COVID-19 lockdown will damage more than demonetisation: Pronab Sen

DTE talks to Pronab Sen, head of the Centre's Standing Committee on Economic Statistics, to make sense of the lockdown  

By Kundan Pandey
Published: Wednesday 01 April 2020

India is amid an unprecedented crisis — first there was an outbreak of the novel coronavirus disease (COVID-19) and then, a week ago, Prime Minister Narendra Modi declared a 21-day lockdown.

Ever since, it has been tough to make sense of what’s happening around us. Thousands of migrant workers have hit the streets in several parts of the country, trying to return to their native places.

Even the Union government told the Supreme Court that this could beat the purpose of the lockdown. The workers say they are helpless. There have been reports of people not being able to access food and other essentials even as the count of patients positive to the virus (SARS-CoV-2) keeps increasing every day.

So, what went wrong? Down To Earth spoke to Pronab Sen, India’s former chief statistician who now heads the Standing Committee on Economic Statistics — a panel mandated to review the framework for economic indicators of industry, services and labour. Sen, who earlier told us about the lingering impact of demoentisation on the Indian economy, here talks about how the lockdown can affect the Indian economy. Edited excerpts:

Kundan Pandey: What will be the impact of the lockdown on the rural economy?

Pronab Sen: We are right in the middle of the rabi harvest — it is over in some parts of the country while in others it is on. That’s one of my worries.

At the centre of all of these are the mandis (wholesale markets). What will the government do about them?

If you leave mandis open, the government has to be careful with a number of things. You have buyers and sellers, farmers and traders, all coming in. To what extent can you maintain normalcy there, I don’t know.

If you shut them down, the system will be disrupted; the impact on agriculture will be massive.

KP: How will the lockdown impact the overall economy, let us say compared with demonetisation?

PS: The effect will be striking different.

At that time, (economic) activities were on. The issue was access to money:

A lot of people continued to work and produce, but did not get paid as employers did not have cash. But they could negotiate that once cash was available, they will be paid. Workers could also negotiate informal credit with shops. When cash started coming in, payments were made.

It’s different now: Production activities have stopped — it means zero income. In a way, this is more damaging. Unless they have some reserves, how will workers cope? People will use whatever savings they have due to the crisis, but what if the lockdown continues?

KP: India still faces the consequences of demonetisation. If the lockdown is more damaging, what do we expect?

PS: It may be similar. Demonetisation’s effects lasted long as we did not do what should have been done, right from day one: Repaying bank loans should have been postponed until remonetisation was complete; continued credit unless people have cash to repay, etc.

Completing remonetisation took almost a year. In between, small and medium enterprises (SME) were labelled non-performing (NPA); several shut down. We still see the effect.

The lower-middle class — small shop keepers, traders, etc — were wiped out. This is impacting the economy even now.

KP: Would India have better absorbed the current shock without the impacts of demonetisation?

PS: The economy was, sort of, normalising — essentially on the strength of the Mudra loans.  SMEs who did not pay the loan were termed NPAs. They took those loans and started something — not at the same scale, but they were active. Now, even that is shut.

Many people now advocate against terming them NPAs. In fact, banks should be ordered to stop loan repayments. The government has the experience of demonetisation to learn from.

KP: Migrant workers face a serious crisis. What do you think?

PS: It’s a challenge. So far, the COVID-19 outbreak was in cities. If you let people go to villages, it would be calamitous. There are no health facilities in rural India; people will die in larger numbers.

The first thing the government is supposed to do is what was done in Wuhan (the original epicentre in China) — a total lockdown of cities, so that the virus is contained geographically.

Then comes the challenge of providing relief to people stuck in cities. If they disperse, it may ease your burden because you need not to take care of these migrants who have come to earn their livelihood in cities. But think of the virus being carried to rural areas.

Unfortunately, it has happened and people who can afford to leave for their villages have left.

What about those who can’t leave for villages and are stranded in the city. They are locked and unable to earn their livelihood. Probably, they do not have sufficient food. Several don’t have the facilities to cook and rely on small dhabas, food carts, etc — which the government has stopped. How will the government help them?

One way is to give them cash and tell them get your grocery. The question is how will the government give them cash? Sending money to their accounts is not very helpful. Some of them don’t have Jandhan accounts, some have left their debit cards and passbooks behind with families in villages.

It is not clear how the government will help such people. No one from the government has spoken on this.

Even if they have money, how does the government plan to make grocery available in shops? People forget that the total distribution chain from mandis to the local grocers and green grocers is labour intensive.

If people are not allowed to go to work, especially casual labourers, the system stops working. If grocers don’t get essential items, how will government ensure their availability to people?

The government just told people to lockdown and promised to ensure food and other essentials. But there was no discussion on how it would be ensured.

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