IT and telecom sector are doing well as people are using more of software and communicating more with each other or getting entertainment and news.

How has been India's response to the coronavirus?

The government should have done a lot more. Unorganised sector is currently in a very difficult situation. People working in this sector work and earn daily and buy their necessities on a daily basis. They can't survive more than a week without income. Decongestion of our slums was necessary for the success of lockdown. The government should have allowed the migrant slum dwellers to go back to their villages after testing them. Those who stayed back also needed to be decongested and provided with necessities of life.

Moreover, the government needed to ramp up medical facilities quickly. Our medical infrastructure is quite weak. We couldn't test adequately for the virus. Government should have started relaxing the lockdown after controlling the spread of the disease. But due to pressure from businesses the relaxation started before the disease was controlled. Besides, government needed to increase support to the unemployed poor and later on provided them with employment. Last but not the least, government should have expanded a host of its ongoing people-oriented welfare schemes which could have generated jobs and led to increase in demand in the economy. In fact, the government missed the bus.

What is more important-life or livelihood?

There lies no contradiction. If you have life, you can also get livelihood. See the example of China. Where after controlling the disease, economy was opened up and it is functioning well. The government is following a top-down approach and introducing supply side reform. It would have been better to tackle the immediate problem of demand by to revive the economy.

What are the grey areas of Indian economy which have been exposed by you in the book?

Indian economy consists of primary (agriculture, mining and forestry sectors), secondary (like, manufacturing) and tertiary (like, public service, trade, finance and transport) sectors.

I have argued that even the agriculture sector declined food items could not reach the market. As a result, agriculture sector could not have grown by 3 per cent during the lockdown.

Tertiary sector (which contributes 55 per cent of the country's economy) is the worst affected since it requires proximity among people and that is what is to be avoided. For instance, in public transport or for personal services like, barber and beautician or doctor or teaching. So, I have sections in the book on how various sectors (like agriculture, education and media) got affected.

How can the country's economy be brought back on track?

There is need to increase demand. That would happen if government increases expenditures. Rural employment guarantee scheme needs to be expanded and a similar scheme started in urban areas.

What is your view on the Rs 20 lakh crore stimulus package which was announced by the government to tackle Covid-19?

Out of the Rs 20 lakh crore package, merely Rs 2.5 lakh crore is out of the budget and would raise demand. The balance is all credit for businesses but unless they work well they will not take more credit so this part of the package will not boost the economy.

Why do you think that economic recovery will be slow and not 'V-shaped' as it is widely predicted?

This book highlights the enormity of the impact of the coronavirus pandemic on India. It critically examines the government's efforts to control the disease and mitigate its adverse effects on Indian economy and society. An economy is not like a rubber ball, which, if dropped on a hard surface, will bounce back to its original position. The book provides incisive reasons as to why economic recovery will be slow and not 'V-shaped'. There is unemployment, slowdown in demand and in investment so the economy will recover slowly

What is the road ahead, according to you?

I suggest that the development paradigm which has led to problems for the economy needs to be revisited. Good governance is crucial and so are a robust public-health system, and clean and representative politics. Only these can bring Indian society and economy back on track.

What is your expectation from the forthcoming Budget?

Government needs to increase employment generation, investment in general and specifically on health infrastructure and help boost demand in the economy.