May 10, 2020

The Economic Steps Needed in the Current Period

The nationwide lockdown has been extended by another two weeks. The problems that emerged since the beginning of the lockdown and the difficulties being faced by crores of Indian people particularly the migrant workers, the daily labourers and the poor who are unable to survive will continue to deepen.

In this context, the Communist Party of India (Marxist) on May 2, has put forward in public domain the economic steps that are needed to be taken by the government in the current period. These must be urgently attended to.

This economic roadmap needs to be initiated immediately by the central government.

The CPI(M) has sent this roadmap to the president of India and the prime minister.

THE Indian economy was already in the grip of a severe slowdown, bordering on recession, with largescale fall in production, job loss, agrarian distress and a steep rise in unemployment on the eve of the outbreak of the Covid pandemic. With this lockdown the situation has worsened and the misery of the people has grown exponentially.

Under these circumstances, the Communist Party of India (Marxist) is putting forward an economic plan that needs to be undertaken immediately by the government. The economic crisis and the associated people’s agony must be met by measures pertaining to the immediate tasks, medium term measures and the long term measures. These three however have to be initiated right now.

The CPI(M) is calling upon the central government to immediately consider these proposals that merit serious attention for our economy and the welfare of our people.

The CPI(M) appeals to all sections of our people, political parties and people’s movements to rally together to pressurize this BJP led central government to implement the following:

1. The immediate problem relates to the fact that millions of working people at present are hungry, unemployed, and without any income; many are herded into quarantine camps. Even if the government’s claim that the lockdown has converted the exponential growth in the number of Covid-19 cases into a linear one is accepted, the end of the lockdown is likely to cause a resumption of exponential growth. Whether the lockdown itself is extended further or substituted by some other form of enforced physical distancing, the acute disruption in the lives of these millions will continue. Providing them with succour in the form of food and cash is of immediate priority; and amazingly the central government, after declaring its initial package of Rs 1.7 lakh crores which was minuscule and of which nearly half consisted of re-packaged old schemes anyway, has done literally nothing to help the distressed millions.

2. How long this distress will continue is not known; but to start with, the central government must make available to every non income tax paying household Rs.7,500 per month for a period of three months, and to every individual 10 kg of free grains per month for a period of six months. There are 77 million tonnes of food grains with the FCI at present against the buffer-cum-operational stock “norm” of 24 million tonnes; in addition, about 40 million tonnes of rabi harvest will be added to this amount. So, there are plenty of grains available for distribution, so much so that the government is planning to use rice stocks for producing ethanol. Giving food free to the distressed millions surely has priority over such use. In cases where the recipients have no cooking facility, cooked food can be given in lieu of grain. The nationwide network of mid-day meals scheme can be used for this purpose. Apart from cereals a certain amount of pulses, cooking oil and other necessities should also be provided free over this period.

3. The total sum required for such cash and food transfers for the respective periods is estimated to be about 3 per cent of the Gross Domestic Product, on the assumption of a 20 per cent voluntary “dropout” by the rich from the list of beneficiaries. Raising taxes for this purpose has to be explored later, when a supplementary budget will become necessary. In that budget wealth tax will have to play a crucial role: it will both raise resources and also keep the rapidly increasing wealth inequality in check. Additionally, a tax on the super rich should also be imposed. But, for the time being, this entire expenditure has to be financed by borrowing from the Reserve Bank of India. This in our view will not create any difficulties for the economy in the present circumstances when vast amounts of unutilised capacity and unsold food stocks exist in the country.

4. While the resources for such transfers have to be provided by the centre, the actual transfers have to be carried out under the aegis of the state governments. The centre therefore must make the grain transfers available to the states free, and the cash transfers in the form of grants; their inter se distribution across states is easy to work out since the universality of transfers makes population the only determining criterion. The states in turn would devolve appropriate amounts to the local self-government institutions whose help will be essential for disbursing the transfers.

5. The state governments would wish to undertake additional expenditure over and above the amount of such transfers. It is amazing that even their GST compensation amounts, solemnly promised by the centre, have not been paid since August. This amount must be immediately paid. In addition, the borrowing limits of the state governments should be doubled. A pro rata doubling of the borrowing limit of each state should in fact be an immediate step, and they should be allowed to borrow from the central bank rather than the open market. The interest rates on open market auction of state bonds have spiked in recent times, placing a huge burden on the already fiscally beleaguered states. Instead of relying on this route, state bonds must be bought by the RBI at the prevailing repo rate. This is being done in different ways by the US Federal Reserve, the European Central Bank and the Bank of England, as well as several central banks in developing countries. All this must be in addition to the substantial assistance that the centre must give the state governments from the thousands of crores being collected in the private fund named after the PM for fighting the pandemic and for improving healthcare facilities, e.g. increasing the supplies of ventilators, masks, protective gear, testing equipment etc.

6. The central government must immediately guarantee that all the people suffering from serious illness are not deprived of the required medical assistance, while all the necessary measures must be undertaken for fighting the pandemic. Lifesaving vaccinations for our children and vaccinations for pregnant mothers must be ensured to continue along with our fight against the pandemic. Along with that shortage of drugs, blood etc also needs to be addressed on a war footing.

7. Notwithstanding the assistance that the centre can give to the states, the state governments which directly face the pandemic will still fall short if they rely only on the public healthcare facilities. It is imperative therefore that private healthcare facilities should be commandeered for public purpose for at least as long as the pandemic lasts, as Spain has done, and people can be tested and treated free at these facilities. The government could also offer to use the services of doctors and staff at reasonable rates.

The Supreme Court had made testing in private healthcare facilities free; its retreat from that position is baffling and makes executive intervention absolutely essential. If the Centre, whose unplanned and ill-conceived lockdown has caused acute distress to millions, does not commandeer private healthcare facilities during the crisis, then it would have displayed a shocking class bias, undermining the national solidarity that is badly needed for fighting the pandemic.

8. Immediate measures must be undertaken by the central government standing guarantee to ensure that there are no job losses and no wage cuts. Special attention must be made to ensure that the most vulnerable sections – women, particularly, adivasis, contract and dalit manual labour – are specially protected.  Many countries in the world have announced guarantees, some to the extent of 80 per cent, of the wage bill. This must be announced immediately by the central government.

9. The logistics of universal transfers will no doubt pose problems.
No existing list of beneficiaries can suffice, just as no single existing chain of outlets such as ration shops can be used to reach all. The problem will be more serious in urban compared to rural areas. The distribution of grain may be done using verification with a combination of identity documents (Ration card, Aadhaar card, Bank passbook, NREGA job card, etc). In addition, a certain amount of discretion may be allowed to MLAs, heads of village panchayat and municipal ward members to ensure that assistance reaches those who may not have any of these cards. Different state governments are already innovating with different ways of ensuring cash transfers to reach all (with only some exclusion criteria) without necessarily relying on existing beneficiary lists or bank accounts. These have to be expanded.

10. These actions will have to be undertaken at a time when India is facing substantial headwinds from the global economy and our balance of payments is likely to come under pressure. The pandemic has clearly revealed the pitfalls of capitalist globalisation. On the one hand, it has made the cross-border transmission of the virus almost as rapid as the cross-border movement of finance. On the other hand the cross-border movement of finance has frightened national governments, including especially the Indian government, into bowing before every caprice of finance, including mindlessly respecting fiscal deficit restrictions even in the midst of the pandemic, and not spending enough to alleviate the distress of millions of working people. But even now, despite the Indian government’s obeying the dictates of finance and being extremely stingy in the matter of alleviating distress, and even denying the payment of Dearness Allowance to central government employees, finance is still leaving the country, resulting in a downward slide of the rupee to unprecedented levels against the dollar. Such an exodus of finance is also occurring all over the third world, though India is somewhat better placed than many other third world countries in having about half a trillion dollars worth of foreign exchange reserves. If the measures suggested in this note are put in place, then this tendency of finance to flee the country will be greatly strengthened. To cope with this, two steps must immediately be taken. The first is to introduce some degree of direct control on the outflow of finance, since our reserves must not be frittered away in financing capital outflows. The second relates to the issue of a significant amount of fresh Special Drawing Rights (SDR) by the IMF. Instead of illogically opposing such an issue, as the government has done, India should actively support it.  Unlike all loans, including the Swap Lines of the US Federal Reserve Board, the SDRs are non-discriminatory, non-discretionary, interest-free, non-repayable, and do not entail either any “conditionalities” or any arm-twisting.


11. These immediate steps will have to be followed by medium term measures as the lockdown is slowly lifted. Of these measures, four are central. The first relates to the MGNREGS. In most states MGNREGS has come to a virtual halt. Work under MGNREGS has to be revived, so that when the cash transfers suggested above have run out, the labourers, including those immigrant workers who have returned to their villages because of the lockdown and are without any income at the moment, can find some means of livelihood. Four measures are crucial with regard to employment guarantee. First, the wage arrears that have got built up must be paid immediately. Second, to accommodate the returned migrants from the towns, anyone demanding work, not just those who have been registered with the scheme in the past, should be offered employment on demand. MGNREGS must be extended to wage and family labour used by small and medium farmers in the current crop season
Third, the offer of 100 days of employment should not be limited to households but should be extended to every adult; and unemployment allowance must be paid, as provided in the Act, in cases where employment cannot be provided. And fourth, MGNREGS should be extended to the urban areas where employment under the urban scheme could include employment in small enterprises, especially those supplying essential goods and services. This would be a way of subsidising small enterprises: the government in effect would be paying for a certain period the wage-bill of the small enterprises. This would be a way of slowly reviving these enterprises by both supplying labour to them and doing so without their having to pay for it.


12. The second medium-term measure relates specifically to the MSMEs and to agriculture. Supplying labour from an urban employment guarantee scheme to these enterprises will not be enough. They will require substantial additional support. The banks have to give them timely credit without demanding high collateral security, for which the government has to provide credit guarantee. Besides, the RBI’s moratorium on loans should be extended for such enterprises from the stipulated three-month period to one year. Since the sudden stop or steep fall in demand makes it difficult for many of these enterprises to survive till normalcy returns, there is also need for an extended grace period, as well as a subvention that covers all of the interest rate from the government. In the case of agriculture there has to be a debt waiver for the peasants and the provision of fresh credit at an interest rate covered by the government. In addition a subsidy of Rs.5 per litre of milk to dairy co-operatives is essential to help dairy farmers and to revive the demand for milk.


13.The third medium-term measure would be to encourage the migrants who have gone back to their villages (and their going back to their villages has to be immediately facilitated by running trains and buses, which India’s ruthless lockdown has prevented, unlike in almost every other country), to return to their places of work. This will take time and will not be easy, because the shadow of the disease and the scare of a repeat lockdown will haunt everyone for a very long time. The fears of the migrant workers have to be allayed; and the image of a humane government, as distinct from one like our present government that takes whimsical decisions and implements them using police batons, has to be established.
Arrangements must be made to facilitate the return of such migrants, who want to, from

14. The fourth medium term measure relates to ensuring stable, adequate and continuous supply of essential goods and other items of mass consumption at reasonable prices. The lockdown has already broken supply chains and disabled production of several essential goods and services in multiple ways. Reviving these will require specific and co-ordinated efforts of central and state governments, bearing in mind the input-output relations that govern such production. This therefore requires the effective reinstatement of some planning mechanism across the country.

15. The fifth medium term measure would be the starting of small panchayat-owned village-level enterprises in a number of fields, such as processing local products. Notwithstanding all efforts and assurances, many returned-migrant workers are going to stay on in rural areas and employment opportunities for them have to be found outside of and in addition to MGNREGS. Infrastructural facilities for cold storage preservation and marketing must be provided to boost agribusiness activities. This would be a way of reviving the village economy and giving an alternative thrust to the trajectory of
development in an employment-intensive direction. Bank credit has to be made available for this purpose, together with expert technical and managerial advice which the state governments can arrange.


16. We now come to the long term measures, though these too will have to be initiated now. It will be necessary to re-orient the economy’s growth strategy on the basis of the internal market and hence upon agricultural growth which ultimately determines the growth of this market. Agriculture has been neglected throughout the recent period, and yet, as the lockdown has demonstrated, for millions of people agriculture remains the last refuge. This neglect of agriculture must be reversed, through a host of steps, such as the provision of remunerative procurement prices, the extension of procurement operations to cash crops as used to be the case earlier, the use of tariffs to insulate domestic prices from world price fluctuations, research into new yield-raising practices, the development of less water-intensive varieties, and the distribution of ceiling surplus land to the landless, starting with plantations that have unused land.
Raising per capita agricultural incomes of the peasants and agricultural labourers holds the key to breaking the stranglehold of poverty on India’s working masses.

In addition, non-agricultural activities must be promoted with a clear eye on their ecological sustainability and their capacity for employment generation. This means a much greater emphasis on “green” production and on expanding the provision of care services.

This fight against the pandemic has clearly shown the severe limitations of the healthcare system in the country. Urgent efforts must be made to establish a universal healthcare system by spending at least 3 per cent of our GDP by the central government. The state governments will have to add on to these amounts in creating this system. There rate of CGST on medicines must be reduced and public infrastructure for self-reliance in domestic production of medicines must be strengthened. Substantial investment in education, particularly, universalisation of school education, has also to be concurrently done. This should increase to at least 6 per cent of our GDP by the central government.


17. The pandemic is a time for all to come together. Forging a new national unity is the real ultimate panacea for the pandemic.
Communalising the pandemic with the implicit support of the government, using this very time to incarcerate those fighting for civil liberties and against measures like the CAA under draconian laws like the UAPA, attacking the freedom of the press by targeting journalists, who are critical of the government, are all part of an authoritarian agenda. They are precisely the opposite of what is needed at this or at any other time; and yet they are being pushed under the cover of the lockdown. Unless this is reversed, our country and people cannot fight the pandemic effectively.