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Opinion | Act now to soften the economic blow
3 min read . Updated: 19 Apr 2020, 09:48 PM IST Livemint
There are no riskless options. But as we gradually ease the coronavirus lockdown to save livelihoods, we must shield the economy from a disaster down the line. Let's spur spending
The trolley problem is a thought experiment used in classrooms to weigh options and their consequences. One version of it goes like this. There is a runaway trolley on a railway track that has five people tied up ahead, unable to move. The trolley is headed straight for them. You are some distance away, next to a lever. If you pull it, the trolley will switch tracks. However, this side track also has someone on it who will get hit. Do you exercise that option, or not? And, what if a second look at the side track reveals a few others farther down the line behind that sole person—maybe even more than you spotted on the first track? While the complexity of a real situation cannot be reduced to a classroom puzzle, it is apparent that a lockdown that saves lives from covid-19 (a moral imperative) also endangers livelihoods and thus lives further along the way as it deprives more and more people of their means of survival. The curbs imposed on our economy by the government are due to be lifted gradually from Monday onwards. But the economic disruption has been so severe that buffers are now urgently needed to soften its impact on businesses and jobs. Without adequate fiscal stimulation, India's output this year could contract and throw the country into turmoil.
The entire economy needs support, even as health costs soar. An effective rescue could cost the government about ₹10 trillion extra. The most needy must be aided first, no doubt, but cash-strapped businesses need help too if they are not to lay workers off. On Friday, India's central bank opened a new window of liquidity for banks to funnel loans down to lower levels of enterprise and microfinance. Yet, the banking sector is so weak that the government may need to take on the credit risk for this money to reach far and wide. The Centre could directly bail companies out in badly disrupted sectors, but this would involve arbitrary lists and maybe eventual nationalization. Offering a one-off subsidy to cover the wage bills of all registered firms, on the condition that they retain their staff, may work better; ensuring that employees do not get laid off, though, will not be easy. We need a social security net. A good bet would be universal cash transfers aimed at all citizens, with the well-off opting out. If such handouts are too meagre for those who lose taxable-bracket incomes, the Centre could devise a scheme that refunds the tax money such taxpayers paid last year, and then bills them for it—say, in equal annual instalments—after they recover their earnings. What underpins these proposals is the Keynesian insight that overall spending must be nudged along to stop an economy starved of earnings and short of demand from spiralling down. State interventions should be equitable, but given the country's disparity in lifestyles, it would be difficult to avert a painful recession if the cash spent by the better-off gets crunched. For the sake of our have-nots, our haves must not get too thrifty. Demand needs to hold up even for stuff that is not considered essential.
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No matter how the fiscal pump gets primed, the funds for it should be raised responsibly. It would be myopic to monetize such a large portion of the Centre's debt that our economy loses stability once the adverse effects kick in. India does not have the privilege of printing a world currency. We must not overburden future generations either. But we must act now to shield the country from a disaster. And this is another sort of trolley problem.