A blueprint to finance higher public spendingThe government should confront difficult choices using the key principles of public finance

It becomes clearer by the day that the lockdown to contain the spread of the coronavirus disease (Covid-19) is creating enormous stress on every part of the economy, including public finances. The need for public expenditure to address the crisis has increased, but revenues are down. Given this, how should we finance the additional spending? Broadly, there are four options before the government: Cut other expenditure, increase revenues, increase borrowing, or print money to monetise debt. All these options are painful and are costly in their own way. But as the government confronts these difficult choices, it would do well to consider four key principles of public finance.

The first is that the costs of each of the options may increase non-linearly, and so the optimal approach may be a judicious combination of all four options. The second is to minimise frictions across tiers of national, state, and local governments and take a consolidated view on the best policy actions. The third is to ensure that short-term actions do not jeopardise longer-term fundamentals and also enable structural reforms that will put the country on a stronger economic trajectory. The fourth is to not let financing concerns impede essential investments to support public health and the economy.

Based on these principles, there are a few implementable ideas that the government can use to help fund its response. On expenditure, one simple idea is to change the structure of public employee pay so that all allowances other than basic pay are linked to government tax revenues. In good times, public employee pay will be higher, and in difficult times, the reduced payroll provides an automatic macro-fiscal stabiliser. It may also create an important symbolic link between public employee pay and state and national economic performance, which is missing right now. Over time, once the principle of variable pay for public employees is in place, it may be possible to link it to measures of department and individual performance which has been shown to meaningfully increase effort and productivity of public employees.

On revenues, there is substantial scope to increase property tax rates and collections by local bodies. The central government can incentivise these payments by making property taxes deductible from taxable income. This has several advantages. First, property taxes are less likely to dampen economic activity since they are based on immovable investments.

Second, urban areas contribute the most to GDP and tax revenue, but have been hit hardest by the pandemic and lockdown. This then becomes a form of central government support that disproportionately benefits urban areas. Third, it does not cost the central government much (since property tax collections are very low), but makes the extent of benefits to states and local governments conditional on implementing overdue property tax reforms.

Third, the government should issue debt with a commitment that these funds will be used primarily to invest in strengthening health systems. Increasing debt per se is not a problem if used to finance a public investment that has a positive net present social rate of return. The problem is that bond markets do not trust that governments will finance productive investments. Consequently, breaching deficit targets and borrowing more is often penalised with higher interest rates. Ring-fencing any additional Covid-19-related debt to focus primarily on health systems investment will reduce the likelihood of a bond market interest penalty. According to one estimate, each week of the full lockdown has cost nearly ~2 lakh crore. Thus, the public returns to health investments that enable even a partial release of the lockdown are likely to be very high.

Fourth, it is best to avoid discussion of monetising the debt. Even talk of debt monetisation will raise inflationary expectations, divert domestic savings to unproductive assets like gold, raise bond yields, and jeopardise India’s hard-won inflation credibility in recent years. At this point, we do not know if the crisis will be deflationary (through demand contraction) or inflationary (through supply chain disruptions). So it is best to wait. Importantly, this does not preclude the Reserve Bank of India from directly purchasing government debt. As long as there is a commitment from the government to paying it back (and markets believe that the debt can be paid back), this approach allows fiscal stimulus without jeopardising inflation credibility. If inflation stays very low, then a modest amount of monetisation of debt may make sense over time.

Finally, it is critical to recognise that states are at the frontline of the battle against the virus, both for securing public health and for protecting the vulnerable. But they do not have the policy instruments needed to respond fully. Consistent with first principles of public finance, the central government should lead on financing this war, and state governments should lead on-field implementation (including designing locally appropriate mitigation measures).

Further, it is essential for the central government to communicate not just policies, but also the principles and broader thinking behind the pandemic response. Citizens, state governments, and market actors make decisions based on expectations. And in these uncertain times, greater clarity on policy will be critical to minimising the economic and health costs of this crisis.

Covid-19: Portraying India unfairlyDespite the doomsday scenarios painted by critics, India has been a stunning, positive outlier

It would not have come as a surprise to most people when a recent national survey showed a staggering 93% of Indians expressing confidence in Prime Minister Narendra Modi’s leadership in tackling the coronavirus pandemic. In fact, other surveys had shown the public’s confidence has steadily grown, from 77% at the beginning of the national lockdown over a month ago to 83% at the end of April.

This was evident to anyone with an ear to the ground, such as the millions of volunteers who have been reaching out to assist those in need, or those who are in touch with many of them to coordinate aid. That confidence was also echoed by the vast majority of domestic and international public health experts monitoring India. Their sentiments were backed by solid evidence of the nation having done remarkably well in managing the pandemic.

Nevertheless, for a group of the usual suspects among international media, and some of their fellow travellers in India, all this might have been happening in a different galaxy. So deeply do they seem vested in purveying bad news about India that they appeared oblivious to the overwhelming evidence that India was a stunningly positive outlier.

In the early stages, this school of reportage and commentary predicted catastrophe for India. They kept emphasising that since first world nations with superior health care systems were in big trouble, India was doomed. Some headlines include: “Callousness of India’s Covid response”; “A vulnerable population braces for a pandemic”; “The consequences (in India) will be especially grim”; and even “Mr Modi is in big trouble.”

Next, as days went by, they cast doubts on the relatively few infections by hyping the “low level of testing”. Never mind that their cynicism — which should have been corroborated by a severe shortage of hospital beds and ventilators, and a sharp rise in respiratory-related deaths — was contradicted by reality. As testing was ramped up dramatically to the hundreds of thousands, and it became clear that far fewer Indians were turning up positive than in Europe and the United States (US), that bogey has mostly been quietly tucked away.

Thereafter, their acknowledgement that India was doing relatively well has been fleeting, and the tone grudging. Some sounded wistful, almost as if hoping that the good news about India were untrue, or if it were, that it would soon be overcome by negative developments. To be sure, the road ahead for India’s fight against the virus will be long and arduous. But while it is not the global media’s job to exude undue optimism about India, neither should it be to downplay achievements and ooze negativism.

Finally, when the doom and gloom failed to materialise, these purveyors of a rigidly-blinkered narrative on India turned to their favourite charge: Islamophobia. They pounced on the developments surrounding the Tablighi Jamaat, and the public’s disapproval of its members’ behaviour, to accuse the Modi government and most Indian media of polarising the situation.

Of course, the reports that made this claim invariably omitted mentioning that the government’s rules — such as the closure of places of worship — were equally applicable to all religions. Or that the PM’s repeated appeals to unite people, including asserting that this virus “does not see race, religion, caste...we are in this together” was exactly the opposite of their allegation. And ironically, even those in the Indian media who went out of their way to be politically correct, more often preferring to use the euphemism “single source” rather than name the Tablighi Jamaat, were nevertheless accused just the same.

Such jaundiced views about India have gradually become commonplace among far-Left, modern liberals within and outside the country. Another aspect that stands out among this group is an excessive empathy for China that defies reason and that has eroded their credibility.

That was visible in the hotly-contested debate about the name of this virus. Although originally termed the “Wuhan virus” and later whitewashed into “SARS-CoV-2,” the moment US President Donald Trump called it a “Chinese virus,” all hell broke loose. Calling it that has, somewhat oddly, been termed racist by these commentators. More to the point, as the American talk show host and classical liberal — and no fan of Trump — Bill Maher pointed out, all past epidemics have been named after the place of their origin. These include German measles, Japanese encephalitis, Spanish flu, Middle Eastern Respiratory Syndrome and others.

The reason this should be of interest in India is that none of this cohort objected a few years ago when an antibiotic-resistant bacterial strain was named the “New Delhi metallo beta-lactamase 1 (NDM-1)”, because it was possibly first acquired here. This sort of hypocrisy only reinforces the perception of an entrenched bias against India among these circles.

As India grapples with the next phase of this pandemic, both in containing it as well as reviving the economy, it will also have to contend with more such determinedly pessimistic portrayals. It would be more appropriate for us to strive for a more balanced global narrative on India.

An agenda for economic reform

Please read it carefully

Over the past week, Prime Minister (PM) Narendra Modi has held a series of meetings reviewing the state of various economic sectors, the ways in which the current slump can be reversed, and most significantly, the fundamental reforms that can be undertaken in these respective sectors to overcome structural issues. This is important, for once the coronavirus pandemic subsides, there will have to be a singular focus on the economy.

There is no doubt that the pandemic will force the economy to press the reset button. India will, in the worst case, witness a recession this year, or in the best case, grow by 1-2%, a projection offered by the chief economic adviser. These figures translate into businesses shutting down; a sharp dip in the profitability of companies which do manage to survive; shrinking incomes for citizens; the collapse of a high number of micro, small and medium enterprises; a spike in unemployment across sectors; a hit to trading arrangements; depleted taxes for the government at a time when expenditure commitments will increase; and an inability to pursue much-needed development goals. The ambition of becoming a $5 trillion economy will recede further.

This newspaper has consistently argued that to overcome the distress, the government must come up with a substantial fiscal stimulus package immediately. There is no alternative to enhanced public spending. This has already been delayed inexplicably. But beyond the size and the composition of the stimulus, the PM’s meetings offer hope that this moment can be used as an opportunity to undertake structural reforms. Two areas, in particular, stand out. The first is manufacturing. As countries turn inwards, and many global production hubs seek to relocate from China, India must cut red tape, reform its fundamental factors of production, and encourage businesses which can provide mass employment. To be sure, new ways of doing businesses — including mass manufacturing — will have to be found in keeping with social distancing norms. The second is agriculture. The PM indicated in a meeting on Saturday the need for integrated markets and a new legislative framework for the sector. Fragmented agricultural markets and the Agricultural Produce Market Committee’s framework have long been held farmers hostage, given inordinate power to intermediaries, and undermined India’s potential. If, after the stimulus, the government can use the pandemic to herald long-awaited reforms, it will be the best use of this crisis

IT IS TIME TO RETHINK THE WAY HUMANS TREAT ANIMALS

In 2005, a non-profit in the United States (US) called United Poultry Concerns celebrates International Respect for Chickens Day. It spreads the message that we need to rethink how we treat all food animals, especially chickens, since poultry is the most consumed meat in the world.

The rest of the world needs to join them in celebrating May 4 as International Chicken Day.

Astonishingly, 60 billion chickens are reared for meat globally each year. India produces about three billion, in an industry valued at close to $20 billion. The broiler and layer industry that perfected itself in the US has spread globally, and so have all its practices, both good and bad. In India, it has created economies of scale, given livelihoods to thousands of farmers, and become an important source of protein.

But animal rights activists have long tried to sensitise people that chickens are arguably the most abused animals on the planet. Broilers and layers undergo a lot of suffering so that humans can get low-cost protein. They also save other forms of wildlife from being trapped and slaughtered for food.

From the moment they are born, these birds spend all their lives in total confinement. Broiler chickens are born in large incubators with hundreds of others; crammed into small, often filthy spaces. They are fed and drugged to become very large very quickly. They can become crippled under their own weight; they can get heart attacks and have organ failure. Many die because their baby-sized hearts cannot keep up with their adult-sized bodies. Sometimes, they, especially the layer hens, can’t even move; sometimes, their bodies grow outside and around their tightly packed wire cages.

Broiler babies are slaughtered at around 42 days, though their natural lifespan can be 10-15 years. When they are ready to be killed, there is more agony waiting for them. They are roughly handled in small crates on the way to the slaughterhouse. Sometimes, they are immersed alive in hot water to remove their feathers. Sometimes, when there is no market for them, as during this pandemic, they are just buried alive in mass trenches.

Yet, there is enough evidence to show that chickens are inquisitive, intelligent and highly social animals. Mother hens spend a lot of time teaching young ones and vocalising to them. Some studies have shown they could feel empathy and also jealousy. In experiments, they have shown they can count, and can even recognise human faces. Certainly, they feel fear and pain.

Maybe it is time to rethink how chickens are bred, treated and eaten, too. There is a whole new generation of people who care about where their food comes from, and how it is grown. More people are turning vegetarian. There is also an increasing demand world over, and now in India, for humane meat, for free-range chickens and organic eggs.

The recent pandemic has reminded us once again, this time with deadly urgency, about the threat of zoonotic disease that spread from the animal world to the human. People deserve to know more about the connection between the industrial processes at poultry farms and the spread of diseases.

We now know exactly how much our well-being is intertwined with that of animals and birds. Maybe it is time to honour the sacrifice that they, and chickens especially, make for us all, including vegetarians. Let’s mark May 4 on our calendars, not just for the partial end of the lockdown, but for the end of misery for the animals we depend on for food.

VALUING NURSING CAN TRANSFORM HEALTH CARE

In the critically-acclaimed comedy, Meet the Parents, the hero essayed by Ben Stiller is an object of ridicule in the eyes of his prospective father-in-law played by a taciturn Robert de Niro on account of Stiller being a male nurse. The word nurse is spoken of with disbelief and contempt, as it is not seen as a job for men. This attitude is evident in India where the ratio of male to female nurses is 20:80.

At a time when health workers are being lauded, we need to look at why it is seen as such an unattractive profession. The reason men stay away from nursing, apart from the social opprobrium, is that it is so poorly paid. Salaries for nurses range from ~13,000 to ~35,000. The private sector is niggardly about revising salaries for nurses, the average yearly increase is around 2%.

That nursing does not attract enough people is seen from the poor ratio of 1.7 nurses and auxiliary medical staff to 1,000 people in India, 43% less than prescribed by the World Health Organization (WHO). This includes nurses, midwives, health visitors and auxiliary nurse midwives. Ironically, WHO has declared 2020 as dedicated to the nurse and midwife. The nurse-patient ratio in India is 1:20 against the international norm of 1:4.

A lesson to learn from the coronavirus disease (Covid-19) crisis is that the working conditions and remuneration for nurses should be drastically revised. They work long hours and get little by way of perks and pay.

Some time ago, while in hospital after a surgery, I got talking one night to one of the many nurses in the private hospital I was in. She was from the north of Kerala — of the 2 million registered nurses in India, according to the Indian Nursing Council, 1.8 million are from Kerala. She told me she felt a sense of safety that night as she was in a room with a woman. She told me of how nurses are harassed by male patients and even their attendants when they do their nightly rounds. Most of all, she spoke of the culture of silence in which the authorities did not want to offend patients for fear of loss of profits. The nurses live on small salaries, in largely vegetarian hostels provided by the hospital, and their only form of relaxation was to visit a relative and, hopefully, she told me, eat non-vegetarian food.

During the Covid-19 crisis, there were reports of how they were given lesser accommodation in far-off places as part of their self-isolation and made to take crowded transport to their places of work, defeating the very concept of isolation. Many nurses work in these trying circumstances to gain enough experience to get an infinitely better paying job abroad. As European societies age, more opportunities have opened up for health caregivers from India, something Kerala has had the foresight to anticipate. The state has opened several nursing courses dedicated entirely to geriatric care.

With substantial unemployment, this should be a career option for more men and women. But it isn’t. Men don’t consider it a job which can bring in enough money and it is also seen as a demeaning job not suited to men.

The virus has highlighted the short-sightedness of these issues. The presence of male nurses in hospitals will make the environment safer for women, and may even improve salary structures. The trying circumstances under which nurses work was brought home when the final words of a nurse who died from the nipah virus in Kerala were made public. She looked after patients and in the process became infected. “I don’t think I can meet you again, sorry”, she said from isolation to her husband and child. Today, nurses on the frontline of the fight against Covid-19 have tested positive. Hopefully, all of them will recover. But this is the right time to look at the profession with a view to making it more attractive, safe, respected and gender-neutral.

THE OTHER VIRUS THAT HAS INFECTED INDIA

Om namo shivai.

They say a crisis can bring out the best in us. Alas, it can also do the opposite. I can think of a couple of areas where, sadly, that’s proven true. So this Sunday — as we await tomorrow’s partial relaxation of the lockdown even as it extends further — is perhaps an opportunity to reflect on the darker side of ourselves. If things get better — and I hope they will — we’ll soon forget how horrid we can be. But, today, that’s precisely what I want to write about. I know many of you will disagree and quite a few could be offended. So be it. That’s a risk I’m willing to take. I hope you will continue reading, but if you don’t I accept it’s your right not to.

I’m deeply dismayed, actually disturbed and demoralised, by the shameless exhibition of anti-Muslim sentiment we’ve seen. I had not realised this prejudice lay just skin-deep in so many of us, and how easily it can surface. But when it exploded, there was no hiding or disguising it. We targeted and demonised Muslim vegetable vendors and milk sellers, vented our rage on Muslim patients in hospitals in Meerut and Ahmedabad, and even ranted at the majority population in the Gulf, forgetting we are guests in their countries. In normal times, people hide their dislikes. They’re even embarrassed to admit them. But over the last 40 days, we brazenly displayed ours. Consequently, we made tens of millions of our fellow citizens feel hated and unwanted, just because they are Muslim.

I don’t want to name names or point fingers because we all know who are among the guilty. It includes many who are powerful, several who are rich, a large number whose values or intelligence I once admired and, yes, a few who are dear to me. This hateful prejudice has cut across class, caste, creed, region and language. It’s a bit like the virus in that respect. It infected many of us and we did not resist. While we fought the coronavirus disease valiantly, we allowed vile prejudice to vanquish us.

I blame the media for fanning this fire and I accuse the government of letting the flames burn. For the last 40 days, we were scared, and fear can make people behave erratically, even irresponsibly. That’s why the media has a duty to be wise and balanced. It wasn’t. Instead, it scratched our scars and made stories of the bleeding. A few of our television anchors even made us feel our prejudice was justified. As far as I’m concerned, they can never redeem themselves.

However, it’s the government I feel most let down by. In a crisis, you look to it for leadership. That’s why in wars or pandemics, we automatically rally around the flag. In return, we expect guidance. That’s not only what to do but, equally important, what must never be done. This is where our government failed us. It merely hinted. It did not advise and it certainly did not admonish. It let us behave abominably and gave me, at least, the impression it had no problem with that.

The other example of our wretchedness is the way we’ve treated doctors, nurses, and health workers. Frankly, this is inexplicable. They are the only people who can keep us safe and well, and yet, we turned on them like ungrateful curs because we feared they might infect us. Honestly, I don’t know of any other country where the hand that keeps us alive has been bitten by the very people who might need it the most.

At least in this instance, our government did act, forcefully and with alacrity. But that only raises the disturbing question: Why did it choose not to similarly confront the anti-Muslim sentiment raging in our midst for weeks. Weeks, did I say? Months. You and I know that’s the truth. And it only makes the question more pressing. It also makes the answer more necessary.

WHAT THE PANDEMIC TELLS US ABOUT THE STATE

Chanakya

Rarely has the Indian State been put to test as it is being now. The scale of the coronavirus pandemic and the ensuing 54-day lockdown — albeit with relaxations that were announced on Friday for the period after May 3 — has been a test for the resilience, integrity, efficiency, decision-making processes and capabilities of the Indian State.

After 40 days of the lockdown, and over 35,000 cases of the coronavirus disease (Covid-19), how has the State fared? Here are the strengths.

One, the Indian State’s coercive arms are extraordinarily strong and efficient. Locking down an entire nation — of India’s population, size, complexity, diversity — was no easy task. But the fact that all the security arms of the State came together, from the Centre to the states, and enforced this lockdown is a testament to the fact that when the State wishes to implement something, on a large scale, curtailing the liberty of citizens for any purpose (in this case for the noble objective of preserving public health), it can do so.

In many cases, the enforcement has been overzealous, leading to the harassment of citizens who work in essential services. In other cases, there have been instances where the enforcement could have been more humane, taking into account the needs of more vulnerable segments. But the big picture that has emerged from the lockdown is this. If there is a clear directive from the Centre, and if the states are on board with it, then the police force can deliver.

This brings us to the second interrelated strength. The lockdown could not have been as successful without the cooperation and support of citizens. People themselves were apprehensive of Covid-19 and feared its spread. And, therefore, they complied with the directive — even when it so severely hurt their livelihoods. But this became possible because of the ability of the State to communicate its message well. In this case, credit has to be given to Prime Minister (PM) Narendra Modi, a communicator par excellence.

The PM has spoken to the people regularly on the pandemic — he addressed the nation four times, and devoted two of his monthly radio addresses to the issue. He did not underplay the scale of the challenge; he told citizens that dealing with this was a difficult challenge for India, with its resources; he used everyday phrases which are easily understandable — such as do gaz ki doori (keeping a distance of two yards), jaan hai to jahaan hai (if there is life, there is a world) — to both convey the precautions that needed to be taken and the importance of saving lives. All of this ensured that the danger posed by the pandemic, and the steps which could minimise its spread, percolated down to the ground, in the remotest of corners.

The third strength of the State was in its decisiveness. Decision-making is difficult in a democracy, which has to contend with multiple interests and voices. Power is often fragmented. But the government remained alert. Despite its weaknesses (low testing in the initial stages, denial of community transmission, the slow pace at which it provided personal protective equipment for health workers), the State acted decisively, took a route that it knew would have high economic costs, and stayed the course — largely allowing scientific inputs and data to drive decision-making.

And the final strength of the State was reflected in the functioning of its federal structure. It is difficult to imagine a scenario in which India managed this crisis as a unitary, centralised polity. The fact that there are state governments in place — many of them led by able chief ministers — who have their ear to the ground, who can deploy local administrative machinery quickly, and who can cater to hyper localised requirements has been a big asset in this battle.

But if coercion, communication, decisiveness, and federalism have helped, this crisis has also exposed weaknesses of the Indian State.

The first is the major gap between policy and implementation. The fact that the ministry of home affairs had to send repeated reminders to the state governments and Union territories to allow trucks is just one example of how the lower levels of the bureaucracy have just not been trained enough in the art of nuanced policy implementation. The fact that at many places, local police force used excessive force to crack down on the movement of people is yet another example of its tendency to go overboard. It can use a sledgehammer and enforce blanket orders. But it struggles when it has to make careful distinctions.

This challenge will become particularly acute in the next two weeks — in the backdrop of the Centre’s complex, graded plan for the end of the lockdown. For the local district authorities, and more crucially, the local policeman manning the crossings, to distinguish between what is allowed and what is prohibited and enable activity accordingly will be a major challenge.

The second, more crucial, gap is in the way the Indian State deals with its poorest citizens. Yes, there is now a semblance of a welfare architecture in place. And schemes such as the Jan Dhan Yojana, Aadhaar, and Direct Benefits Transfer helped in the more efficient delivery of financial benefits in these times. But the plight of the migrant workers — and the government’s inexplicable delay in addressing their concerns and finally allowing their movement — will rank as a dark chapter in the history of the Indian State. The lockdown will have huge economic costs for all segments, but particularly for the poor — who will suffer a loss of livelihoods.

The third related gap in the Indian State’s record is economic management. Growth had slowed down even before the pandemic. But the lockdown has dealt a blow to all economic sectors; crippled supply chains; curtailed demand; sharpened unemployment; made businesses unviable; brought the entire micro, small and medium enterprises sector to a grinding halt; and made leading businesses — which are at the centre of innovation, contribute to the tax kitty and employ thousands of workers — rethink their entire operational plans. It was the government’s job to anticipate this — and provide measures to help. The fact that there has not yet been any fiscal stimulus package speaks poorly of the Indian State and makes it comes across as both insensitive and irresponsible.