Post-COVID economy: Livelihood has started taking precedence

Prof  Viswanath Pingali, IIM Ahmedabad, cautions that if India continues with stringent measures to control the pandemic, we may not be able to ensure livelihoods for much longer. He also supports urgent measures to boost demand side growth in the economy, primarily in the form of cash in hand and employment opportunities.

IBT: The COVID crisis is expected to have a serious impact on the Indian economy and push it towards negative growth. At the same time, it is also an opportunity to relook at the way our economy can develop in the long run post-COVID. What would be your views on how India can relook at its economic evolution ahead?

Prof Viswanath Pingali: I strongly believe that if we have to get through in the long run in the spirit of Aatma Nirbhar Bharat, we need to have all round development.

You cannot expect that a few metro cities will drive the growth for the economy. Very few people who are highly qualified, will like to go outside these top metro cities or urban centres because of two reasons: one is lack of healthcare facilities for the elderly and the second is lack of quality education facilities for their children (while there may always be exceptions). Therefore if you want all round development to happen in the country and to promote self-reliance, then I would argue that the primary responsibility of the government should be developing infrastructure for health and education everywhere. It is definitely doable if you look at worldwide models, but there are initial costs that the government has to bear.

I think we cannot continue to move forward with the model of urban-centric development and rural development has to play a significant role. But for that to happen, the rural infrastructure has to be given priority, especially when it comes to the leverages of future growth – education for the children and healthcare for the primary. I don’t think we have a choice as a country, and I see us slowly pivoting in this direction over the next 5-6 years.

IBT: Post-lockdown, India is seeing some positive trends in numbers pertaining to unemployment rate, power demand, kharif crop and also exports. How do you view the trajectory of the recovery in the coming months, and what are the key macro concerns?

Prof Viswanath Pingali: The main concern for the economy would be people spending. While it is clear that essentials will be consumed, how do people respond to non-essential consumption? There are two ways to look at it. The restraint is finally broken and people will spend money on non-essentials, or people may get more prudent with money, given that we may not be sure of what the future holds. I think it is too early to predict which way it may go. Overall, I am still concerned with demand creation, even if the supply side works out. Whom do you produce for, if people are not consuming? And what will ensure people to open their purse strings? These are the key questions in the coming months.

IBT: How should India manage the life vs livelihood dilemma, considering the downward trend for the economy as well as the continuously rising COVID-19 cases, in your opinion?

Prof Viswanath Pingali: At some point, livelihood debate has to start taking precedence. Currently, death rate is fairly low, and by all measures there may be undercounting on actual spread of the disease. So, time has come to consider livelihood debate a bit seriously. At some level, we have to start understanding the exact nature of the risk as well. With more data flowing from all over the world, we are more knowledgeable now than we were a couple of months ago. Further, some serological studies can help in understanding exact risk, but these are for epidemiologists to consider.

One of the worst things that can hit livelihood issues in the short run too, is uncertainty. Businesses find it difficult to plan. Based on what I am hearing from various quarters, if we continue with stringent measures, we may not be able to provide livelihoods for much longer. One of the key job generators is the MSME sector. More importantly, micro enterprises. Without cash coming in, they will find it impossible to provide livelihoods, even if they have the right intentions.

Very soon from now on, I would imagine that massive investments in primary health care should happen. Investments in healthcare could also lead to better investments in the form of FDIs also. While our wage rates are cheap, the Indian workforce also takes sick leave more often than what you see in developed economies. This makes effective wage rate higher, evaporating some of the cost advantage.

IBT: A lot of migrant labour has moved to villages as a result of the lockdown. What policy initiatives do you propose to ensure that they get sustainable lives and livelihoods there? Also, what can government and industry do to encourage them to move back to cities?

Prof Viswanath Pingali: One of the problems with the Indian economy is that we developed very few clusters around which development happened. That is, while the urban centers have seen development of means of livelihoods, rural areas have not gained much traction, except via agriculture in employment generation. So, the plan is skill mapping and figuring out what the right industry is at a local level. Macro level planning would probably not work; bottom-up approach is needed to get some movement on rural employment.

Labor that migrated back to the villages is skilled in some form or the other, and micro level planning is essential to fully harness those skills. Further, there are lots of local arts and crafts, which could be great engines for growth, especially if we can plan properly. Harnessing technology in skill building activities for rural areas (online ITI, for instance) is the way ahead.

I am happy to see some reforms in agriculture, which I feel were necessary – Corona or no Corona. Going forward, I think agriculture is going to do well.

I think governments (local and central) should plan on technology-enabled skill training for labor to attract better investments all over. This will enable skill building at a relatively lower cost.

IBT: How is consumption demand expected to trend in the coming months, considering the general fear of moving to markets still persists? What policy initiatives can be taken to revive consumption for urban and rural areas?

Prof Viswanath Pingali: I still think there is uncertainty surrounding consumption demand, especially the ones pertaining to non-essential consumption. For increasing consumption demand, I have to say that cash in hand is the only solution. That means, generating employment opportunities. Local skill mapping and micro level planning, skilling rural workforce by harnessing technology, improving transport infrastructure (so that manufacturing can happen in rural areas for demand in urban areas), are some of the measures I would advocate. In this context, I would have liked to see more direct cash being given to the poor people.

IBT: What is the expected impact on millions of MSMEs across the country of the lockdown in your view? To what extent will the Government’s Aatma Nirbhar package be helpful and what more can be done to help them tide over their problems?

Prof Viswanath Pingali: In the recent past, I spoke to several startups, and people who work with startups. I am afraid this is going to be the sector that is going to be hit badly. There are several ways in which people are defining startups. In B-schools, they think only about them in context of terms like unicorn status, VC funding, etc. In India, a startup could also be considered in terms of starting a small kirana shop.

Certain kinds of startups are going to flourish due to the rise of unforeseen necessities. Traditional business models will have to start pivoting. Given that this is the sector that generates significant employment, the macroeconomic impact could be high. While I appreciate the Atma Nirbhar package, and the restraint shown therein, at least for the registered MSMEs, some cash (as against low interest credit, interest waivers) could have been considered. Significant attention needs to be given to spurring the demand side, and I am not sure at this minute on how it is going to happen.

That being said, I think new initiatives are likely to come up in the MSME space in health and education. The onus will be upon the Central and State Governments on how to channel that energy.

IBT How do you view the impact on the services economy, given its dominance in share of GDP? What can be done to ease the pain for the services industry, particularly in the organised segment?

Prof Viswanath Pingali: When it comes to software services, I would expect to see a boom in certain areas. I think the use of technology in health and education could start showing a totally different trajectory altogether. Some parts of the services industry have managed to move online using technology; however, a large part of the services sector is languishing (tourism, hotels, etc. are some examples). Further, many services cannot be over electronic media. For those specifically, could the Government consider tax breaks, or delayed tax for these guys? Easy access to working capital is probably a must (which, to certain extent, Atma Nirbhar Package ensures).

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Prof Viswanath Pingali is a faculty member in the economics area at Indian Institute of Management Ahmedabad. His research interests are competition and health. Some of the sectors he works in are digital markets, pharmaceuticals, and public health. The views expressed here are his own.