The government has acted as the employer of last resort and the central bank as the lender of last resort.
“As Shaktikanta Das pointed out that India is facing a double crisis- both on the health and macroeconomic front. Thus, the government needs to bolster the central bank’s efforts with commensurate government intervention. At the time of the pandemic, the Indian monetary and fiscal policies were directed at flattening the curve, thereby containing the pandemic and putting an end to the tradeoff between lives and livelihoods” said Dr Lekha Chakraborty.
She was attending a webinar on Monetary and Fiscal Policy Responses to the Pandemic and the State of Gender Inequalityorganized by Gender Impact Studies Center at IMPRI Impact and Policy Research Institute as part of the series, The State of the Gender Equality – #GenderGaps.
The grave effect of the pandemic is observed in the loss of nine trillion dollars in the cumulative global GDP. To fight on the macro front, the central bank came up with two-dimensional policies, one, based on urgent economic firefighting like ensuring liquidity infusion to stabilize the market, and second, with a long-term perspective by lowering the effective interest rates, purchasing assets, unlimited lending facilities to keep credit flowing to households and businesses, all targeting inflation, similarly as done by United States Fed. European central banks came up with emergency packages. All the nations irrespective of western or Asian are involved in debt deficit dynamics.
Unlike developed countries, fiscal space is a series of concern facing the Indian government due to revenue uncertainty. Hence revenue stability was the cornerstone of relief packages introduced by the government. The packages introduced by the government was in the continuum, though they were not the major proportion of GDP. Over March, since the lockdown, there has been the episodic announcement of economic relief packages to infuse liquidity. Many announcements were short term in nature and may realize benefits in the long term
Looking into the gendered impacts of the lockdown, the government realize the socio-economic cost borne by the women of Indian. They resorted to cash transfers in women Jan Dhan Accounts in the lower-income households and ensured the policy for women in energy infrastructure, gender budgeting policy of giving cleaner fuel to women belonging to the lower-income class.
These were two clear direct policy initiatives undertaken by the government to promote gender equality amidst the pandemic. It recognizes women and realizes that half of its nation’s population was subjected to work loss, domestic violence, and mental health issues and so it acted as the institution for last resort by introduced gender-sensitive episodic packages.
Dr Chakraborty is working on a project by UN Women on gender assessment of economic relief packages. She has observed that in the Asia-pacific region, the interest rates for women entrepreneurs is weak in some regions whereas in some accessibility to credit takes more importance than the cost of credit. In the context of India, she highlighted the dual burden of employment and care economy which is complemented with domestic violence and mental health issues.
She believes, the government acted as an employer of last resort, where it guaranteed employment to women under NREGA and provided an ability to earn income while participating in economic activity, a basic income is achieved. This raises questions on the viability of basic income and participation income in the economy. ‘’Fiscal consolidation can affect the capital infrastructure formation and human capital formation which can ultimately roll into a humanitarian crisis’’ – Dr Chakraborty
The focus should be on health and education in the subject economic relief stimulus without which India would slide to pre 1980’s level and greatly diminish its indicators like life expectancy and deepen the digital divide. An equally alarming area of concern is unemployment which needs to be tackled from a gender-sensitive lens by accounting for the unpaid care economy. The government of India has been favouring participation income. Designing an economic relief package in times of emergencies should focus on both the humanitarian crisis and the revival of the economy.
By the numbers released in October 2020, it is observed that the economy is recovering, but is it sustainable? Industries are reviving, but in terms of credit deployment, there are no takers in the economy and thus there is no demand. The monetary policy committee reduced the repo rate at 4 per cent but the ultimate aim of this move won’t be realized if commercial banks won’t borrow from the central bank. Ultimately, the credit would not reach the consumers unless commercial banks also reduce interest rates. Thus, RBI nudges commercial banks to lend.
But data shows despite this nudging process, the commercial banks were parking funds with RBI with a reverse repo rate. Thus making monetary policy ineffective. This ineffective monetary policy led to the dominance of fiscal policy to create a stimulus in the economy.
policies around education, health, and income should be made to reduce inequalities, not for business state relations.
To finance the fiscal deficit, there are three major sources of finance: print currency, that is, monetary mechanism support fiscal deficit, bond financing, and external source financing. However, each of this source has its own economic consequences. The other source is to reach multilateral agencies but their decision is attributed to the economic decisions of the country, thus putting a country in a financial oligarchy. To re-emerge the thought process, Dr Chakraborty says public debt is not bad in times of emergencies without a strict threshold of debt to GDP ratio to avoid constraint expenditure.
To attain fiscal consolidation, tax buoyancy can be effective but expenditure compression and downsizing government to reach that point can be harmful. It can hinder capital infrastructure formation and human capital formation. At times of pandemic, it can lead to a humanitarian crisis.
To tackle the issue of the digital divide in the education sector, state governments need to introduce tailored policies by developing social infrastructure. The policies should not be skewed from an economic growth perspective and rather should ensure that nobody gets left out.‘’If we don’t want to allow health, education and income parameters to worsen from their 2020 levels as stated in the Human Development Report, policies should not be based on business state relations and rather should focus on eliminating inequalities’- Dr Chakrabarty.
If you do not deviate from what you promised or announced in your actual spending then you are said to be fiscal marksmanship perfect. Such perfection becomes important to analyze to study whether the government has actually spent what was promised in the relief packages. There is clearly a concern when it comes to the difference in governance for the two sexes.
The simultaneous addressing of the tradeoff of life versus livelihoods supersedes the sequential decision of lives first and livelihoods next then in the latter case more people might out of hunger than COVID-19. Pandemic has brought with it a myriad of opportunities that can be leveraged by introducing adequate labour laws and structural reforms. There needs to be fiscal dominance over monetary policy since it has more limitations. Even during the pandemic, revenue expenditure needs to go hand in hand with capital spending to ensure policy coordination.
Others who attended the webinar were Dr Simi Mehta, CEO, IMPRI; Ms Gby Atee, Researcher, IMPRI; Prof Govind Kelkar, Executive Director, Gender Centre for Research and Innovation, Gurugram.
Acknowledgement: Kashish Gupta is a research intern at IMPRI.
Simi Mehta, Anshula Mehta, Impact and Policy Research Institute (IMPRI)