April , 2021
Policy response to pandemic in different economies: an analysis
12:08 pm

Rajiv Khosla


On March 23, 2020 Prime Minister Narendra Modi declared the nation wise lockdown against Covid-19. However, India was not the only country to declare lockdown as many economies of the world had already done the same to counter the pandemic. In fact, by April 2020, almost half the world’s population was under lockdown. Respective governments also undertook reparatory measures to deal with the associated multifaceted problems as per their capability.

A recent report released by McKinsey Global Institute brought out in detail the steps taken by the developed economies to combat pandemic. On the whole, this report describes the enactment and execution of policies pursued by 22 developed economies of the world including Europe’s major economies, United States, United Kingdom, Australia, New Zealand, Canada, South Korea and Japan.

Policy response by the developed economies

An in-depth examination of this report reveals that developed economies largely kept their fiscal expenditures directed toward the welfare of masses. Where European governments spent $2343 per capita more in 2020 vis-à-vis 2019, USA spent $6572 per capita more in the same time period. Governments of the developed countries were well conscious that although employment opportunities had increased in the recent past, yet, the average wage increase had confined itself to just 0.7% between the years 2000 and 2018 owing to the polarisation of jobs.

In contrast, the cost of basic necessities such as rent, health care and education rose sharply in proportion to the income. Thus, from the very beginning of the spread of Covid-19, governments of these developed economies began to devise effective strategies to protect the people from the immediate effects of the pandemic.

These governments formulated their policies as a double edged sword. Where on one hand, efforts were made to retain the jobs of the workers, on the other; direct financial backing was provided to the workers rendered unemployed. Activité Partielle in France, Job Keeper in Australia, Furlough in England, Pay Check Protection in United States, and Kurzerbeit in Germany remained some of the schemes that were devised to save the jobs of workers.

Effective and timely course of action led to the protection of employment and personal income at a greater level in all these countries and especially, in United States and Europe. In Europe, when GDP fell to -14% in between October 2019 to June 2020, employment fell by just 3% and disposable income of the people fell by only 5%. In contrast, in United States, where GDP fell by as much as -10%, disposable income of the people rose by 8%.

Governments in other countries not only suspended an annual increase in rent in housing sector, rather provided varied concessions to the people for the payment of current year rent. In healthcare sector too, governments guaranteed free Covid-19 testing to the people who were without health insurance. Business owners were also directed to provide at least two weeks’ paid leave to the staff who got infected by the virus.

Governments of Germany and England banned the companies to distribute profits and bonuses to any stakeholders, as profits to the companies amid slowdown accrued on account of the extension of government-backed fiscal packages. Few corporates (in US and Europe) stood strong with the government in providing job and wage protection to the workers despite themselves incurring massive losses to the extent of $1 trillion. These corporates also didn’t mind going a step ahead in the service of mankind keeping at bay their costs, profits, labour laws and prevailing labour contracts.

Resultantly, the savings of the residents of developed countries increased instead of getting down. In future, with an increased inoculation of vaccine, when these economies will become fully operational, the augmented savings will get spent, thereby leading to an increased demand which will be decisive in providing additional investment opportunities for the investors, jobs to the people and increase in GDP for the government.

By and large, these capitalist economies have demonstrated an exemplary character of making decisions in favour of the general public during obscure and difficult situations, setting aside all rules and regulations.

Policies in a welfare economy

After analysing the policy framework of developed economies, naturally it comes to mind what efforts have been taken by our welfare government in the interests of the general public. First endeavour by our government that strikes the brain is related to the announcement of the mighty package of `20.97 lakh crore, the reality of which is that in a country of 135 crores people, it tantamount to $215 per capita, which stands insufficient in every respect. During this crisis period, central as well as state governments continued to squeeze the common man by imposing direct and indirect taxes.

Poor and inhumane planning of our governments’ gets surfaced only when an in-depth analysis of the steps taken by the governments are made. Slowed and derailed Indian economy already facing the shocks of Demonetisation and GST was put under stern lockdown at a notice of just four hours. No measures were thought of to be pursued before imposing the lockdown to counter the aftershocks of lockdown particularly regarding the retention of jobs, or to save the lives of those who lost their jobs. 

Migrants who preferred to move back to their villages owing to the loss of jobs in urban areas were step treated, given an atrocious treatment and left to die on railway tracks and roadsides. Amid murky state of affairs, demand in the economy started getting down, to counter which the companies started ejecting its human resources. Simultaneously, these corporate honchos took full advantage of the moratorium or deferral of repayment of loans and availability of capital at spectacularly low rates of interest by the banks.

However, owing to the low demand in the economy, these business houses started distributing dividends and buying each other’s shares thereby causing the stock market to set new records on a daily basis, instead of kick-starting the economy by way of additional investment. 

No respite was offered from any side to the general public during this hour of crisis. Basic necessities like petrol and diesel prices that have cascading effects were hiked and the government blatantly refused to reduce them. Besides, the allocation for petroleum subsidy -meant for cooking gas and kerosene, was also reduced from `40,915 crore to `12,995 crore. Allocation on other welfare schemes such as MGNREGS, PM-KISAN, Jobs and Skills Development Program, Prime Minister’s Employment Guarantee Program, etc. have also been reduced. Above all this, government stopped the revision of dearness allowance for government employees from January 1, 2020 to June 30, 2021. Ironically, the government imposed a tax on interest income accruing on account of employee’s contribution in excess of `2.5 lakh (`5 lakh where employer’s contribution is not made).

Further, an increase in import duty because of the ongoing process of making India self-reliant (Atma Nirbhar), has led to an increase in the cost of raw material for the companies, which has eventually been shifted on to the consumers. Surprisingly, many commodities and products which were earlier brought into the lower tax slab of GST by the Council, the benefit of it was denied to the consumers and the government’s National Anti-Profiteering Authority kept watching it as a silent spectator.

Since, the central government has defaulted in providing the states with their due share in taxes, hence, the state governments are also imposing higher taxes on the subjects falling under their jurisdiction, the burden of which is borne by the consumers. Data shows that the central government will generate about 15% of its total revenue from cess and surcharges during the year 2020-21, which will not be shared with the state governments.

From the above discussion, it may not be wrong to construe that even during such tough times, our governments are concerned about their coffers so that they may spend uninterruptedly on futile ventures like Central Vista (`20,000 crore) and VIP Aircrafts for the Prime Minister and the President of India (`8548 crore). Stark reality is that where in the year 2020, forty more Indians entered the list of top billionaires, the World Bank report highlighted that pandemic will push about 7-10 million Indians below the poverty line.

To sum up, the kind of opportunistic and pro-capitalist policies that our welfare government has pursued during the pandemic has made it almost impossible for the Indian economy to get back on track in near future, even if the proponents of the government may claim that its policies remained pro-people.


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