‘Indian Economy’s Greatest Crisis’ (Book Review): The road to recovery

By Amitabha Bhattacharya

Much has been written on the science of Covid-19, the art of its management through government-public initiatives, and the deleterious impact of this disease on the economy. Amongst Indian publications, The Coronavirus: What You Need To Know About The Global Pandemic by Swapneil Parikh, Maherra Desai and Rajesh Parikh provided an informed perspective of scientist-practitioners, while the latest one by Professor Arun Kumar, formerly of the JNU, focuses mainly on the crisis our economy is facing and the turmoil it is to pass through in the near future. Since, according to the author, we are in depression (and not recession) and because consumer confidence, as also investment sentiment, take time to rebound, our recovery “will be a shallow ‘U-shaped’ one”, and not V-shaped.

Economic theorists and practitioners have been projecting a broad range of scenarios, depending on the assumptions made. Scientific knowledge about the pandemic is still evolving, the efficacy of the vaccines varies within a wide range, and the hope of a cure is not in immediate sight. Therefore, the end timing of the disease remains uncertain. Yet every effort has to be made at the individual, societal and governmental levels to defeat the disease and revive livelihood security and prosperity at the earliest.

The book explains in clear terms why in today’s economy, lockdown hits hard and what the aftermath has been after the lockdown was clamped in March 2020. He argues that during the Spanish Flu (1918-20), there was greater self-sufficiency. “… a village in an earlier era could continue life even if it was cut off from the rest of the world because the essentials were largely produced within.” In modern times, “… a village or a city cut off from the outside will find it difficult to survive.” Kumar discusses every relevant issue such as the changing production structure, special problems encountered by the marginalised and the unorganised, disruption of supply chain, and the rising inequality consequent to globalisation. The acute distress of workers “without a living wage and no savings” on account of the lockdown has been highlighted.

Analysing the macro-economic aspects of the post-lockdown period and drawing attention to the different lessons from the Chinese and US experience, Kumar concludes that with its large organised sector, India’s recovery to pre-pandemic level will be much slower than in the US. This may seem to be obvious, but Kumar’s line of argument based on facts and evidence provides a foundation for such a prediction. In order to assess the Covid-specific impact, Kumar outlines the pre-pandemic scenario marked by anaemic growth, having been exposed to what he terms as the two shocks of demonetisation and GST implementation. These are familiar criticisms though not convincingly substantiated.

Kumar betrays certain biases while criticising the policies of the government. The handling of mass labour migration has indeed exhibited inadequacies of planning at the administrative levels, especially in the initial few days. But comments like “for policy-makers, the poor don’t count” or that migrants were coerced to return to cities indicate an inappropriate understanding of how a democratic government functions. The author notices a clear divide between the roles of the public sector and of the private that this crisis seems to have brought to focus.
Sectoral analysis of our economy throws important light for the readers to comprehend what has gone wrong and what needs to be done in the context of the new normal. His fear that “the growing inequality and unemployment is likely to lead to an increase in social and political instability and also crime” is also widely shared.

The chapter What Should the Government Do? may not contain original ideas, but many of the recommendations would be of value to the budget-makers. Though Kumar has been a votary of ‘wealth tax’ for decades, he feels this is not the right time to go for it. He underscores the enormous difficulties faced in order to finance “such a huge deficit, 41% of the GDP”, and suggests various measures like drastically cutting expenditure, hugely increasing borrowing and, as a last resort, monetisation of the deficit. “The RBI will have to lend to the government to cover the shortfall in resources in the budget, by buying the government bonds.”

His disappointment with the lockdown as “brutal but half-baked” and comparing our initiatives with China’s where both lives and livelihoods could be preserved may not be fully justified, but can perhaps be understood in the light of his own understanding of government policies and actions so far. Nevertheless, the work is comprehensive, internally consistent, and lucid. It pleads for more of state action in order to bring the economy back on rails, keeping the concerns of the disadvantaged in mind.

Amitabha Bhattacharya is a former IAS officer who has also worked in the private sector and with the UNDP

Indian Economy’s Greatest Crisis
Arun Kumar
Penguin Random House
Pp xiv + 282, Rs 499