How to go about reopening the economy after the lockdown ends

The second round of lockdown in the country provide enough time for the government and industry think tanks to carefully workout plans to restart the economy post-lockdown, rebuild strong supply-chain network, depend more on domestic production than imports, float attractive long duration government bonds to raise funds, help create more supplies and push employment. Economy must get back on its feet steadily. The effort is not going to be easy.

The basic purpose of lockdown will be lost if it is reversed overnight. There is no escape from a gradual withdrawal of lockdown. It has to be properly planned and prioritised. For example, goods transport services may be eased fast while the mass transit system should remain restricted for an indefinite period to maintain the social distancing practice. Kirana shops should open fast with normal supplies. Personal protection equipment need to be carried compulsorily. The de-lockdown process should be so planned as to make sure that the virus does not get advantage of the situation to spread through the community.

The industry sector needs to prepare its own gradual revival plans, prioritise sectors and downsize offices while encouraging staff members as well as executives to operate from home by providing them with such facilities as laptop and desktop computers, internet connections and air-conditioning at employers’ cost.

The Confederation of Indian Industry (CII) has suggested to the government to follow a phased reopening plan with sectors such as manufacturing and construction, that provide mass employment, re-started first. The CII had cautioned that it is important to safeguard the macro fundamentals to ensure India did not suffer significant rating downgrades and a potential flight of capital. “Since we are not going to see the end of the crisis soon, the government should not spend all its firepower at once,” the CII said.

The industry body has pitched for a “re-start calendar” across cities and states, based on a dashboard that can monitor curves of various key cities and states. In the first phase, it said sectors where work-from-home is difficult and which provide mass employment could be re-started to protect low-wage employment. They include manufacturing and transport.

The annual government budgets need to be redrawn. The national and state budgets for the current financial year, passed earlier by Parliament and respective state assemblies, seem to have become infructuous in the face of massive outside-the-budget spending on controlling the impact of Covid-19 on citizens and big public revenue contraction following the nationwide lockdown. The governments need to rework on their expenditure and revenue plans while controlling Covid-19 should remain on top of the agenda.

According to analysts and industry bodies, the longest lockdown may have cost the national economy Rs 7-8 lakh crore during the first 21-day period alone. The lockdown had shut a majority of the factories and businesses, shops and establishments, suspended flights, stopped trains and restricted movement of vehicles and people. India’s exports are alarmingly down by nearly 35 percent. The stock market crash led to large outflow of dollars. The exchange rate of Rupee has sharply dropped to an all-time low level of around Rs. 77 for a US$, last week. Gold prices hit a record high at Rs. 50,000 for 10 grams. The rich want to hide and protect their wealth in gold.

Many feel that the government should go for tax-free bonds to arrest the flight of capital and harmful gold grab. The bad news is that prices of consumer goods too are shooting up in the domestic market. The manufacturing activity deserves the sharpest focus.

The lockdown exit is unlikely to ensure ‘business as usual’ at least within the next three to four months, assuming that spread of the Covid-19 virus remains under full control. The virus has come at a time when the country’s biggest Rabi crops are raised. The main Rabi crops include wheat, barley, oats (cereals), chickpea/gram (pulses), linseed and mustard (oilseeds). Nobody exactly knows to what extent these crops are damaged or sold in distress as a result of the sudden lockdown.

The generally 14-week-long monsoon season, covering almost all parts of the country, is expected to start in June. It would be a major challenge for the country and the government to ensure that the all-important kharif season is well geared to produce enough paddy, maize, jowar, bajra, cotton, sugarcane, groundnut and pulses among other crops. This is extremely important since the Rabi season largely fell under the lockdown period. A good kharif crop is vital to boost the economy during the traditional busy season, from October to March.

Incidentally, most other major economies in Asia and Europe are almost ready with post-lockdown recovery plans. European countries are sketching out their strategy for putting the economy back to work. Austria and Denmark are opening up schools and shops. Chancellor Angela Merkel is believed to have discussed her plans with German state premiers, last week, while the European Commission drafted a plan to coordinate the moves.

However, France and the UK decided to extend their lockdown in the face of surging cases of Covid-19 attacks. Governments of a number of countries are trying to balance the urgent need to halt the damage to the economy against the risk of a resurgence of the pandemic. The crisis is widely seen as serious as the 1930 recession turning into the ‘Great Depression’ in 1933.

According to Bloomberg’s monthly survey, the Euro-area economy will shrink more than 10 percent in the first half of this year. French Finance Minister Bruno Le Maire put his country’s contraction at eight percent. Automobile companies are in favour of a joint European approach to the return to work because their supply chains are closely connected across EU member states. Hopefully, India will proceed cautiously with its post-lockdown plans.