Former Prime Minister Dr Manmohan Singh has warned of an ‘inevitable’ slowdown in the Indian economy and has laid out three steps that the Modi government should immediately take to check the damage caused by COVID-19 pandemic.
In an e-mail interaction with the BBC, Singh, himself an illustrious economist, termed the slowdown in India as “a humanitarian crisis” and said “government’s shock and awe approach to the lockdown has caused tremendous pain to people.”
Not opposing the lockdown, but its implementation, Singh wrote, “Perhaps a lockdown at that stage was an inevitable choice. The suddenness of the announcement and the stringency of the lockdown were thoughtless and insensitive.”
Singh suggested three ways to restore economic normalcy in the coming years. Firstly, the government must “ensure people’s livelihoods are protected and they have spending power through significant direct cash assistance”. Secondly, the Centre must make adequate capital available for businesses by way of “government-backed credit guarantee programmes”. Lastly, he said, the government should fix the financial sector through “institutional autonomy and processes.”
Dr Manmohan Singh acknowledged that “high borrowing” would increase India’s debt to GDP ratio, but said it was necessary. “If borrowing can save lives, borders, restore livelihoods and boost economic growth, then it’s worth it”, he said. “We must not be shy of borrowing but we must be prudent on how we use that borrowing,” the BBC quoted Singh as saying.
Dr Singh also cautioned the Modi government against adopting protectionist economic policies by imposing high trade barrier duties on imports. India’s trade policy over the last three decades had brought “enormous economic gains to not just the top but across all sections of our population”, he said. “I do not want to use words like ‘depression’ in a cavalier fashion,” Dr Singh said, but a “deep and prolonged economic slowdown” was “inevitable”.
The former PM said that the Indian economy was struggling even before COVID-19. Economists agree over an economic contraction in India in nominal terms, “which if it happens, will be the first time in independent India,” Singh said. “I hope the consensus is wrong,” he added.