The question that remains is this: What do we do now that COVID has amplified all our economic challenges? Should we try and turn the clock back on the changes wrought by technology and globalization, or should we try and more forward? What is Narendra Modi’s Aatmanirbhar Bharat and will it be a part of the solution or exacerbate our challenges by forcing us to think import substitution rather than global competitiveness? In the short term, the Chinese military threat to our borders implies that we cannot continue gifting that country a massive average annual trade surplus of over $50 billion. Some forced shift away from China dependence is inevitable; this implies that we have to be more open to trade and investments from other countries as long as China remains a threat. But the only longterm answer is more openness to global trade, not more import restrictions, and dramatically reducing the costs of doing business in India, whether it is logistics or power or speedy enforcement of contracts. The only areas in which global competitiveness does not matter much are defence and space, where we anyway face export restrictions from other countries in procuring the right hardware and technology for our needs. Making ourselves competitive in the remaining industries and services means getting states and local bodies to start becoming less extractive by reducing regulatory friction.
Faster labour and land reforms will also help, as will the opening up of the national and international markets for farm produce, but these reforms—which come too little, too late—will not now deliver as much bang for the buck as they would have if implemented 20 years ago, when global trade was more open. Also, businesses that would once have used more labour or land to grow output have now found cheap capital to keep labour and land requirements lower. The lesson is simple: When reforms are not done at the right time, they will not be as effective; just food delivered long after the pangs of hunger have passed. This does not mean factor market reforms are not needed now, just that they are worth doing anyway despite the possibility of lower paybacks. The way forward though is to leverage the new technologies coming our way to enhance job creation rather than raising productivity by substituting labour with capital. The areas where technology will create jobs are logistics, warehousing, retailing, app-based services, finance and banking, health and education, to name just a few sectors. We can now, using technology and databases, make up for a 70-year deficit in healthcare spending by investing in telemedicine, teleconsulting, and algorithm-based diagnosis of symptoms and cures. We cannot quickly increase the number of doctors, but the supply of healthcare support services outside cities—from part-time nurses to radiologists to blood sample collectors to data analysts—should expand dramatically with the help of technology. We cannot easily improve the quality of our primary, secondary and undergraduate education, but we can get learning institutions to rethink their mix of offline and online learning modules, especially if skill sets are to be expanded dramatically across the board.
We also need to replace or augment the existing annuity-based education business models (regular fee collections over long course schedules), used by schools and universities, with hybrid and short-term learning courses for the entire population, which will need constant skilling and reskilling as jobs appear and disappear quickly in a hyper-competitive world. Income streams, especially at the post-graduate level, will become lumpy as the main earnings of teaching institutions will come not from regular students attending three-, four- or five-year courses, but from short-term ones needed by all classes of employees who need upskilling. Institutions need to leverage their infrastructure better by using them to conduct more types of courses and creating new revenue streams. We also need financial products for the gig-work age. If you are a gig worker, buying a house cannot be financed by monthly EMIs since your incomes may be irregular; nor can your provident fund contributions be regular. Both schemes need to be made flexible, customizable and portable for individual or group needs. The days of financial products being standardized into one-cap-fits-all schemes are gone. We have to fit the scheme to the individual.
The other changes we can expect are in how individuals and corporations deal with debt; the emphasis will shift from debt to equity, and from borrowings to savings, with positive mediumterm implications for our investment rates and negative ones for consumption growth in the short term. The way forward has been shown by Reliance Industries, which eliminated debt in just a matter of months by successfully attracting massive foreign equity in its Jio Platforms. It may do so again with Reliance Retail and Reliance O2C, the oil-to-petrochemicals business. Not all of Reliance’s tactics are replicable, but promoters need to learn to dilute holdings in order to pump up equity and cut debts.
Many economists are suggesting large infusions of fiscal stimuli in order to boost consumption demand, but while this may be a short-term palliative, our real solutions do not lie in macroeconomic remedies, but microeconomic ones. The supply and demand shocks aggravated by the COVID crisis and faster digitization are not uniform in terms of impact across sectors. High-touch services sectors have been more impacted by the COVID-induced lockdowns and social distancing norms. This implies that demand for office spaces may be impacted, and also private and public transport. If people are less willing to borrow to buy a house, demand for rental spaces may rise. Tourism and hospitality will take a long time to recover, even as demand for digital services expand. A macro stimulus that is sector-neutral is not going to work beyond a point. Also, the need to boost jobs rather than just growth implies that sectors with high employment elasticities must be helped more than capital-intensive sectors. The biggest changes we need are in government and bureaucracy, where things move too slowly, and fast learning is practically impossible. Our courts and legal systems are simply too dilatory to adapt to the modern-day need for speed and agility. Major reforms are needed in the police and legal systems, and not just at the level of the higher judiciary. Delivery of justice and quick enforcement of contracts will remain an impossible dream in the current structure.—
Extracted from Beyond COVID's Shadow: Mapping India's Economic Resurgence, edited by Sanjaya Baru, with permission from Rupa Publications India. Price Rs 595/-