Limitations Of India’s Covid Response

Context: The International Monetary Fund’s Chief Economist Gita Gopinath has rightly noted that pandemic policy is economic policy. In this context, there is a need to reassess India’s responses to the pandemic.

Limitations in India’s responses:

• In Fiscal responses: While the government has done well by restarting free distribution of food grains to the vulnerable sections of the population, it should be opened to the rural population.
  • Large spending to boost demand seems infeasible – the government ran a fiscal deficit of 9.5% of gross domestic product (GDP) in 2020-21.
  • Faster than expected economic recovery in advanced economies and tighter global financial conditions could increase risks for emerging market countries
    • India’s public debt has expanded to about 90 per cent of GDP.
    • Another significant increase in government borrowing will be difficult to handle domestically.
• In Institutional responses: Lack of institutional and medical capacity has weakened India’s fight.
  • Testing capacity in a number of states, particularly in rural areas, is extremely limited.
  • Another big example of India’s low institutional capacity is even in the middle of a pandemic; it could not set up sanctioned oxygen plants for months.
• In Vaccination policy: the pace of vaccination has been a big disappointment.
  • The government not only avoided negotiations with foreign firms, but it also didn’t place sufficient orders with domestic manufacturers.
  • While it is obvious to argue that vaccines should be distributed free of cost, but India needs scale, and the private sector can provide that, given the capacity constraints in the public sector.
  • Further, higher prices in the private sector would enable manufacturers to supply to the government at a lower cost.
• In Centre-State coordination: While the Central government did well to not impose a nationwide lockdown this time, leaving everything on the state is not a wise strategy.
  • Asking states to procure from international markets makes no sense, and moreover, requests from states have been turned down by several foreign manufacturers.
  • It needs to be recognised that vaccine procurement will require negotiations and bargaining power, jobs that are more suited to the Central government.

Way Forward:

• The Centre should do all government procurement and transparently distribute it among states.
• Spending on vaccines is unlikely to have a material impact on its finances; instead, it will boost revenues by increasing economic activity.