The rough cost of handing out cash to millions of Indians to survive the lockdown
- Millions of Indians are waiting with bated breath to hear from the country's Prime Minister on how he plans to tackle the coronavirus challenge.
- WhatsApp groups are rife with rumours of a possible shutdown that may extend into months but there is no official word on it yet.
- In case the government orders a lockdown, complete or even a partial one, a big majority of India's population that lives hand-to-mouth may be plunged into starvation and helplessness.
- However, the government has the 'direct benefit transfer' mechanism to give the millions of country's poor survival money until the Covid-19 pandemic is dealt with on war footing.
- This could be similar to, albeit costly, what the Trump administration has proposed — giving out cash to the needy — as the US economy has come to a grinding halt.
Soft loans and tax breaks are good but not enough to tide over the current situation that is both a health hazard and an economic crisis of epic proportions.
Majority of India’s population still lives hand-to-mouth and it needs cash to survive and a total lockdown, or a partial one, may leave them starving and helpless. The experience in India is likely to be very different from other countries like Italy, France, and China that have taken similar stringent steps.
Salaries will still reach the bank account of corporate employees who work from home but construction workers, domestic helps, sanitation workers in private establishments, daily wage labourers in small shops and factories, film production crews across countries, and many more like them who account for nearly 90% of India’s population cannot expect the same.
The good thing is, India already has mechanisms like the ‘Direct Benefit Transfer’ (DBT), whereby the government can deposit cash directly into the bank accounts, to avoid an added layer of starvation to the unfolding health emergency. In 2018-19, over 1.23 billion Indians, of the estimated population of over 1.3 billion, received at least one government subsidy deposited directly into their bank accounts.
This may be the time to use the scheme to allay fear and famine. People are not going to buy fertilisers or cooking gas cylinders, but the window can be used to provide cash to those who need it the most. This move may be similar to US President Donald Trump's administration's proposal to send out cheques to millions of Americans who live from one payday to another, and find themselves stranded by the unprecedented economic impact of coronavirus pandemic.
A back of the envelope calculation shows that if these 1.23 billion people in India, who are already in the DBT database, were to be considered for a handout from the government, the cost will be enormous but necessary to survive a possible lockdown. That will still leave a lot of people out from the 1.3 billion-plus population but this can be the starting point of a conversation around how the stimulus can be designed.
The number of beneficiaries may be much smaller if the government goes for targeted shutdowns in smaller regions affected by coronavirus.
|The average household expenditure in India was ₹1,501 per month, according to National Sample Survey|
|Period||Cost to the government if it were to handout survival money||India's fiscal deficit|
|1 month||₹36,924 crore||₹7.03 lakh crore|
|2 months||₹73,848 crore|
|3 months||₹1.1 lakh crore|
|*The beneficiaries are estimated at 1.23 billion (assuming 5 people per household) who availed at least one direct subsidy transfer at the end of March 2019|
It is also likely that there may be one than beneficiary from one family recorded in the 1.23 billion. For instance, one member of a family may have received money for rural employment guarantee while another member may have availed the cooking gas subsidy. If these overlaps were to be weeded out, the burden on the government will be much lesser.
A total lockdown will hurt these people the most
“Small businesses and low-income households do not have the cash flows, balance sheets or savings to sustain the downturn in business or loss of income for a few months. As such, governments should look at a large fiscal stimulus,” a Kotak Institutional Equities report said.
According to the Kotak report, the biggest impact will be three segments of the population:
1. Small businesses in retailing, tourism and transportation,
2. Self-employed workers in the ‘gig’ economy, and
3. Contract workers in the informal economy.
So while a stimulus is necessary, it's design will determine the effectiveness.
There may be a need to stop the spread of the virus even at the cost of shutting down the economy and the society temporarily. However, nearly 9 out of 10 people are employed in an unorganised industry with low wages and savings and no social security. A shock-and-awe treatment like an unexpected lockdown may be counter productive without a solution for those who do not have liquidity to survive.
Reports suggest that PM Modi is likely to announce measures to extend loan tenors and relaxing bad debt norms for small businesses, and remove goods and services tax on hotels and other players in the tourism sector.
While these are necessary steps, more may have to be done to ensure the loneliness of a lockdown doesn’t drive people crazy. In case there is total shutdown, cash-in-hand will be a bigger problem for people than taxation as millions of Indians still depend on daily wages for livelihood.
What India can learn from the world
Donald Trump's administration has already gone to the House of Representatives with a plan to give a $1,000 or more cheque to middle-class and poor American families as part of a $850 billion economic stimulus. This is many times the size of the money pumped into the US economy right after the global financial crisis of 2008.
India already deposits money directly into bank accounts
India already has a direct benefit transfer mechanism for rural India as well as millions of India’s middle class and poor families in the cities who get their subsidies — fertiliser subsidy and cooking gas subsidy are examples — and money can be transferred to those dependent on daily wages for survival if there were to be a lockdown.
This will come at a huge cost to the exchequer but the financial burden cannot be deterrent at this point.
Giving money is not enough
While addressing the nation, the Prime Minister, who is famous for his oration, must ensure that the narrative is one of hope and not despair. No amount of emergency cash can stop the panic that a foreboding tone can cause.
There are varying views on the effectiveness of Indian government’s response to coronavirus. India has been, without doubt, relatively quick to shut down borders and enable screening of possible carriers travelling from other countries. There may be some valid criticism of the depth of testing of the local populace— the fear is that not enough people have been tested to assess the real spread within India. But that complaint will fall at the doorstep of nearly every government on the planet right now.
People at large are still not prepared for a lockdown
The coronavirus pandemic has proven to be an unprecedented health crisis that has brought the global economy to a grinding halt and the repercussions may be felt for a long time. People are shocked enough and there is enough anecdotal evidence that the population has not figured out what level of preparedness is ideal.
Even Mumbai, the country’s financial capital, continued to see people in close proximity without protection in public places until the day before — people could be seen in swarms at roadside eateries in many parts — despite consistent messaging both from authorities as well as the media.
Prime Minister Modi should focus on motivating people to keep themselves safe and assure that families will not be plunged into starvation while the government expedites steps to test, isolate, and hopefully, cure coronavirus patients in India sooner than later.
For millions of people to cooperate with a lockdown in a relatively young and less-mature democracy like India, people need to know the government has a plan to deal with the emergency now, as well as a vision to revive the economy and protect their livelihoods when the coronavirus storm subsides; and that too, will entail a huge cost.
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