It seems that in the economic handling of Covid-19, it is not the opinion of ‘eminent economists’, but the detailed understanding of ground realities of the Modi administration which is being proven correct.
What gives us the reason to say so?
Well, recent tweets by Nobel Prize winning economist Paul Krugman, though made in the context of the US that had announced a huge stimulus, validates the approach followed by the Modi government. Krugman argues that the stance that “it is the relief, not stimulus should be priority in a pandemic year”.
Principal Economic Advisor Sanjeev Sanyal puts this in context.
Good to see that American Nobel laureates are finally catching on to India's economic strategy. The initial response to a pandemic-induced shock must be a "cushion" and not a "stimulus" aimed at re-inflating the economy – exactly what we did last March to July. 1/n https://t.co/1ii1GGZjg8
— Sanjeev Sanyal (@sanjeevsanyal) January 21, 2021
Clamour for Stimulus Back Then
In responding to the pandemic, PM Modi’s administration showed it in practice what the likes of Krugman are saying now. The government did all “to help families, businesses, and lower levels of government get through the rest of the pandemic.”
So again, the goal is NOT to juice the economy; it is to help families, businesses, and lower levels of government get through the rest of the pandemic. Don't call it stimulus, and don't tell me what's happening to GDP 3/
— Paul Krugman (@paulkrugman) January 21, 2021
Many had compared the Indian package with that of the Western and developed countries to argue that the Modi government had actually not delivered any ‘stimulus’.
Let’s revisit some of the headlines back then.
Some Admitted That They Are Wrong on Stimulus
While most of the political critics who said that India is not announcing ‘bigger stimulus’ have moved on to other issues, perhaps credit must be given to those commentators who admitted that they are wrong. Columnist Swaminathan Aiyar confessed in one recent interview that he was wrong in demanding further stimulus.
The columnist was quoted saying, “India has kept its fiscal stimulus at no more than 2% of GDP. I have been a critic of this. I have been a critic saying we are not doing enough for the poor. We are not doing enough to push out purchasing power. If you do not have a large enough fiscal stimulus, you will not revive the economy fast enough either. I will only say that I have turned out to be wrong to the extent that I did not believe the economy could revive to this extent without a stronger fiscal stimulus. The good thing about this is the fiscal prudence that Nirmala Sitharaman has followed. It means that the long-term scars of Covid will be much less.”
Modinomics – The Possible Explanation
When the pandemic unravelled globally, nobody had a clue that how long the situation may persist. In such a situation, even if the government pumped in money, the consumer spirit can’t be expected amidst the health risks and social restrictions.
Now look at the countries like Canada, UK and most of the European nations. They may have received praise from “eminent economists” for pumping money earlier, but even at this stage they are unable to come out of the shadows of lockdown. In contrast, India has not only managed the peak pandemic phase comparatively well, it is also now progressing well with a fast-paced vaccination process where it is required to spend resources for a sustained period.
In retrospect, it served well for India in not heeding to fancy ideas of pumping money without a long-term plan. In the meanwhile, it did spend a huge amount of money in ensuring farmers, poor, and working class do not go hungry. It undertook reforms. It spent on infrastructure projects that are long term assets and ramped up its health infrastructure.