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Coronavirus: Kaushik Basu says India needs to get private sector active, fine-tune lockdown

Updated : April 14, 2020 08:15 AM IST

The coronavirus pandemic and the subsequent restrictive measures imposed across nations have had a massive impact on economic activity wordlwide. The International Monetary Fund (IMF) anticipates the outbreak to unleash the worst economic slump since the Great Depression of the 1930s.

Further, the IMF has warned that over 170 nations may report a negative per capita income growth in 2020. This even as it concedes that there is still an "extraordinary uncertainty" surrounding the duration of the crisis.

Meanwhile, India has already announced a slew of measures to help cushion the economic blow from the pandemic. The Narendra Modi government among other measures has unveiled a Rs 1.7 lakh crore relief package in order to provide safety net for the poor. The Reserve Bank of India (RBI) has also announced a slew of measures to inject liquidity worth Rs 3.74 lakh crore into the banking system.

The 21-day national lockdown aimed at containing the spread of COVID-19 comes to an end on April 14. Prime Minister Modi is scheduled to address the nation at 10 m on Tuesday. There is a consensus among states that the lockdown period will be extended until April-end. It is, however, expected that the Union government may relax some of the restrictions imposed in order to ensure that the engines of the economy starts turning.

In an interview with CNBC-TV18, Kaushik Basu, the former chief economist of the World Bank discussed the measures the government can take to ensure the economy starts to move again and whether India can print its way out of the current crisis.

Basu said that it is critical that countries get together. “We have tried to appeal to the G20 leaders to pull countries together and work together because each country looking after its own interest is what is happening now. This is a global pandemic; even if you handle your country’s problem, but if it remains festering somewhere else, it will come back to your country. So it is critical that countries get together and you get leadership from the advanced economies. There is not enough of that happening,” he said.

On the action taken by central banks across the world, he said: “I am glad that the central banks are acting and they are actually working with the finance ministries and treasuries to help inject liquidity. But the reason why the Reserve Bank [of India] and central banks acting is important but not enough is that in a crisis of this kind, a pandemic induced recession, it is not an overall shortage in demand; it is very sector wise disparity.

“There are some sectors in which there is acute shortage – medicine, hospitals, doctors and nurses have great shortage. But there are other sectors with a huge amount of glut – hotels, airlines, railways not being used enough. So, just boosting liquidity is not enough, it needs sector specific action,” he added.

Basu, who is a former chief economic adviser to the government of India and is currently a professor at the Cornell University, said that India has to begin to think about balancing the lockdown.

“India has benefited from the initial lockdown. Our numbers, especially if you look at the fatality numbers, are really still quite small and a part of this is coming because of the action. But we have to allow more space for business because if the lockdown brings a complete jam, then portfolio capital is going to flee from the country and that is already starting up."

Basu added that exports will be severely hit if lockdown strategy is not fine tuned. “I worry that supply chains will get broken. Beyond a point government alone cannot provide that. You will need to get the private sector working and be active. I am a bit worried that unless we do fine-tune the lockdown, and if India is in a greater lockdown than other countries, then we are going to lose business, exports, and do a lot of long-term damage," he said.

"We have to pay a lot of attention to that."

Published : April 13, 2020 09:27 PM IST

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