Corona: Scars Will Remain

The human brain is wired to remember pain, though the body gets instant relief when pain stops. Even as businesses recover and jobs come back, scars will remain in the memory: The shock of suddenly losing incomes and jobs, the long and desperate trudge home, the downward adjustments in expectations of the future, and the switch from working in big, prosperous cities to physical labour at rural MGNREGA sites. Consumers will save more when savings already outpace investment (hence the current account surplus), and banks will be more risk-averse. On the other hand, many are getting back to old livelihoods and some companies are offering incentives to get back their old workers. How creditable do the government’s actions look at this stage? Its economists have put up a persuasive defence of the record till now, but the end results are much worse than in broadly comparable countries like Pakistan and Bangladesh — on both the pandemic and the economy. The shutdown did not factor in migrant labour, and the failure to provide consumption support for millions rendered jobless (to be paid for by monetising the expenditure) is hard to defend. To its credit, though, the government has been busy on longer-term issues. It has put together the elements of its self-reliance package, with production incentives and protective tariff walls. While this approach runs counter to accepted theory and multi-country experience about what works best, there is always some scope for import substitution. Hence, amidst the investment slowdown, there is the trickle of good-news announcements about factories being started by companies moving out of China and starting electronic assembly here. Samsung was a particularly telling example of a company that lost faith in India, pulled down shutters and moved to Vietnam, from where (to add insult to injury) it began exporting to India. Now it is coming back. The new scripts for agricultural marketing and conditions of work spell opportunity. Policies have also been changed for mining and defence manufacture, while the rules for the digital economy are being drafted even as the big boys from home and abroad gird for battle. This is substantive policy and legislative action, and points to a second attempt by the Modi government to get it right on the economy, after the misadventures of the first round. 

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