Economic Emergency to derail fight against Coronavirus (COVID 19)

The economic emergency will be a disaster for the Indian economy and derail India's fight against COVID 19. Central government should realize that the nation is still battling to come out from the damages caused by the sudden announcement of demonetization on November 8, 2016. The attack of COVID 19 on Indian economy is just like a heart attack to a patient in the ICU (Intensive Care Unit). There is absolutely no scope of experimentation. Any wrong decision will be disastrous.

It looks scarier than Coronavirus (COVID 19). The reports that Prime Minister Narendra Modi is mulling the idea of proclaiming the first-ever economic emergency in the country has disturbed the economists and financial experts in India. This is because the Indian economy is facing the toughest days in its history since the sudden announcement of the demonetization on November 8, 2016.

Announced in the first tenure of the Narendra Modi government, the decision of demonetization could not achieve any of the objectives set up by the government. The much-hyped objective of combating the parallel black money economy in the country had fallen flat when almost the entire currency returned with the Reserve Bank of India (RBI). Besides, the greater objective of combating corruption was also not achieved as several cases of scams such as Punjab National Bank Scam, Lalit Modi Scam, and Vijay Mallya Scam, etc. continued to emerge. Besides, the NPA of public and private sector banks are increasing. Several banks are facing financial crises to which prestigious Yes Bank was simply a new addition. 

What is Economic Emergency? 

Though never imposed in the country, the Constitution of India under Article 360 provides the President of India, the power to declare the financial emergency or economic emergency in the country. The Article empowers the President of India (read Union Government of India as the President is the only titular head of the State) to cut salaries of the government employees, hold any financial/ money bills passed by the Parliament or state legislature. Initially, the financial emergency could be made for two months but thereafter it will require the approval of both the houses of Parliament.

As the speculations of an imminent economy emergency are being made from various quarters, the veteran economist turned politician Subramanian Swamy asked the Central government on March 21 to clarify the position. “Is declaration of Economic Emergency is inevitable? Government must put doubts at rest,” he tweeted.

Is now declaration of Economic Emergency becoming inevitable? Govt must put doubts at rest

— Subramanian Swamy (@Swamy39) March 21, 2020

 

How Economic Emergency will a disaster?  

Appreciating the people for supporting the Prime Minister Narendra Modi’s call of Janata Curfew on March 22, the principal opposition party Congress has now urged his government to increase expenditure on various items.

Our healthcare professionals are suffering because of your delay in banning exports of masks, ventilators, coveralls & your refusal to follow WHO guidelines to stockpile & increase production of PPE items.Your apathy & arrogance could cost them their lives.#AbKaroDeshKiRakhwali

— Congress (@INCIndia) March 23, 2020

 

The politicians across the party line are urging the Prime Minister to increase government expenditure. Besides, economic experts are also offering similar suggestions. Famous Economist and Director of the National Institute of Public Finance and Policy, Dr. Rathin Roy has recommended the government to deal with the economy on a war-time basis in close association with the private sector. “We have to shift the way we think about the economy from a business-as-usual scenario to a war-time economy. The economics of running a war-time economy is fundamentally different from the economics of running a peace-time economy. A war-time economy involves investing in winning a war because if you do not win the war, there is no economy to invest in. And therefore, you have to repurpose the economy to make the materials needed for the job and not the materials that we would during peace-time,” suggested Roy who had been a former economic advisor to the Prime Minister. He has strongly recommended for increasing expenditure, “We need to make absolutely sure that finance is not a binding constraint on this repurposing of the economy.” The World Economic Forum (WEF) in a report titled 'Outbreak Readiness and Business Impacts' has also recommended investment based initiatives for fighting the outbreak and economic revival. Several countries of the world including the US are planning to increase expenditure and investment through bailout packages. 

The Economic Emergency is, however, a way to decrease expenditure by putting strong control on expenditure. If declared all the financial decisions of the country will be taken by the Central government only. The decision to cut the salaries of the government officials from peons to the Chief Justice of India (CJI) may look a populistic idea but it will decrease expenditure in the market which will cause a massive decrease in the purchasing power of the people. If there will be a decrease in consumption, the production of services and commodities will automatically decrease. 

Besides demoralizing the police personnel, administrative officers, doctors and security forces; the financial emergency will also adversely affect the people’s capability to fight against COVID 19. If no money in the pocket, how will they afford healthy food and medicine for themselves and their families? Nobody could be more direct on this issue than Dr. Subramanian Swamy. “Emergency declaration for a just cause according to the Constitution, as amended by Janata Government in 1978, is a weapon which I would not like to place in the hands of the incompetent,”.

An Economic Perspective to fight COVID 19

This is the second time under the reign of Narendra Modi, the economy has come to a halt. The decision of demonetization was his government’s conscious decision for which he owes the full responsibility. However, the current economic standstill is caused by a pandemic to which he needs to listen to the economic experts and also the opposition's suggestions. Misery might look good for the short term but it is always disastrous for the long term, both for an individual and also for a nation.

Today, the country is facing unprecedented lockdown. All the services from planes to trains to busses and trucks are stopped. In addition to direct employment, millions of indirect employment have vanished from the economy overnight. There is no circulation of commodities and services. The shopping malls, markets, weekly markets all are closed. People are eating upon their savings. The unorganized sector is already dead, if the lockdown lasts for long, the organized private sector and multi-national companies will also not be able to respect the Clarian call of the Prime Minister to pay salaries and retain their employees. The jobs will go. Therefore, the government must focus on increasing the expenditure, ensuring better business circumstances for the private sector and putting more money in the hands of people to increase their purchasing power. Any idea of a financial emergency needs to be nipped in the bud. The World Economic Forum has also suggested increasing investment to fight the economic repercussions of the COVID 19. 

Why a coordinated global response alongside urgent investment is needed to end the COVID-19 pandemic https://t.co/rd60Wjm4bt #coronavirus #health pic.twitter.com/decaN9ftv1

— World Economic Forum (@wef) March 23, 2020

Besides, the government needs to make all efforts to control the further spread of COVID 19. There is a great need to formulate tangible objectives of lockdown and implementation of plans to achieve them in a time-bound manner. The Prime Minister must acknowledge that his experiment of Janata Curfew has failed. Now the country needs real curfew. Punjab government has rightly ordered a curfew in the whole state that is being followed by other states as well. The Central government needs to be more proactive in controlling the pandemic and also to handle its economic repercussions.

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)