The former prime minister of India and economist Manmohan Singh has charted a ‘three-step’ plan to combat the country’s economic crisis amid the COVID-19 pandemic. As finance minister of the country, he was instrumental in India’s 1991 economic reforms.
In an email exchange with the BBC, Singh said the government should first ensure that people’s livelihoods are protected, then take measures to make adequate capital available for businesses, and lastly, fix the financial sector through institutional autonomy and processes.
India is battling a rising number of coronavirus infections and now stands third in terms of numbers with total tally, as of August 11, standing at 2,215,074. The country was under lockdown starting March 24 and began opening up in phases from June 1. Many urban areas and hotspot continue to remain under lockdown and strict restrictions.
While refusing to use terms ‘depression’, Singh said a “deep and prolonged economic slowdown” as warned by economists, was “inevitable”. He added that the crisis is a humanitarian one and it is thus “important to view this from the prism of sentiments in our society than mere economic numbers and methods.”
He also said he “hoped the consensus” of economic contraction in India is wrong, noting that it would be the first time since independent India if it does occur.
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On the lockdown, Singh said doing what other nations were doing was “wrong”, but the lockdown was “perhaps an inevitable choice.” He, however, criticised the government’s “shock and awe approach”, which he said caused “terrible pain to people.”
“The suddenness of the announcement and the stringency of the lockdown were thoughtless and insensitive. Public health emergencies such as this are best dealt with locally by local administrators and public health officials, with broad guidelines from the Centre. Perhaps, we should have devolved the COVID-19 battle to the state and local administrations much sooner," he added.
Singh also noted that the 1991 crisis was induced by global factors, but today’s situation of “synchronised shutdown” is unprecedented – not even comparable to World War II.
Speaking on India’s capital requirements, Singh said: “The answer is borrowing. Higher borrowing is inevitable. Even if we have to spend an additional 10 percent of the Gross Domestic Product (GDP) to cater to the military, health and economic challenges, it must be done.”
He said the risk of borrowing is worth it if it "can save lives, borders, restore livelihoods and boost economic growth”. He did, however, emphasise that being prudent and determining optimum use of the borrowing is key.
Singh was also optimistic about India’s position, adding: “India's track record as a borrower from multilateral institutions is impeccable and (we can) borrow from a position of strength, compared to other developing nations.”
Singh said monetisation of fiscal deficit or simply printing more money was abandoned by the Reserve Bank of India (RBI) to “ensure fiscal discipline, curb unhealthy impulse of seemingly free money and separate the central bank from the government.”
While not ruling out the option, Singh said there are other factors apart from inflation due to excess money supply, such as impacts on currency, trade and imported inflation.
He was optimistic about India’s prospects as the country has since 1991 lifted over 300 million people from poverty.
“The Indian economy is intrinsically much stronger now. But, India is (also) much more integrated with the rest of the world now. Hence, what happens in the global economy will have a significant impact on India's economy. In this pandemic, the global economy is severely dented and that will be a big cause of concern for India," he added.
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