‘India has 3-5% of GDP that it can put into this process of stabilisation of the economy’

Junaid-Kamal-Ahmad
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Junaid Ahmad is the World Bank’s India country director. He spoke to Nalin Mehta on the World Bank’s $1 billion emergency support package for India:

 

 

What does the World Bank’s $1 billion Covid-19 package for India entail?

The objective is to support the government’s effort to stop the pandemic. It’s about putting money into testing, screening, community surveillance, laboratory systems, importing equipment such as ventilators, if needed, and producing equipment, in particular, protective gear. This money is available for all aspects of the health system for the frontline work but also for the research because clearly money has to go into developing vaccinations and drugs.

How different is the Covid-19 crisis from the 2008 economic meltdown?

2008 was a financial shock. The answer to that was simple: You increase demand, you do an economic stimulus and you lift the economy out of that financial shock. The health shock now is a supply side shock deep inside the health sector. Here the response has to be very different. It has to be at the health side. Social distancing means you have to hold back the economy. That’s a very, very big difference from 2008-09 where you immediately had to stimulate the economy. At the same time, you have to create the bridge between the health side and the economic stimulus that must come down the road. That bridge is about social protection, giving resources to the very poor so that we can bridge them through this crisis and at the end comes the fiscal stimulus where you then want to lift the economy. India is doing precisely this.

Watch: World Bank India director on $1 billion India package

How does the World Bank view the government’s economic stimulus?

We are in uncharted territory. Government is inventing the blueprint on a daily basis and we have to give governments around the world that kind of space and respect for them to build on the lessons that are being learnt. The economic stimulus is really about stabilising the economy. You don’t want firms to let go of their workers at this stage. We can’t afford to let these workers go out of the labour force because to bring them back is going to be difficult. What is also different for India is a lot of your work power and your workforce is in the informal sector and requires a different form of social protection. Here, government is looking at how you use the database on the PDS. Our discussion about supporting the small and medium enterprise is precisely that. This is really about stabilising the economy and then you can go into a down-to-earth fiscal stimulus.

The state is back in its full force around the world. Without the state’s role today, economies will not be able to reestablish themselves for the future. In the US, expenditure will be about 10% of GDP. I think in Europe it’s on average about 5% of GDP. Now, those countries had a fiscal base to start off from. Countries in the emerging world don’t start off with that kind of a fiscal base. But, it’s important to realise that India’s debt is not huge, its stock of debt is local and the stock of debt is long term currency. On the basis of that, our sense is that India has 3-5% of GDP that it can put into this whole process of stabilisation of the economy and to get ready for the next step to get the stimulus going.

Does India need a universal basic income using Aadhaar or the JAM trinity?

I think we would do ourselves a favour and not get into the ideological debate of UBI. What we need to focus on is what you said. The government of India has an Aadhaar system, it has Jan Dhan accounts, JAM, and it’s got IT. On that basis, it can start targeting vulnerable communities. That’s exactly the conversation the government is having with us. We’re talking about migrant labourers, unorganised workers, and we’re actually working to see how we can come in. It’s not about [having] UBI or not, it’s about being practical and moving the story forward. My position on UBI has been very simple: Build the structure that will enable you to eventually do a UBI when you can. You can’t just overnight do a UBI. You’ve got to create the state capacity to move money from an account in government to the account of a poor person and also the last mile. That structure must be built before you begin to talk about UBI.

What is the outlook for the Indian economy post Covid-19?

I expect that in South Asia we will find that growth will fall. How much growth will fall is not something that I can project in this uncertain environment.





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