According to a bureau report by the Economic Times (4 May) – “India’s services collapsed in April with the coronavirus-led lockdown making the sector come to a complete standstill causing a historic spike in layoffs and reinforcing fears of a deep recession.” A report by PTI (8 May) talks about how India is being rated by international credit agencies – “Moody’s Investors Service on Friday projected India’s growth at zero per cent for the current fiscal and said the negative outlook on sovereign rating reflects increasing risks that GDP growth will remain significantly lower than in the past.”
Another bureau report by the Economic Times (14 April) says: “The International Monetary Fund (IMF) further slashed India’s growth estimate for FY21 to 1.9% from 5.8% estimated in January, warning that the “worst recession since the Great Depression” will dwarf the economic damage caused by the global financial crisis a decade back. It also said that India and China would be the only two major economies likely to register growth, with all others contracting. These depressing forecasts should be cause of concern for the government, policymakers and think-tanks as our system of governance is highly inefficient and especially indifferent to the needs of informal and agricultural sectors, which constitute the vast majority of the population. Let us first look at what some highly acclaimed economists recently suggested regarding reviving India’s economy.
We need to break norms: RR
Former RBI Governor and Professor of Finance at the University of Chicago Booth School of Business – Raghuram Rajan, in an interview to a leading political party of India talked about opening up business in a phased manner and how India should proceed about carrying testing people for the virus. About tackling the challenge of welfare because of the pandemic, Rajan said: “When we reopen up, it is sort of able to walk off the sick bed and not be dead at that point. Most immediately, keep people well and alive. Food is extremely important. Places where public distribution system doesn’t go, Amartya Sen, Abhijit Banerjee and I have talked about temporary ration cards. But, you have to treat this pandemic as a situation that is unprecedented. We need to break norms to tackle what is needed. While keeping in mind that there are overall budgetary limits. There are only so many resources that we have.”
On the question of how many funds will be required to help the poor, the former RBI chief said: “Approx. 65,000 crores. Our GDP is 200 lakh Crore, out of that 65,000 Crore isn’t that much. We can do it. If it is to save the lives of the poor, it must be done.” On unemployment, the former World Bank chief economist remarked: “The numbers are really worrying. If you look at CMIE, virtually another 100 million more people have been put out of work as a result of COVID – 50 million through unemployment and 60 million through leaving the labour force. You can dispute what the particular survey does or says, but this is the only data we have. And the numbers are mindboggling. I think it says, we need to open up in a measured way but as fast as possible so that people start having jobs. We don’t have the capacity to support people across the spectrum for too long. Being a relatively poor country, people start out with significantly lower reserves.”
Cancel debt payments: AB
Nobel Laureate – Abhijit Banerjee who is the Ford Foundation International Professor of Economics at Massachusetts Institute of Technology (MIT) also made public his ideas on how India can tackle the Coronavirus pandemic and what should be its economic priorities. When asked about the quantum of money to be injected in the economy, the MIT Professor was forthright: “A lot of us have been saying that we need a stimulus package. That’s what the US is doing, Japan is doing, Europe is doing. We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP.”
Advocating bold measures regarding debt payments, Prof Banerjee said: “We have done one thing that I think is wise, which is to kind of put a moratorium on debt payments I would say. We could do more than that. We could even say that the debt payments for this quarter will be cancelled and will be taken care of by the government. So you could do a bit more than that so that you don’t actually have to pay for a quarter where you never to. It’s not just a matter of rescheduling it, just permanently cancel it. We could do that.”
Advocating direct cash transfer to revive demand, the 2019 Nobel Prize winner for economics said: “I think targeting is extremely costly. You try to target in this mess, who has become poor after their shop was shut for 6 weeks. I don’t know how you’d figure this out. I would say the bottom 60% of the population, we give them some money, nothing bad will happen in my view. If we gave them money, well some of them might not need it. Fine, they’ll spend it. If they spend it, it would have a stimulus effect. … I would go beyond the poorest people.”
Moderation is the key
In the Qur’an (17: 29-30), Allah says: “Do not keep your hand fastened to your neck nor outspread it, altogether outspread, for you will be left sitting rebuked, destitute. Certainly, Your Lord makes plentiful the provision of whomsoever He wills and straitens it for whomsoever He wills. He is well-aware and is fully observant of all that relates to His servants.” One should follow this Quranic policy at the level of the individual to the government/state.
If we keep hoarding and saving and do not spend at all, then we encounter what economists call the “paradox of thrift”. One the other hand if we go on a spending spree and live beyond our means, then the probability of turning “illiquid” or “insolvent” is a real and present danger that will land us in acute financial difficulties. The Corona pandemic has pressed a “reset” button of sorts and all systems of management of resources will require a complete overhaul to once again claw back to normalcy and sustain that level of economic activity.
The Islamic worldview has a great deal to offer the world in terms of sustainable and equitable wealth management and resource handling. The world is already realising how unviable the credit economy with its business cycles of booms and busts has become. The West must shed its obduracy in persisting with “interest-based” economy and permitting speculative trading in its equity markets.
“When you declare – ‘I am open’ and ready to receive, the universe not only hears you, it holds out its hands to help you.” Time we follow this golden adage.