Policy responses to the COVID-19 crisis need to be shaped by several underlying aspects.
First, throw convention to the winds. This is not the time or place for conventional approaches. Do anything and everything that will limit the spread of the virus and keep the breakout under control. Governments globally have to do what has to be done in a speedy and harmonised way. It is important for policy responses to be bold, unconventional and multi-faceted. Perfection is the enemy of the good and swiftness of policy response in implementation is critical. That does not mean unplanned implementation but rather effective planned implementation of unconventional ideas.
Second, sequence the policy response appropriately. Here, health measures are first and foremost and very crucial—i.e., measures to contain the spread of COVID-19 and to treat those infected, assume priority. However, this also needs to be accompanied by rigorous and reliable testing followed by appropriate quarantine measures and appropriate treatment. This is where governments need to interact with each other and share information on what is happening in their respective countries in terms of impact of the disease and the nature of impacts of the virus. Specific issues that would be of interest here would include the following. We need to use existing data from all COVID-19 impacted countries to answer the following questions on priority so that tangible actions on the ground can be taken to save lives, even as the pandemic continues to impact life on this planet. The global community must come together and help achieve this.
1. What care diagnostics can be effectively used at the community level? This is absolutely critical to quickly identify sick people and treat them as well as better estimate how widely the virus has spread.
2. How to analyze data so that we can learn the best practices standard of care practices from all other COVID-19 impacted countries that have been the most effective on the ground in terms of ensuring survival of COVID-19 impacted patients? There is an urgent need to optimise standard of care given to patients who may be at different stages of the disease. We will need to document and take advantages of all available innovations, technological and others, to enhance the chances of survival and recovery of affected patients.
3. How to optimise the use of protective equipment and other infection prevention and control measures in health care and community settings? This is very critical and we have an urgency to protect health care workers and the larger community from transmission through the establishment of a safe working environment. This is of critical importance.
4. How to use the existing evidence to identify the primary and secondary animal host(s), if any, to prevent continued (zoonotic) spill-over and to better understand: a) the virus transmissibility in different contexts over time; b) the severity of disease and c) who all are (in terms of groups of people) more susceptible to infection? This is very critical for understanding 'transmission dynamics' and it would help us understand and appreciate the full spectrum of the dreadful disease, in terms of 'at risk groups or persons', and 'conditions or factors' that make the disease more severe as well as the effectiveness of specific and targeted public health interventions.
Third, given that lock-downs and physical social distancing have and will become major tools in the fight to contain the spread of COVID-19, accordingly, policy’s simultaneous response must be to immediately address liquidity concerns of cash-strapped individuals and companies (including MSMEs)—this is just to keep all concerned stakeholders afloat until the pandemic recedes and economic activity assumes some semblance of normalcy.
Here again, speed is essential and policy responses to alleviate liquidity concerns must happen quickly and immediately. Of course, while fiscal and economic aspects are important, as noted above, being bold and not bound by convention is crucial. People and their unique skill sets and companies have to be sustained. Otherwise, if they are lost, no amount of fiscal or monetary stimulus later is going to be of any help. While this survival fiscal stimulus during the time of suppressed demand may have negligible immediate effect on economic activity, make no mistake that it will cause a huge positive impact, once normalcy returns. So, while staggered packages are useful, getting the survival stimulus to people and firms (including the poor in the informal sector, MSMEs immediately is of paramount importance.
Accordingly, three things are required immediately in India {and there are many ways to generate funds for these activities without making any fiscal and/or other compromises. Ideas on these can be shared with appropriate people, if and when required}:
1. Wholesome economic support for the poor and vulnerable: This must be immediately delivered to ensure the survival of the poor and other vulnerable sections through a sustainable and practical package of economic lifeline support along with health and social protection measures. The first economic package of 0.7-0.8% of the GDP is hardly enough for a country of India’s size, especially given the huge and diverse vulnerable populations. These vulnerable poor need to get through the crisis for however long it lasts. And tangible direct cash transfer allocations would serve them better than any other instrument and it cannot just be token gestures of help. Any additional stimulus must equal at least 1.5% of the GDP to have meaningful impact.
2. Lifeline liquidity (credit and quasi-equity) support for MSMEs and other companies: Cash strapped (m) SMEs and companies in other sectors need immediate liquidity (credit and quasi-equity) life support {caused by increase in extant costs on various counts including physical social distancing and use of personal protective equipment (PPEs)} so that they come out of the crisis again as unscathed as possible. This would require a minimum of at least 2% of the GDP, with 1% exclusively earmarked for MSMEs. The credit support must reflect all interest rate cuts provided by India’s central bank, the Reserve Bank of India (RBI).
3. Substituting direct and indirect taxes with a variable banking transactions tax (BTT) and using other eclectic measures to mop up black money: The third major aspect concerns taxation and this calls for the replacing of all direct and indirect taxes with a variable banking transaction’s tax (BTT) which will have an average rate of 1% with differential rates for different categories of transactions and businesses, etc. The BTT is very viable, given the available data from the RBI payments system for 2018-19 and 2019-2020. The BTT reform will also have to be accompanied by additional reforms to mop up black money and this would include reduction of stamp duties and registration charges to 1% and increase of property/land guidelines values to correspond with property/land market values as well as other measures (using 80% carrots and 20% stick) to retrieve and bring into the banking realm, the existing black money within India as well as those stored in illegal accounts abroad. Of course, this can only be accomplished through an eclectic set of practical measures, which I will discuss in a separate article.
Together, the above should help India get over the huge consumption shock that awaits us and build up the necessary demand required to kick start the economy again. These measures should also help us take care of supply side issues as well. Together, these are expected to turbo-charge domestic consumption, enhance domestic savings, reduce interest rates for lending and make our exports competitive. These measures should also enhance the overall size of the economy, especially given that the parallel (black) economy and informal sector would have been fully absorbed into the mainstream. Furthermore, these reforms should generate greater funds for development including investment in infrastructure, health, and education and thus help transform India into a rapidly growing, vibrant and, yet, inclusive economy.
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Ramesh S Arunachalam is author of 12 critically acclaimed books. His latest release in January 2020 is titled, “Powering India to Double Digit Growth: Five Key Steps To A Robust Economy”. Apart from being an author, Ramesh provides strategic advice on a wide variety of financial sector/economic development issues. He has worked on over 311 assignments with multi-laterals, governments, private sector, banks, NBFCs, regulators, supervisors, MFIs and other stakeholders in 31 countries globally in five continents and 640 districts of India during the last 31 years.)
