In the long run we are all dead
-J.M. Keynes
The world economy is in a quagmire as a result of the covid-19 pandemic. Keeping the economy unconscious has its excruciating costs which India cannot afford at this critical juncture. With the anticipation that there won’t be a second wave of the invisible enemy; world economy faces a dilemma with respect to Hibernation and Unconsciousness. This fear is further aggravated by the panic behaviour associated with the fiscal space of the economy. This fiscal space will counteract the socio-economic and financial impact of covid-19. Given the realities, what is the Indian course of action?
The Global Financial crisis of 2007/08 was the outcome of bad businesses and was regarded as an economic crisis stemmed out of Endogenous Shock. On the contrary the pandemic covid-19 is a health epidemic and is regarded as an exogenous shock which has inflicted excruciating costs on humanity and any containment measures are severely impacting the economy.
An important question which stems out at this juncture is “whether the Indian Economy can come back on tract if it is hibernating or it will remain in the unconscious state post the lockdown is lifted?”
Hibernation verses Unconsciousness
Hibernation is regarded as an important tool as compared to unconsciousness because hibernation will; given the fiscal space of the economy put the economy back on track once the lockdowns are lifted and minimize any potential structural damages. On the contrary unconsciousness of the economy will have significant impact on the economic web, which will induce long term consequences as weak fiscal space unfortunately cannot launch the economy back on track once the lockdowns are lifted. With the current fiscal response of the government of India, prima facie evidence suggests that Indian economy is unconscious and not hibernating.
According to the “Centre for Strategic and International Studies— Covid-19 Fiscal response tracker”; India has spent only 0.9 percent of GDP to ameliorate the status of its citizenry. This 0.9 percent of GDP reflects the callous attitude of the state and highlights the inclination of the state towards unconsciousness. The only possible way to hibernate the economy is by inducing enough liquidity in the economy such that both the businesses as well as the populace are at ease once the lockdowns are lifted.
Centre for Strategic and International Studies–Covid-19 Fiscal response tracker
| Country | Total Percentage of GDP ($) | Credit Enhancement | Government spending | Tax Relief | Non-Itemized |
| USA | 13.6 % | 2.6 | 8.6 | 2.3 | 0.0 |
| UK | 12.6 | 7.8 | 4.2 | 0.6 | 0.0 |
| Australia | 12.9 | 0.9 | 11.7 | 0.3 | 0.0 |
| Indonesia | 2.3 | 0.5 | 1.4 | 0.5 | 0.0 |
| Mexico | 3.3 | 0.0 | 0.7 | 0.0 | 2.5 |
| Brazil | 3.6 | 0.3 | 3.2 | 0.1 | 0.0 |
| Argentina | 3.7 | 1.0 | 2.4 | 0.3 | 0.0 |
| Saudi Arabia | 4.9 | 0.6 | 1.9 | 2.4 | 0.0 |
| India | 0.9 | 0.0 | 0.9 | 0.0 | 0.0 |
| Russia | 1.4 | 0.5 | 0.9 | 0.0 | 0.0 |
Source: Centre for Strategic and International Studies–Covid-19 Fiscal response tracker
The table above is sketched out of the data published by CSIS which reflects the government spending or the fiscal response by various economies to contain the virus. It is evident that countries with strong fiscal space are spending in double digits, whereas countries with weak fiscal space especially India is spending only 0.9 percent of its GDP. In such unprecedented times the state should just spend so as to make sure that the virus is contained and the populace is safe. The fiscal burden can be recovered in the longer term. If the state fails to liquidate the economy, then the unfortunate outcome will be an unconscious economy on the ventilators which will take a lot of time to come back on track.
Who can afford Hibernation?
Most of the industrialised west which has the fiscal space to make sure that they strike a trade-off between the lives and livelihood can afford to put the economy under hibernation, whereas most of the emerging economies, especially india cannot afford to induce liquidity on a larger scale because of a weak fiscal space, and hence expose itself to a prolonged state of deep unconsciousness. India cannot afford to remain in coma post lockdowns because the loss of livelihood has induced fear in the populace in such a manner that the revival of the economy if not monetised at this juncture will be delayed by a quarter or two which is unfortunate for India Inc.
Another plausible case for India to hibernate is to make sure that fiscal federalism is in place. Most of the state government’s are in dire need of cash so as to contain if not eliminate the invisible enemy. The opening up of liquor shops will strengthen the finances of states but the centre should make sure they release the pending GST amounts to the state government and clear the extra borrowings as a percentage of state gross domestic products (SGDP). This will ensure that the states which are collectively fighting the virus will be able to strike a balance between lives and livelihood and hibernate the economy such that once the lockdowns are lifted the economic activity will be back on track.
The way forward for Indian economy is Hibernation, and the centre has to make sure that they let the states fight against the enemy because the states and their chiefs along with the populace know a bit more than the centre and its secretariat. The centre should make sure that it provides the necessary liquidity to the state governments and let the country hibernate rather than risking the unconsciousness without the necessary funds. Hibernation has its cost, and unconsciousness has its own. But the trade-off is about lives and livelihood. In the former you secure both, in the latter you risk both.
Sachin Bharat Bahule, Assistant Professor of Economics, Nowrosjee Wadia College Pune
The views expressed here are the author’s alone and do not necessarily reflect Qrius Editorial Policy
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius
