Pragmatic solutions for the economic challenges caused by the COVID-19 pandemic
Jun 28, 2021
The COVID-19 Pandemic has resulted in the worst global economic crisis since the Great Depression of the 1930s. The world economy has been rendered crippled due to unprecedented recession within two years of the COVID-19 outbreak. The measures to slow down the soaring infection rates by governments and public health experts like restrictions on interpersonal contact (i.e., social distancing), wearing masks in public places, directing for sanitation, hygiene, isolation of infected patients, etc. resulted in the implementation of extended lockdowns by the governments which led to stagnation in consumer activities, a huge fall in tourism, hospitality, business, and stock markets collapsed resulting in a global financial crisis that resulted in many people losing their jobs or being furloughed briefly spiking poverty in many developing nations. The recovery from this crisis is deeply multidimensional involves public health, environmental, and economic measures.
The COVID-19 pandemic has created numerous financial challenges for nations across the globe. The second wave of the current pandemic COVID-19 had devastating consequences for developing countries, especially India, as we failed to set up robust health infrastructure and arrange adequate relief packages to our people and industry. The first world countries like Germany and Italy have earmarked more than 25% of GDP for post-COVID economic stabilization compared to India's meagre 10%.
The International Labour Organization estimates that around 400 million people in India are at risk of sinking deeper into poverty. With nearly 3.5% of the population being fully vaccinated in the country, India's current growth seems bracing up from (-) 7.97% in FY20 to 12.55% in FY21.
The informally employed workforce of India, which is nearly 90% of the population, is extremely vulnerable to economic stagnation and requires greater access to formal credits by the government and social safety nets such as insurance and pension schemes to keep the wheel of the economy moving in these difficult times.
There is a dire need for central and state governments to intensify the response to this unprecedented crisis and also to gear up for the financial crisis post-COVID-19. Policymakers are making use of successful responses to previous epidemics and financial slowdowns but the COVID-19 response requires a battery of interventions to grapple with its multivariate humanitarian and economic impacts. With more than 6.2% of the world population being fully vaccinated, many economies have begun to reopen. Leaders throughout the world have realized that restoring confidence in public health safety is paramount. Here are few suggestions that policymakers can build on as short and long-term plans for a sustainable and resilient economy.
Invest in sustainable infrastructure to boost human welfare and human capital: There is an urgent need to reprioritize budgeted expenditures in favour of health-related expenditures including health infrastructure as recovery depends on protecting public health. Lack of medical facilities in hospitals, paucity of oxygen cylinders during the first wave and second wave respectively, lack of UHC (Universal Health Coverage) calls for reprioritization of investments for saving human lives.
Bolstering human capital to ease the transition to the post-pandemic economy: Policymakers need to invest in programs that ease labour dislocation, re-skilling of individuals to retain employment by tapping into help from existing institutions, connecting the newly unemployed quickly with talent-seeking industries, and build the workforce skills for the post-COVID economy.
Invest in R&D to build and expand innovation ecosystems: In order to attract innovative, supportive, and resilient ecosystems in the country, the policymakers can rejuvenate growth by investing more inR&D and innovation, encouraging public- and private-sector collaboration, challenge grants and competitions, and open networks and publicly available data and code-to attract talent to their area and promote resilient, innovation ecosystems.
Regulate enabling technologies: It is useful for policymakers to consider e-platforms as the future of education and business. Greater employment in the gig economy, e-commerce sectors, and in new exciting technologies on the horizon-robots, artificial intelligence, internet-of-things, etc. can help support future response and resilience mechanisms will emerge. Thus, supporting the development of such sectors and putting the right regulations in place to ensure data privacy and consumer protection is important.
Build a budget strategy for the ground-up approach: It is important that policymakers do away with the "last year plus" structured budget approach and incremental changes rather they should undertake long-term strategic goals with discrete objectives for the new post-COVID reality. The budget strategy should be to determine the operating needs of the activities and programs that contribute to it, rather than making comparisons with the previous year.
Invest in green and clean energy: The novel coronavirus has re-established the link between health, environment, and economy. Presently, it might be the biggest threat for humanity but global climate change eventuating in exposure to a variety of viruses/pathogens could have even more impact especially in the developing economies. It is critically important to expand access to clean water and clean air. These will improve life expectancy and increase economic and physical resilience. Therefore, investing in eco-friendly energy can be a field of view for inclusive long-term improvements.
An economic rescue package for all: The dependency on fiscal measures to reboot the economy is all time soaring after WWII. The IMF could set short-term fiscal stimuli for developing/poor economies to overcome the financial crisis. India, for instance, to meet budgeted expenditure, the fiscal deficit may have to be increased to 9.2% due to the addition of 0.3% of GDP in stimulus rescue package worth INR 1.7 lakh crore announced under Pradhan Mantri Garib Kalyan Yojana. As things begin to normalize, there is a need to revise the existing budgetary numbers that have been rendered irrelevant by the onslaught of the global pandemic.
Support for NGOs and local units: The current pandemic has stripped municipalities' lack of substantial financial resources in meeting the needs during the crisis. NGOs, throughout the country, played a significant role in reaching out to people to combat the deadly virus by providing food, sanitizers, face masks, ppe kits, oxygen cylinders, etc. Policymakers should frame policies pivotal for the smooth functioning of NGOs including grants of FCRA so that they are better equipped to take on future challenges. A collaborative effort by the government along with NGOs and local units is capable of strong and rapid action in the face of an overarching challenge. Such efforts can catapult the extremity caused by the pandemic into the normalcy we look forward to achieve.
Policymakers should provide generous, subsidized loans to businesses to help them survive and cut debts: The economic response needs to focus on maintaining employment for citizens, providing businesses with liquidity support to prevent bankruptcy and closure. Due to insufficient debt deferments, developing countries are facing Sophie's choice as they fail to thrust upon providing relief packages and get stuck with paying back debts at high interest rates which cause an even deeper recession.
The COVID-19 crisis has called out for policymakers throughout the world to foster humanistic values of solidarity, cooperation, and responsibility and to re-balance, rethink how social, environmental, and economic activities are organized. The thoughtful decision taken by the policymakers today is a golden opportunity that can help provide relief to distressed people and can secure a long-term pathway to sustainable development by economic recovery and increase community resilience.
Let's build back better.