India’s ‘new deal’ moment
The Covid crisis provides an opportunity to craft a historic renewal programme
Never let a good crisis go to waste,” attributed to Winston Churchill, is now an oftrepeated cliché in many economic commentaries on the present Covid-afflicted situation. But it does come embedded with an important message — that such epochally challenging situations should ideally stir policy-makers to move out of the cocoons of conventional wisdom and craft “out-of-the box” solutions, as relevant to the times.
The trillion rupee question now is the total amount of the “stimulus package” that is truly required to prevent the Indian economy from stumbling into a Black Hole.
All the various strands of recommendations being made to the government is described in the table “Broad constituents of a stimulus package (in ~trillion)”.
This ~30 trillion tantamounts to 14 per cent of GDP. This is, broadly, the size and scale of the intervention required – clearly indicating that mere tinkering with conventional national book-keeping is out of the question.
The resourcing for this ~30 trillion could possibly be organised in the combination below:
Four per cent by increasing the fiscal deficit of the Union Budget/consolidated Fund of India
Five per cent through creation of a National Renewal Fund Stage I (now till October 2020)
Five per cent through an expanded National Renewal Fund Stage II (November 2020-March 2021)
As argued in this columnist’s Business Standard article of April 16, the National Renewal Fund (NRF) should be a historic initiative (akin to Roosevelt’s “New Deal” in early 1930s or the Marshall Plan for the reconstruction of Europe after World War II).
The NRF could be a 50-year fund with a moratorium on repayments for the first 10 years. Thereafter, the fund can be gradually wound down by a 1-2 per cent cess on all direct or indirect taxes or other creative means. (Informal discussions with credit rating agencies indicate that they may even welcome such a thoughtthrough scheme as a credible initiative to get the economy to bounce back.)
The NRF may be funded 60 per cent by government borrowing in the domestic market, and by raising the balance 40 per cent internationally through friendly development financing institutions — like the Japanese funding ~1 trillion for 60 years for the bullet train at 0.5 per cent interest.
As the April 16 article pointed out, this is no time for half, or less-than-half measures. The Great Depression of the 1930s lead to Franklin D Roosevelt’s New Deal — a massive programme of public works and financial reform —whose effects were felt for decades across the American economy. So, the broad thrust must necessarily encompass a very impactful public works programme — preferably those projects that can create massive employment across hinterland India a.k.a Bharat.
But what kind of public works are we talking about?
The need for projects with huge employment potential, permanent asset creation and multiplier effects.
The need to revamp health infrastructure: If Covid has done anything, it has been to highlight the fact that the state of health infrastructure in a country can mean the difference between life and death (quite literally).
The opportunity to gain from the shift in global supply chains: In a post — Covid world, companies the world over are looking to derisk by moving a part of their manufacturing and value chains to other countries and out of China. This is a clear opportunity to attract some of that shift in investment.
Here are five public works programmes that match these criteria:
Coastal economic zones (CEZS): The Sagarmala project identified a set of 14 such zones, to create a highly integrated logistics-cum-manufacturing hub closely linked to international shipping . Such projects fit well with the aim of the government to attract global capital, and the need for investors to look for alternate investment avenues outside China. They should be a superior version of Special Economic Zones, and eliminate most of the negatives associated with doing business in India.
River linking projects: The idea of linking water surplus rivers with water scarce parts of western and peninsular India is an idea which has been around for decades. There have been strong arguments made on ecological and environmental grounds against such a giant project, but it is clear that massive investments in water infrastructure are needed to serve the substantial increases in demand that we will see over the next few decades from increased urbanisation and growth. The iconic New Deal project was the Tennessee Valley Authority — the river linking project, or some components of it, could well be India’s version of it.
New state capitals: The Covid crisis has
disproportionately affected large metro cities. Thus decongestion of large urban agglomerations, and a more even “spreading out” of urban growth outside large cities is good, not just from a health perspective, but also from the point of view of reducing economic inequality between regions. New state capitals in a range of states — from Maharashtra, to Uttar Pradesh, to Bihar and Karnataka — will serve both these aims. Nal se jal: The government’s proposal to provide piped water to all households by 2024 is another project, which, if implemented successfully, will have an impact that will be measured i n decades, not years.
New AIIMS: The original AIIMS (The All India Institute of Medical Sciences), built during the Nehruvian era, remains at the pinnacle of Indian health care today, and for good reason. It is time to expand the vision that drove the original project beyond Delhi, and put the government’s proposal, to build 22 new AIIMS across the country, on over drive. Again, this is a project which is ideal for the post- Covid world with its possibility of decentralising quality health care at a low price.
This is clearly I ndia’s New Deal moment i n history. And a National Renewal Fund positioned alongside the Union Budget seems an appropriate response.