30 Apr 2020: The Indian Express Editorial Analysis
1) After the deluge-
Arvind Subramanian has likened the current economic situation to a “pralay (deluge)”, in which the government should spend more than even what it ought to in a rainy day.
India, the former chief economic adviser said, must plan for a “substantially negative” growth this year that might require an additional fiscal expenditure of Rs 10 lakh crore. He has a point.
Corporate indebtedness (condition of owing money) was already high before the lockdown. Not only will insolvency(bankruptcy) cases mount(increase) further, but even companies facing no significant cash flow issues wouldn’t invest in an uncertain public health as well as demand-constrained environment.
Banks, too, aren’t going to lend, no matter how much liquidity the Reserve Bank of India (RBI) may infuse(give). The burden of non-performing assets, which is set to get heavier in the coming months, makes it impossible for them to finance an economic recovery. Last, but not the least, are households. Faced with layoffs(temporary or permanent discharge of a worker or workers) and pay cuts, they would rather save and will be afraid to spend.
(A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days, but this can depend on the contract terms)
Under the circumstances, the onus(responsibility) for ensuring that the wheels of the economy start moving — there’s no guarantee of it happening even with all lockdown restrictions being lifted — lies on the government.
Without somebody to spend, the economy is in real danger of contraction, which will, in turn, worsen the problem of businesses going bust, joblessness and loan defaults that can spread to the entire financial services industry.
The one consolation today is that India is not saddled(burdened) with its traditional “3F” constraints — food, fuel and foreign exchange — which were triggers for inflation and balance of payments crises. O
n the contrary, public foodgrain stocks are at an all-time-high, global oil prices have crashed and there is no run on the rupee, unlike during the “taper tantrum” period of May-August 2013. The risks, if at all, are tilted more towards demand-side “deflationary shocks”, as Subramanian puts it, than supply-side inflation concerns.
(Taper tantrum refers to the 2013 collective reactionary panic that triggered a spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly putting the breaks on its quantitative easing (QE) program)
SOURCE OF MONEY:
There is a legitimate question, though: If the government has to spend, where will the money for it come from? The finances of both the Centre and states are in a mess, with receipts from tax and non-tax sources hardly covering even existing expenditures.
But governments enjoy sovereign borrowing powers that allow fund-raising at rates below that of triple A-rated instruments issued by private corporates, more so in the present risk-averse scenario.
Also, there is the option of deficit financing (“printing money”) through the RBI subscribing to primary auctions of government securities. There are, of course, costs in such powers being exercised.
Past precedents(examples) — whether the issuance of ad hoc Treasury Bills to the RBI prior to April 1997 or the stimulus package post the 2008 global financial crisis — do not inspire(give) confidence.
This is the time to design clear rules for departure from accepted norms of fiscal prudence. Any stimulus has to be transparent and time-bound.
(Ad hoc means ‘for the particular end or case at hand’. Thus ad hoc treasury bills are issued for providing investment outlets to state governments, semi-government departments and foreign central banks for their temporary surpluses. They are not sold to the general public (or banks) and are not marketable)
2) The prickly state-
In facing the coronavirus challenge, information and ideas are the only ammunition(weapons) currently available, and should be welcomed and evaluated irrespective of their provenance(origin), whether they originate from within the government or from the public.
But a government which has, in better times, sought suggestions directly from the public over the web and through the Prime Minister’s app, has become unduly(excessive) sensitive at a time of grave crisis.
When 50 young officers of the Indian Revenue Service forwarded, through their association, policy suggestions, in a report titled FORCE (Fiscal Options and Response to COVID-19 Epidemic) to the Central Board of Direct Taxes and shared them on social media, the Centre termed it as a position “contrary to current policies of government”, read it as a breach(violation) of service rules and instituted an inquiry against three senior Income Tax officers.
Some of the suggestions may be controversial, for instance, a hike in income tax rate to 40 per cent for those earning over Rs 1 crore a year for a limited period of time, but the response is repressive(restraining personal freedom) and excessively out of proportion. The officers never claimed that their document was official. Publicly dismissing the controversial suggestions would have sufficed(be enough) if the government wanted to distance itself from the report.
Meanwhile, public questioning of the government’s handling of the pandemic in Manipur has landed several citizens in trouble with the law — police have invoked sections of the Disaster Management Act and the Indian Penal Code, including sedition(conduct or speech inciting people to rebel against the authority of a state or monarch).
In one case, it had merely been suggested that a proposed quarantine centre in Imphal should be moved from agricultural land to a disused airstrip. The deputy chief minister was stripped(taken away) of all his portfolios, amid a controversy over rice allocation under the National Food Security Act during the coronavirus lockdown, apparently(seemingly) for being critical of the chief minister’s assurances of adequate food supply.
And in Port Blair, a journalist was booked for asking why the phone contacts of COVID-19 patients were being home quarantined. Instead of arresting him, the authorities could have simply explained that tracing call records is one way of discovering a patient’s close contacts.
It is generally agreed that long after lockdowns are lifted, nations will have to remain in close cooperation, so that ideas that work in one place can be borrowed and deployed elsewhere. The principle applies domestically, too. Over-sensitive and prickly(thorny) responses betray insecurity, precisely when governments must project confidence.
At a time of crisis, government should welcome, not punish, ideas, criticism. These provide ammunition for the battle ahead.
3) A new line of action indian-
One hundred years ago, there were no visas and passports for people to travel in Europe, America and their colonies. Then came World War I and things changed — national boundaries became rigid(strict). Economic stagnation(lack of activity, growth, or development), and recession(downturn) followed. Nationalism turned into ultra-nationalism, leading to another world war.
After World War II, we created an interconnected and institutionalised global order. For the last 65 years, despite several hiccups(hurdles), the world order has remained largely intact.
This pandemic threatens to undo(change) that world order. Just as before, countries are turning inwards, becoming authoritarian. Some political scientists are predicting the rise of a more closed, narrow-nationalist world. Economists are writing off globalisation and free trade.
Where does this pessimism(negativity) stem from? From a coronavirus virion? Not really. Two countries, considered the most powerful, have shaken the confidence of the entire world. Niall Ferguson, the American historian from the Hoover Institution, had called them “Chimerica(china and America)”.
For the last decade or more, China and America have created an economic relationship model that Ferguson compared with Nichibei, the US-Japan economic bonding prominently in existence until the end of the last century. Coronavirus has shown that Chimerica is just a chimera(illusion).
GDP-ISM, CHINA-CENTRISM AND CHINESE EXCEPTIONALISM:
The Chinese leadership faces accusations(blame) of hiding facts from the world, allowing the virus to cross borders and turn into a pandemic. Till last week, their official figures stood at 82,000 infections and 4,500 deaths. Derek Scissors of the American Enterprise Institute, a Washington-based think-tank, argues that the number of infections could be as high as 2.9 million instead.
Some countries don’t follow any conventional course. China is one of them. It follows what is described as “historical experience”. Whatever it is today, is a product of the long revolution that had culminated(ended) in Mao capturing power in 1949. The Chinese worldview is guided by three important principles: GDP-ism, China-centrism and Chinese exceptionalism — derived from that revolution.
Deng Xiaoping had reportedly declared in the 1980s that the most important logic is economic development. Chinese economists describe it as “GDPism”. The second is China-centrism. Mao insisted on independence, autonomy and self-sufficiency.
“Ode to the motherland”, the famous patriotic song composed by Wang Shen that declares the “grand and beautiful” land of China “over the mountains, across the plains, across the Yangtze and Huang rivers” as the “dear home of ours”, is entrenched(rooted) in the psyche of every Chinese.
Third, is Chinese exceptionalism. China doesn’t believe in learning from others. China should follow its own wisdom for answers to its problems, its leaders insist.
PARALLEL IN HISTORY:
The Chinese nationalist worldview has a parallel in history in pre-World War II Germany. Ethnic superiority, historical claims and the Aryan exceptionalism were all very familiar to the people of the world in the 1930s. When Hitler occupied Sudetenland, a German-speaking area of the former Czechoslovakia, Europe decided to appease him, rather than confront.
Roosevelt was watching from afar when the European nations — like Britain, France and Italy — were celebrating the Munich Agreement. He even praised Hitler saying, “I am convinced that hundreds of millions throughout the world would recognise your action as an outstanding historic service to all humanity”.
Unsurprisingly, Hitler violated his promise of “no further aggression” in less than one year, and World War II began. Where Britain was in 1939-40 is where America stands today. The US president Donald Trump allowed coronavirus to devastate its states before finally waking up.
As late as February 28, Trump was asking his supporters in South Carolina to not heed(give in) warnings about the virus outbreak in America. He was blaming the media for “hysteria(exaggerated or uncontrollable emotion or excitement)” and calling the corona threat “their new hoax”. Now, the European nations, having cuddled up(sit or lie very close to someone) to China for “Belt and Road” benefits, are struggling to contain the pandemic fallout.
(TRIVIA- The Munich Agreement or Munich Betrayal was an agreement concluded at Munich on 30 September 1938, by Nazi Germany, the United Kingdom, the French Third Republic, and the Kingdom of Italy. It provided "cession(surrender)n to Germany of the Sudeten German territory" of Czechoslovakia)
Interestingly, the countries that stood up to this contagion are mostly the Asian democracies. South Korea led the way, conducting more tests than America on a single day. Singapore undertook extensive testing, making a huge effort to track down any viral symptoms. Hong Kong and Taiwan, with their past experience of SARS fatalities, have taken timely measures to contain the virus effectively.
India, on the other hand, has set an example of democratic activism in combating the corona challenge. Prime Minister Narendra Modi, together with his colleagues, is leading from the front, and has successfully implemented a lockdown and social distancing measures, with full popular support.
A country with a population of about 1.3 billion has reportedly seen about 17,610 active cases. Modi did not resort to any arbitrary or authoritarian measures though there were deliberate acts of provocation and misinformation like Islamophobia.
In the face of such provocations, Modi displayed enormous equanimity(kindness), calm and optimism(positivism). He proved that democracies with visionary leadership can tackle such challenges without compromising on liberal values.
In the unfolding new world order, India, along with countries like America and Germany, can play a pivotal role in building a world based on “human-centric development cooperation” as suggested by Modi. It is time for a new Atlantic Charter: Environment, healthcare, technology and democratic liberalism can be its foundations.
China has an opportunity today, even as it faces opprobrium(disliking) globally and unrest within the country. The Chinese Communist Party has a phrase, “Luxian Douzheng” or line struggle. It means power struggle for some, but it also denotes the struggle for a new party line. There were several in the past. Can the world hope for a better one now?
(The writer is national general secretary, BJP and director, India Foundation)