An Agenda for Building a Resilient India post-Covid

 

“April is the cruellest month”, wrote TS Eliot, the celebrated poet. As if to prove the prophetic words, Covid pandemic wound itself up through the first quarter of 2020 and assumed tsunami-like fury by April smashing any hope of recovery for the already depressed global  economy and consumer confidence. The economic and emotional devastation by corona virus is still ruling the roost. In India, with sizeable sections of the population economically vulnerable, the gathering recessionary clouds portend prolonged trouble.

The eagerly awaited economic reports for Q4, FY 20 were released by Modi  Government on Friday. India’s economy grew at just 3.1 per cent in the quarter. The headline number for the full FY20 came at an 11-year low of 4.2 per cent. Further, as the lockdown effect started snowballing, India’s eight core infrastructure sectors - Coal, Crude Oil, Natural Gas, Petroleum Refinery products, Fertilizer, Cement, Steel, and Electricity - which have a combined weight of over 40% of the Index of Industrial Production (IIP) of India,  contracted more than one third in April. The full impact of the lockdown on manufacturing and services will become more apparent in the June quarter, with Goldman Sachs predicting a 45 per cent contraction from a year ago.

Crystal gazing at the time of enveloping uncertainty is indeed quite intriguing. Yet it is critical to scan the emerging scenario and strategize for the future challenges and opportunities. As we are possibly stepping on to a new normal, how would tomorrow differ from our habituated thoughts and actions? How should we as a society and an economy prepare to be ready for the post-Covid world?

The enormity of the recovery challenge can be gauged from the current scary slippages in key economic parameters and the possibility of them worsening in the months ahead. When the economic slump results from multiple factors pregnant with uncertainties, it is too naïve to expect a quick V-shaped bounce back to normalcy. Economists with realistic optimism would look for a U- shaped recovery with the base of the U hopefully not too long. Left to itself, the recovery could probably take an L-shaped path with the horizontal arm rather extended, before small sprouts appear. The challenge for political leaderships across the world is to ensure that the pandemic disruption and its economic fallout do not  prolong.

The economic recovery package of Rs. Two Trillion announced by Modi Government is primarily focussed on easing the liquidity at the grass-roots and supporting the vulnerable sections comprising of migrant and informal labour, small farmers and petty traders. In addition, the package caters to the immediate survival needs of small-and-medium sector.

Many like me hoped a regular and targeted payment of minimum-basic-income would be included in the package. However, the focus of the package seems to be on the trickle-down effect through enhanced MNREGA allocation and MSME support. Further,   food security has been beefed up through free and subsidised supply of essential items through the Public Distribution System. Considering the combined adverse impact of the lockdown, farm distress and reverse migration of labour, the priorities for the package cannot be faulted.  The sufficiency of the package is open to question. Unless quick measures follow to address the job and income issues of those who lost their means of livelihood in the disruptions, we could be in for trouble.  

In any case, the allocation of funds only impacts the transactional side of the economy; much needs to be done on the structural and governance dimensions if we are indeed to transition to a new normal that encourages dynamism, entrepreneurship, consumption and investment.

Strategically, India needs to plan and implement four key transformations in the structure  and processes of the economy. These are long overdue changes passed over by successive governments for fear of rocking the boat of political expediency. Now the time seems to be ripe to take the plunge. The compulsions of the context would mellow down resistance.

Firstly, India has followed a slow trajectory of growth primarily due to the lack of formalisation of structure and processes. Before the demonetisation and Jandhan-Aadhar-Mobile(JAM) initiative, significant numbers of citizens at the bottom of the pyramid had no identity, no bank account and no sustainable savings. Crores of economically vulnerable citizens got formalised in the process. Not only did they get an identity and boost to their self-respect, they became accessible and part of the financial mainstream so that government help and subsidies could be directly paid into their accounts, preventing leakages and minimising corruption.

We have to go miles before formalisation of the economy can be anywhere near the levels achieved by leading economies. Whatever be the flaws in its  implementation, demonetisation pushed millions of citizens to the tax net. The loopholes of agricultural income not being taxable are being misused by many landed and affluent families by escaping the legitimate contribution they should make to the national exchequer. Likewise, GST was a big step in formalising indirect tax structure, though it is still work in progress with key items left out (like petroleum and alcoholic beverages) and too many slabs and rates making the process complicated.

We still continue to be a highly informal economy with 92% of employment in the informal sector and just 8% working with employment contract, regulatory controls and social security coverage. Agriculture (97%), Construction (75%), Trade, Servicing and Food Services (86%)  are sectors that overwhelmingly depend on unorganized workforce. Even in States where some degree of formalisation of unskilled and semi-skilled workforce has been attempted, dubious employers, corrupt enforcers and rent-seeking intermediaries have connived to by-pass the provisions and procedures.  In many states labour laws including minimum wages are observed more in breach than compliance.

We have made laws in most areas where formalisation is called for, but laxity in implementation and low rate of conviction have taken the fear out of the rule of law. Justice may well be delivered but after enormous delays and passing through successive escape routes where the enforcement personnel may err on the wrong side, many times out of indifference, ineptitude or connivance.  

There are experts who argue that as job situation is indeed precarious, formalisation would further erode opportunities and encourage employers to circumvent rules and procedures. The solution lies not in going soft on regulation and control, but in simplifying the processes in the first place and allowing the flexibility to hire, pay, retain and terminate employees in a transparent, formal and empathetic process with adequate social security net. Limited term contracts with full end-of-service packages and a system of fall-back sustenance wages upon job loss should be part of the labour reforms to facilitate movement to a formal structure. Reforms on these lines are in the pipeline. Hope the pipeline doesn’t get corroded as in the past.  

Secondly, along with formalisation, digitalisation of processes can go a long way in reducing delays, eliminating discretions and nepotism, appropriate targeting and payments to beneficiaries as well as plugging loopholes of leakage of funds. Though India is a major source nation for global talent in IT and IT-enable Services, we have a long way to go to digitalise and roll out smooth, efficient and reliable services across most of our own public governance domain. In fact, formalisation is complete and effective only when supported by an end-to-end digitalisation of processes. The net effect of these two changes would be better quality of service delivery to customers and public. The efficiency, reliability and resilience of governance processes would make organizations productive and robust.  

Thirdly, there is rightfully a sense of urgency in the next phase of India’s economic development journey, since we are starting with a significant handicap due to the lockdown disruptions and slippages. We neither have the luxury of the habituated ‘chalta hai’  attitude nor do we have resources and competencies within the Government sector to do a solo catch up lap.

Indian economy’s variety, flexibility, strategic depth and futuristic ambitions are almost entirely in the private sector. It makes enormous sense for us to expand and upgrade the role and responsibilities of the private sector in driving the transition to world standard manufacturing and services.  The public sector has land, leveraging ability to access and deploy funds including preferential loans from global and regional multilateral agencies.  Forging effective public private partnerships and special purpose vehicles, Governments both at Centre and States can catalyse core infrastructure and business projects. We would most likely see significant larger and more critical role for private sector in nation building than in the past. Expecting the next economic push to come solely from public sector is naïve and time-wrapped strategy devoid of expediency. Our future growth path ideally needs effective handholding by public and private sectors in a win-win partnership. We should see larger role for State Governments in forging Public Private Partnerships for speedier growth. The Centre should facilitate large laggard States like UP, MP, Bihar and Rajasthan which have got land, market breadth and pool of young workforce to shed lethargy and ideological hangover to positively look at partnering with private enterprises including global investors.  

Fourthly, Human Capital curation and mobility across sectors and regions are critical for economic development. Shifting massive labour surplus from agriculture to value added manufacturing and allied services needs to be done on top priority. Too many labourers, that too without skill sets in advanced farming, is one reason for  abysmal agricultural productivity in India. Churning of  labour and encouraging skilled labour migration would help right-size our farming and uplift rural economy through diversification beyond farm labour. Skill mapping and right-skilling of the migrant labour, most of whom lack employable skills aligned to the emerging needs should be top priority for the Governments. The primary responsibility should lie with the States with the Centre playing the role of facilitator.

Lastly, empowering the front line through decentralisation and devolution of functions, authority and responsibilities would yield better and faster results. In the next phase, the States, City Administrations,  and Panchayats should be encouraged and empowered to assume greater roles. They need to seed, nurture and strengthen grass root level people participation in economic and political programs.

The above four strategic thrusts would provide the focus and empowerment to build a new, promising future on the other side of the interregnum. When the transformation is done, people at large should be able to say, “We did it”.

 

*Ravi Kumar Pillai is a practising strategy consultant, trainer, coach, mentor and start up enthusiast based in Trivandrum. He can be contacted at ravikumarpillai9@gmail.com