Manmohan Singh’s 3 Steps To Revive Economy

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Former Prime Minister Dr Manmohan Singh has listed out a three-step solution to stem the current economic crisis and restore normalcy in an email-exchange with the BBC.
First,
The government should “ensure people’s livelihoods are protected and they have spending power through a significant direct cash assistance”.
Second,
It should make adequate capital available for businesses through “government-backed credit guarantee programmes“.
Third,
It should fix the financial sector through “institutional autonomy and processes”.

On GDP growth

Dr Singh said, “deep and prolonged economic slowdown” was “inevitable”,
However, “I do not want to use words like ‘depression‘ in a cavalier fashion,” he added.
Regarding the consensus now formed among economists about an economic contraction,
The ex PM said, “which if it happens, will be the first time in independent India.“
He, however, hopes the consensus is wrong.

Dr Singh believes the coronavirus-induced nationwide lockdown announced in March was in line with what other countries were doing.
He said, “perhaps a lockdown at that stage was an inevitable choice.”
“But the government’s shock and awe approach to the lockdown has caused tremendous pain to people.
The suddenness of the announcement and the stringency of the lockdown were thoughtless and insensitive,” he added.
“Public health emergencies such as this are best dealt with locally by local administrators and public health officials, with broad guidelines from the Centre.
Perhaps, we should have devolved the Covid-19 battle to the state and local administrations much sooner.”

Dr Singh says “higher borrowing is inevitable.“
While this can impact India’s debt to GDP ratio, he said,
“(if it) can save lives, borders, restore livelihoods and boost economic growth, then it’s worth it.“
“India’s track record as a borrower from multilateral institutions is impeccable, It is not a sign of weakness to borrow from these institutions,” he added.

Monetisation of the fiscal deficit directly by India’s central bank used to be norm until the mid 1990s.
India, Dr Singh said, had moved away from the practice to bring about “fiscal discipline.
Dr Singh said he was not ruling out printing money to finance the deficit, but “merely suggesting that let the barrier for that to be very high and use it as a last resort when all other options have been exhausted“.

Singh warned against protectionism – imposing high import duties.
He reminded that India’s trade policy over the last three decades brought “enormous economic gains to not just the top but across all sections of our population.”

“The previous crises were macroeconomic crises for which there were proven economic tools.
Now we have an economic crisis caused by an epidemic which has induced fear and uncertainty in society,
Thus monetary policy as an economic tool to counter this crisis is proving to be blunt.”