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Urgent course corrections

Governments at State and Central levels need to increase health expenditure and spending on economy, both of which have been adversely impacted by COVID-19

Urgent course corrections

With the invocation of the provisions of Disaster Management Act, Epidemic Diseases Act, and other rules, India has virtually quarantined itself from the world until April 15. WHO has declared the spread of Coronavirus (COVID-19) pandemic due to alarming levels of, its spread from 48 to 114 countries of the world within seven days, its increased severity, and inaction on the part of many governments. WTO had to cancel all its meetings after one of its officials found to be infected with the virus. The IMF has come out with some new fiscal policies to deal with the new situation saying that governments should protect people from the economic impact of this global health crisis. Those who are hit the hardest should not go bankrupt and lose their livelihood on account of a local shutdown of business and industries because of local quarantine needs. It is in this scenario, India urgently needs a new series of fiscal policies to effectively deal with the situation.

The IMF has $50 billion available in rapid-disbursing emergency financing to help countries suffering from the virus. India must follow the precedence and should plan for an emergency financing plan for the already ailing economy of the country that performed worst in six years in the last quarter. The growth rate for the current financial year is most likely to end up at 4.8 per cent, and may further suffer in the next financial year due to the economic impact of pandemic Coronavirus. Most of the economic think tanks had projected India's growth rate around 6 per cent for the year 2020-21, which has been revised downward by OECD to 5.1 per cent in case of contained corona spread. Since this interim report, we have witnessed an alarming spread of the disease, which has further endangered India's economy.

The world has at present more than 1,26,000 cases and 4,373 people have already died. Out of the infected, India has less than 62 cases, out of which 18 are foreigners, and 44 are Indians who came to India from corona infected countries. There is only one suspected death in Kerala, but the cause of death is yet to be confirmed. All the known patients in India have been quarantined, with three cases of recovery. Kerala has the largest number of infected people at 17. Second is Uttar Pradesh with 11, followed by Delhi NCR with six patients. 14 foreigners have been quarantined in Haryana. The other regions which have reported cases of infections are Ladakh, Rajasthan, Telangana, Tamil Nadu, Jammu and Kashmir, Punjab, Karnataka and Maharashtra. It goes without saying that the situation in India is under control. People coming from foreign countries are being screened and promptly quarantined even if suspected to have the infection. All the states are put on high alert. For preventive reasons, educational institutions in certain areas have been closed. Hospitals are being prepared to face any eventuality, and therefore, there should not be panic among the people. The administration should also not allow people to spread panic. Only awareness among people needs to be spread to prevent and report the incidences of infection if any.

However, in this hour of emergency, India needs several new administrative and financial measures, which are keys to protecting the well-being of its people, more crucially and visibly during such an emergency. The Union and the state governments urgently need to enhance not only the spending on health but also for the other areas of the economy that is being adversely affected due to the impact of Coronavirus. As the IMF, rightly put it, we want 'to guarantee that people are not going to die because of a lack of money'. The priority for governments and the global community is to prevent people from contracting the disease and to cure those who are infected. More health spending can save lives both at home and globally.

Given the virus' rapid contagion, the IMF says that action can help ensure that countries' health systems – including those that have limited capacity – do not become overwhelmed. The health spending must occur regardless of how much room in the budget a country may have. It may not be out of place to mention here that India is a low-income country and almost one-fourth of the people are living below the poverty line.

Therefore, there must be a contingency plan in place beforehand. The IMF has rightly underlined that low-income countries urgently need grants or zero-interest loans to finance the health spending they might not otherwise be able to afford. Experience with past epidemics, such as Ebola, shows that speed in deploying concessional finance is essential to containing the spread of the disease.

The government should also protect people from the economic impact of this global health crisis, which is likely to hit the Indian economy the hardest as per the interim report of the OECD. IMF's suggestions for the governments of the world in this regard are noteworthy. Depending on their administrative capacity, governments can help people in several ways. Governments can spend money to prevent, detect, control, treat, and contain the virus, and to provide basic services to people that have to be quarantined and to the businesses affected. The national government can allocate money for local governments to spend in these areas or mobilise clinics and medical personnel to affected places.

Timely, targeted, and temporary cash flow relief to the people and firms can be provided to the people and firms that are most affected until the emergency abates. Other recommendations of the IMF are to give wage subsidies to people, such as leave taken for self-quarantine or other needs, and firms to help curb contagion; expanding and extending transfers – both cash and in-kind, such as social safety net, especially for vulnerable groups; providing tax relief for people and businesses across the regions and sectors, who can't afford to pay because of the impact of the disease; creating a business continuity plan.

Some of these measures can occur through administrative means and others would require an emergency budget, which would also take stock of the overall fiscal cost. Given the likely impact of corona outbreak and spread on the Indian economy, such urgent health and fiscal measures are required.

Views expressed are strictly personal

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