Context

Everyone is agreed that the whole world is hurtling towards an unprecedented economic recession. India, already facing a massive slowdown, is going to get hurt perhaps more than the others, because our economic immune system is already weak.

Three things that we must do in the present situation

• The first is containing the spread of the virus.
• Apart from the manpower, medicines, protective equipment for frontline workers and other methods, it will need massive resources to tackle it.
• Second, the poor are already suffering in more ways than one, including the daily wage earners. They will have to be taken care of, again needing massive resources.
• Third, economic activity will have to be revived as soon as conditions return to normal or near-normal, for which businesses will have to be helped, again needing massive resources; both in terms of revenue foregone and actual cash outgo.
• The question, therefore, on everyone’s mind is how much money will be needed for all this and where will it come from?
• What the government and the RBI have done so far is clearly awfully inadequate. Other countries have done much more. India can be no exception.

Where will the government will get resources?

• Partly from market and partly form RBI: Broadly speaking, resources will come partly through market borrowings and partly from the RBI.
• Manmohan Singh had decided in 1994 that in future the government of India would not monetise its deficit; in other words, would not borrow from the RBI but go to the money market and borrow from there.
• Borrow from the RBI: In these unprecedented times, we may take leave from that very sound principle, which all governments have followed religiously since then, and borrow from the RBI.
• What does it mean? This means printing of more currency notes with all its attendant problems including inflation.
• Government of India will have to take the steps necessary to tackle the after-effects to the extent possible. It must ensure that the supply chains work smoothly.

How will the money be spent?

• The Important role of states: The states will have to play a very important role in this, as much of the work will have to be done by them.
• Responsibility of finance commission: Since the finance commission continues to be in existence and has a clear idea of the state finances, it should be immediately tasked with the responsibility of discussing this matter with the state governments and making its recommendations available within a period of one month.
• The task force under the finance minister could work out the needs of businesses and the government of India both in the short as well as the medium term.
• Spending money properly and efficiently: It should not be wasted and each rupee spent creates its own multiplier effect.
• Our system leaves much to be desired. And the moment it is known that funding is not a constraint, the system can go berserk.
• We must guard against that and ensure that rules are in place, specially at the field level to ensure the proper use of resources.

Role of banks, financial institutions and MGNREGA

• The banks and other financial institutions will have to be provided with resources to help the private sector, especially the agricultural and MSME sectors.
• In the rural areas, we must ensure that durable assets are created out of the funds made available.
• The rules governing the MGNREGA scheme should be tweaked to the extent necessary in order to ensure that more material than labour is used wherever necessary.

Conclusion

India should and can come out of the present crisis with as little damage as possible if we tackle it together. We cannot control what happens in other countries, but we can surely learn from them and adopt their best practices. We must also play our role in defining the new global order because the world is more intertwined now than ever before.

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