IAS Gyan

Daily News Analysis


7th May, 2020


Everyone wants a good stimulus

- It is natural that with a legitimate contraction in economic activity due to the COVID-19 pandemic (and deep uncertainty), which is an endogenous shock, everyone wants a good stimulus.


Good Stimulus:

- The poor must be supported, but what is the best way to do it?

- Who should get what, when should they get it, and how?

- The Reserve Bank of India can print notes, no questions asked, but this is not without serious consequences and the trade-offs need to be understood.


Challenges in providing Stimulus:

- No one appears to understand that you cannot ‘stimulate’ an economy during a supply-side lockdown.

- There are ‘announcement effects’ — both good and bad — that go with the stimulus.

- Any ‘good stimulus’ can only come into effect post lockdown and extensive consultations are on with everyone for that.

- Government revenues will be hit from 2-3% of GDP (given that disinvestment target itself is 1% of GDP and the realisation is likely to be close to zero in the current financial year).

- So, the effective fiscal deficit is going to be somewhere around 7.5 % (if you take into account all the off-balance sheet borrowings).

- No one is ready to face the trade-off that India’s starting point is going to be at around 7.5% of GDP fiscal deficit (net of savings due to both, cuts and deferred expenditure), and then how much more can we afford on top of that?

- On top of this is all the ‘merit expenditure’ on health and direct income support to the poor. - - Can we still formulate a stimulus package comprising 10% of GDP, to be footed by the Central government alone?

- Another mantra being espoused is that bank managers should be incentivised to lend and the government should indemnify loans given during this period. This could well lead to bogus companies springing up overnight to grab the stimulus in collusion with banks.

-  Fifth, there is talk of going to the International Monetary Fund (IMF). Do we really need the IMF’s conditionality-led bailout when there is no foreign exchange crisis for financing rupee expenditure?

-  The government owes about รขโ€šยน1 lakh crores on tax refunds and also had promised to make up for any difference to the States, if the GST did not grow by 14% per annum.


Other Aspects:

- From 1947 to 1997, monetization of the debt didn’t lead to inflation in the economy.

- The Fiscal Responsibility and Budget Management (FRBM) limits are hardly a grand success and routinely all governments have broken the barrier.

- Other countries with huge debt-to-GDP ratios like Japan (>200%) and U.S. (125%) get away with barely a rap on the knuckles but India is pulled up for minor slippages on a 70% debt-GDP ratio.

- Some have argued that bailouts should be based on need and not affordability. Given the data above, can one forget about affordability and print money with all the attendant side effects?

- There is a lot of liquidity in the economy, but limited credit is flowing due to anaemic lending.

- This is the time for it to transfer this to the States as a grant, for one year, to offset the revenue loss to States.

Way Forward:

- Lifting the lockdown will be the first step towards a good stimulus and one does need to un-handcuff a billion people to save their lives too.

Reference: https://www.thehindu.com/opinion/op-ed/everyone-wants-a-good-stimulus/article31521809.ece

Resuscitating multilateralism with India’s help

Need of multilateralism:

- To reduce the further spread of the virus,

- To develop effective medical treatments,

- To curtail the worst effects of the inevitable recession that is already in the offing, cooperation among nations will be necessary.

Role of India:

-  India may be uniquely positioned to help resuscitate multilateralism.

- With the United States facing multiple internal challenges including the prospects of a deeply divisive Presidential election in November, New Delhi (together with like-minded partners even beyond the usual suspects) could assume leadership in strengthening constructive transnational cooperation.

- China is facing a global crises of credibility

-  Temper what is increasingly seen as Beijing’s unilateralist revisionism;

- Revive the promise of the gradual socialisation of China into the international system;

- Its acceptance of the norms and rules that regulate the principal multilateral institutions.


Challenges to Multilateralism:

- The paralysis of all three functions of the World Trade Organization (WTO) — negotiation, dispute settlement and transparency — was one sign of that deep-rooted malaise;

- The severely dented credibility of the World Health Organization (WHO) is just another more recent indicator.

-  The pandemic has heightened the crisis of multilateralism, not created it.

- Multilateralism, in its current form, is incapable of dealing with misuse by “systemic rivals”.

- The misuse of existing rules (or loopholes within the existing rules) by several countries, especially by China (e.g. via forced technology requirements, intellectual property rights violations, and subsidies), to gain an unfair advantage in trade relations was already attracting critique in the last years.


Role of Multilateralism:

- The underpinning assumption of the post-war multilateral system was that peace and prosperity went hand in hand.

- Increasing economic integration and shared prosperity would help enhance countries affinities and contribute to peace.

- None of our multilateral institutions was built for a world where the ties of interdependence, which were supposed to enhance the well-being of all — could themselves be “weaponized” for nationalistic gain, at the expense of other players.


Chinese Misuse of Multilateralism:

- Recognizing the shortages that countries were facing — masks, personal protective equipment, ventilators and more — to deal with COVID-19, China offered to sell these products to countries in need.

- When India complained that test kits imported from China were faulty, China slammed it for “irresponsible” behaviour.

- When Australia indicated that it would conduct an independent investigation of China’s early handling of the epidemic, China threatened it with economic consequences.

- The risks that several actors, including the EU and India, see of predatory takeovers of their companies by China.

- The pandemic is teaching countries, through bitter experience, that weaponised interdependence is not just a theory but a practice that is rapidly evolving.


Reforming multilateralism

- To argue for a multilateral rules-based system will never suffice on its own; one must always address the issue of the goals and values that underpin the rules.

- First, of course, is the need for reassurance and policies that reflect a renewed commitment to the raison d’étre of multilateralism. A “retreating” United States must, of course, demonstrate in word and deed that it remains committed to strengthening global supply chains which are based on the promise of ensuring global stability.

- Second, there is an urgent need for some strategic decoupling, handled smartly in cooperation with other like-minded countries.

- Third, flowing from the above, a multilateralism that recognises the need for decoupling will necessitate closer cooperation with some and distancing from others.

- Membership of such renewed multilateral institutions would not be universal; rather, one would limit deep integration to countries with which one shares first-order values — such as pluralism, democracy, liberalism, animal welfare rights, and more.

A role for India

- India has also maintained a consistent reserve about a blanket entrenchment in global value chains.

- As some constituencies in the West seek a gradual decoupling from China, they would be well served to look toward India.

- India could work closely with the Alliance for Multilateralism (an initiative launched by Germany and France) to shape both the alliance itself and the reform agenda at large.

- Working together with a group of countries from the developed and developing countries could further amplify India’s voice.

- While China may recover faster than most economically, and its military might remains intact, its image as a reliable partner has suffered a huge dent.

- Neither aid diplomacy nor the unleashing of Chinese soft power can easily recover the trust deficit that exists today between China and much of the rest of the world.

- India could lead a coalition to bridge this deficit of trust through a regime of incentives and sanctions that seek to embed Beijing into a much more guided and directed socialisation into the rules of the international system.


Reference: https://www.thehindu.com/opinion/lead/resuscitating-multilateralism-with-indias-help/article31521059.ece


The mark of zero

-Kerala appears to have finally hammered the curve flat.

-  On May 1, for the first time, the State reported zero new cases, and again on two consecutive days — May 3 and May 4.


Strategy by Kerala to contain the Virus (Kerala Model):

- Kerala did not wait for directions from the Centre but instead led from the front.

- When the number of cases increased to 12 on March 10, a day before WHO declared the coronavirus a pandemic, Kerala shut down all educational institutions and entertainment centers, banned large gatherings and appealed to people to avoid visiting religious places.

- on May 2, the ICMR lauded the State for the “unparalleled” containment and testing strategies and referred to it as the “Kerala model”.

- Kerala contained virus transmission by quickly tracing all the contacts.

-  It followed textbook epidemiology protocols to the tee, and beyond, and well before the ICMR advocated them.

- Political leadership, and the close and complete involvement of the government at all levels with the bureaucracy and local community have been a huge advantage.

- The very different health-seeking behaviour and high literacy too have played a pivotal role in the war against the virus. 

- Success is a result of decades-old social revolution and development.


Reference: https://www.thehindu.com/todays-paper/tp-opinion/the-mark-of-zero/article31513923.ece



‘Darbar Move’ burdens exchequer, says J&K HC

About Darbar Move:

- It is 148-year-old practice of shifting capitals annually between Srinagar and Jammu.

- The practice was introduced in 1872 by a Dogra monarch to escape the harsh winters of the Kashmir Valley.

- Regional parties advocated the continuation of the practice “to help in the emotional integration between two diverse regions” of J&K.

- It is burdening the exchequer.


Reference: https://www.thehindu.com/todays-paper/tp-national/darbar-move-burdens-exchequer-says-jk-hc/article31513957.ece



Poor find access to accounts hard: study

Government statement:

- Beneficiaries include 20 crores poor women who received the first installment of Rs. 500 in their Jan Dhan bank accounts, indicating more than 98% coverage of the target group.

- Finance Ministry data showed that Rs. 34,800 crores has been transferred so far.

- Almost 3 crores pensioners, 8.2 crores farmers, 2.2 crores construction workers and 45 lakh salaried workers also received benefits.


Survey Finding:

- A survey of 130 rural families in Uttar Pradesh, Chhattisgarh, Gujarat, Odisha, Jharkhand and Madhya Pradesh, conducted by students and volunteers under the guidance of development economists Reetika Khera and Jean Dreze at the end of April.

- Of those who did go to the bank, 80% were able to successfully withdraw cash.

- One in five returned without any money.

- Only five respondents were able to access money outside their banks through ATMs, banking correspondents or customer service centers.

- The problem with the government’s decision to give female Jan Dhan account holders Rs. 500 is that many poor women have non-JDY accounts.

Reference: https://www.thehindu.com/todays-paper/tp-national/poor-find-access-to-accounts-hard-study/article31522369.ece


Fall in key treatment categories

Data from PM-JAY portal:

- Cardiology treatments offered under the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) declined 45%;

-  ‘General surgeries’ plummeted 23%

- Procedures related to gynecology and obstetrics nosedived 25% from February to April.

- General Medicine showed an increase.


Reasons for declining services:

- With the lockdown, private hospitals has largely shut down.

- Government itself is encouraging people to visit hospitals only for essential treatments. 

- With several reports of COVID-19 infections in healthcare workers and doctors, the number of visits to hospitals in general saw a decline.

- General medicine [that has shown an increase] could be because it covers a range of conditions from fever, respiratory illness and even COVID-19.



- It offers health insurance to 10.74 crores poor, rural families and identified occupational categories of urban workers’ families.

- The government-backed project offers an annual cover of Rs. 5, 00,000 per family (on a family floater basis).

- It covers medical and hospitalisation expenses for several secondary care and tertiary care procedures.

- These services can be accessed at several private hospitals also.

- Identification of beneficiary based on Socio –Economic Caste Census.

- No restriction based on Family Size, age or gender

- Unlike other insurance schemes, there is no waiting period for pre-existing diseases.

- The benefit cover pre and post hospitalization expenses.

- Incurred expenditure will be shared between Central and State government in a specified ratio.

-  It will subsume the existing Rashtriya Sawasthya Bima Yojna, launched in 2008 and the Senior Citizens Health Insurance Scheme.

- It will create a network of health and wellness infrastructure across the nation (for primary health care services).

- The Government aims to open 5 lakh health and wellness centre by 2022 that will be equipped to treat various diseases.


Reference: https://www.thehindu.com/todays-paper/tp-national/fall-in-key-treatment-categories/article31522378.ece



Pigs die of suspected hog cholera in Meghalaya

Suspected hog cholera has killed at least a dozen pigs across two districts of Meghalaya.

Suspected hog cholera:

- It is classic Swine Fever.

- Swine flu is an infection caused by a virus.

- It is named for a virus that pigs can get.

- People do not normally get swine flu, but human infections can and do happen.

- In 2009 a strain of swine flu called H1N1 infected many people around the world.

-  It causes generalised disease, including fever, malaise, and lack of appetite, diarrhea, paralysis, abortion, mummification and the birth of shaking piglets. 

- Pigs and wild boar are the only natural reservoir of CSFV. All feral and wild pigs, including European wild boar, are susceptible.


Reference: https://www.thehindu.com/news/national/other-states/pigs-die-of-suspected-hog-cholera-in-meghalaya/article31520758.ece