On March 20, long-distance trains reached the Howrah and Sealdah stations of Kolkata crammed with more passengers than usual. The several thousands of young boys who emerged out of the trains with luggage in tow would then scatter from the city to different parts of West Bengal. Out of work for the time being, they were rushing home as the nation ramped up its battle against COVID-19.
This unprecedented mass homecoming would also be witnessed in Bihar’s Patna and Bhagalpur, Odisha’s Bhubaneswar and Sambalpur and even Jharkhand’s Ranchi and Dhanbad. Bihar, West Bengal and Odisha provide the most manpower to the southern and western parts of India.
Soumen Joardar, in his mid-thirties, was among those who came from Kerala’s Ernakulam, where he worked as a cook. A resident of Majdia village in Nadia, West Bengal, Soumen said he was given an advance salary by the hotel and sent home. Returnees like him evaded the medical tests at the railway stations despite Kerala being one of the hotspots for Covid-19. In fact, there were no health officials in Howrah to conduct the check-up.
This happened two days before West Bengal Chief Minister Mamata Banerjee told Prime Minister Narendra Modi to stop train services as it would be impossible for the state to conduct health checks for boys and girls returning from highly infected areas.
Soumen headed for his village but was soon informed by the police not to move out of his house. “I thought of working on the farm to earn something,” he said. “But now, being locked up by the local police at home, I fear for my livelihood.” The local health authorities visited his home as he was running a fever shortly after reaching home. He has been warned not to venture out.
His neighbour Subrata Nath is having a similar experience. However, Subrata had come from the Andamans by flight. With the islands locked down last week, the hotel where Subrata worked had asked him to go back home.
“I do not know when they will call me,” said Subrata. “They told me it might take months, if not a year, to get a call for work.” Like Soumen, he was also warned by the local police not to mingle with anybody.
Both men were ordered to stay isolated two days before the Centre decreed a lockdown in a few districts of Bengal and almost all state governments took a similar path of locking down entire states. As a result, panic gripped the markets across the country. Eventually, Modi announced a total lockdown for the entire country on March 24.
China locked down its major cities but that was only after the virus reached the community spread stage. India has taken the step at an earlier level. However, many believed that like Chinese President Xi Jinping, had Modi treated Mumbai as the Wuhan of India and locked down the commercial capital first, things would not have spiralled out of control today.
Dhiraj Patra, from Sambalpur, came from Surat, where he worked in a diamond factory. He had a few thousands in cash as he came back home. But he is worried as his employer has not assured him of getting back his job. “I am clueless. If the lockdown goes on, I don’t know how I will survive,” he said.
Dhiraj’s hometown, Sambalpur, is known for its cotton sari industry. The sari market had closed down, and the price of saris plunged. But the prices at the food market have been inflated by nearly 50 per cent.
In West Bengal and Bihar, the escalation was far more than expected within hours of the total lockdown. Produce is available, but speculations entered the commodity market and pushed the prices up. Potatoes are sold at Rs 60 per kilo in Kolkata and at Rs 30 in the rural belt. In Bihar’s Patna, potato prices went past Rs 60. Seafood has disappeared from the urban markets.
“I was left jobless for more than two weeks ever since Mumbai was hit by the virus,” said Sanjoy Singh, 38, a resident of Bhagalpur, who worked for a security guard agency. “They finally told me that they cannot [keep] me anymore, given the situation. They said if the situation permits, they would call me, otherwise I would have to search for another job. But whatever happens, I will go back to Mumbai. Mumbai has jobs for everyone, poor or rich.”
The plight of millions belonging to the working class of India is leaving experts from all over India worried. “Most of them, at least 60 per cent, who have come back home in packed trains, will not get back their jobs,” said development economist Abhirup Sarkar. “The rich will survive, the middle class might fight back, but the poor, like these boys and girls, will face a horrific situation in the coming days. We are heading for the most critical situation in our economy since Independence.”
Is India heading towards economic depression?
“Depression would be an understatement. We are heading towards economic disaster,” said Sarkar, a member of the technical advisory committee for the economic survey of the Reserve Bank of India.
Economists believe that India is going to suffer massively, unlike China, as the service sector in India amounts to 40 per cent of the total workforce. It contributes around 50 per cent to the total GDP of the economy.
“But the pathetic situation is that most of them are in unorganised sectors, are daily earners and their jobs are not guaranteed. The unorganised sector in service and farm industries could collapse, and then it would be a disaster for the economy as they are the key forces to lift the demand in the economy,” said Sarkar.
Economist Dipankar Dasgupta said that the present situation is unprecedented, as the slump in the economy would be largely driven by the supply chain being cut off in the economy. “We are facing a huge danger as the supply is taking a big hit, probably for the first time. There would be long-term depression in the market because of the supply being cut off because of Covid-19,” said Dasgupta.
The economists talk about the supply chain because of the lack of production activity in India as a result of the lockdown. It would lead to inflation, and to keep the disease in check, there would be low economic activity and the government would borrow massively, either from RBI, or from markets, which would lead to further inflation. So even if the situation normalises after ten or fifteen days, the nation would face an almost double-digit inflation. If the situation does not improve by then, experts feel it would be catastrophic.
Dasgupta, who was a professor in Japan for many years and a visiting professor of Ashoka University, termed the present condition as the most dangerous situation in global economy in history. “We have never faced this kind of situation. It is a major threat for our civilisation. If things don’t improve, we would have to pay a heavy price,” said Dasgupta.
He predicted that the national consumption would fall in the coming weeks, which is already at a 15-year low. “The market would become uncontrollable as people will be staying home and not participating in production. This is happening because the government has not found any medical solution to this pandemic. So, they are opting for draconian options like lockdown and subsequent economic options. I am afraid that there are no solutions for economists to offer,” said Dasgupta.
Recent Nobel laureates Abhijit Banerjee and Micheal Kremer declined to comment when THE WEEK reached out to them.
Is supply shock the only cause?
Economists said the initial shock would come from the supply side and then it would take the country towards massive demand crisis. There have been videos circulating of large groups of people gathering around vendors. According to economists, these are signs of a big inflation coming, and there could soon be massive hoarding of goods and black-market activities.
“The tragedy will be that the government would spend hugely for the production of scarce products that everybody desperately wants. The need would be far more than what government spends every time,” said Dasgupta.
According to experts, India’s economy has already been in the doldrums for some time because of the lack of demand. This is because of the joblessness in the informal sector, which comprises of the real buyers in the system.
Sarkar feels that government should first stem the rot by giving money to those in the unorganised and farming sectors who do not have an assured income. And after few weeks, the supply shock would translate into demand sluggishness. So, government would have to think of how to increase the demand of the economy though it came from the lack of production.
What is expected of the government?
“I know the government will slash taxes, both direct and indirect, and the Central bank would slash the interest rates,” said Sarkar. “But in our economy, most of the people are outside the tax net. Also, people in the unorganised sector don’t get loans from banks. So, slashing interest rates by RBI or reducing taxes would not work to help pick up the demand when the normal production restarts.”
Sarkar says he would like the government to use a two-pronged strategy. One would be to give people direct access to food and then direct transfer of money.
“Also, I am not aghast by the idea of releasing food from the FCI to strengthen the rationing system,” he said. “A number of foreign economists have written about this issue. But I must warn the government that the situation of those countries is completely different than that of India. So, the Indian government must first revive the economic lives of millions of poor people who are on the brink today.”
Regardless of what economists say, the government will not overlook the needs of the middle class, thanks to their presence on social media.
The financial market received a huge shock because of Covid-19, owing to the closing down of markets in Europe and the US. The rupee is nosediving every day. However, the biggest worry for the government is the slump of the capital market. The Nifty and Sensex have tumbled since the Covid-19 outbreak. This has direct repercussions to the income of the middle class, who invest in mutual funds and even unit-linked insurance policies.
“In Nifty, mid-cap fell by over 40 per cent and small cap fallen by over 45 per cent. However, across the board, mid cap and small cap shares have fallen by over 50 per cent,” said financial market expert Vivek Bajaj.
This is a volatile stage for the market and Bajaj says there is no guarantee of an upturn. So, he has a note of caution when asked whether a plunging market will attract fresh buyers. “Considering there is a crisis right now and earnings growth is also not visible, the market can go down further. I would suggest everyone to look at a specific industry or stock and not look at the market when making a decision for buying stocks,” said Bajaj.
“A consolidated effort is needed to help the economy get out of the mess. Both fiscal and monetary measures would boost the market and stabilise it. The impact of tax incentives and reduction of interest rates for making cheap capital available in the economy will help medium-term sustainable recovery,” he said.
Sarkar says that though it is not advisable, RBI’s one big reason to lower interest rates would be the cost of private investment. “RBI would take into consideration the amount that private investment would fetch. As private investment is fetching negative returns, the RBI can go for reduction of interest rates as the market would then demand. However, this would create further pressure on inflation as real interest rate is negative due to high inflation, which the central bank may have to overlook for the time being,” he said.
So, if the RBI governor decides to lower the rates, would the government go for slashing taxes as well, if it wants to overlook the issue of fiscal deficit? Economists agree on this.
Sarkar said as long as the government would not allow growth to fall, it can borrow for poor people. “The government would have to spend to get out of this crisis, particularly for the poor. Higher real growth came in the past with higher taxes. So, growth in tax rates is higher than the inflation. The government can take loans and pay the money back. The only thing is that the growth in tax collection should not go down,” said Sarkar.
This means that the biggest challenge for the Modi government in the coming months will be to sustain growth rates. Bajaj says that the government would have to ensure that there is production despite the lockdown, to have healthy growth rates.
“Our biggest advantage would be that we are the net consumer of commodities and we will see a massive fall in the commodity cost (provided production resumes shortly). In that case, inflation will [fall]. Then it will make it easier for the RBI to slash interest rates and the economy would have a big demand push, though it may not be in immediate terms,” said Bajaj.
But economists still feel that this is hypothetical as the country is today stalled due to lockdown for at least three weeks. Many countries are locked down as well. This is a much bigger situation than the one handled by John Keynes during the great depression in the 1930s. Keynes’s theory was to spend more and generate demands. But today, demand is affected by lower production.
“I know high inflation will not reduce interest. But we will be doing a paradoxical act. Yes, we have to be ready for that as well, which is beyond Keynes’ way of fixing the economy,” Dasgupta said. He asks the government to look at China and control the virus as early as possible, but not by halting production completely.