29.05.2020 Author: Vladimir Terehov

India in Lockdown 4.0


Among all the developments that have occurred in India in recent months, those that took place on May 12, 2020 deserve a special mention. On that day, Prime Minister Narendra Modi told the nation that the lockdown would be extended yet again (from May 18 to 31) in light of the continuing spread of SARS COV-2. The same day, he also announced a stimulus package to provide relief to all those who have been suffering because of the restrictive measures taken to contain the Coronavirus pandemic. In addition, Narendra Modi indicated that India would undertake structural economic reforms that have been under discussion for quite some time now.

The government help amounts to an enormous sum of $270 billion, which will be made available in four tranches. The money accounts for approximately 10% of the nation’s annual GDP and about 80% of the recently approved Union Budget of India. The country’s financial year starts on April 1 of each year and ends on March 31 of the following year.

It is worth pointing out that the budget for 2020-2021, which was passed by Lok Sabha (the Parliament of India) at the end of March, had been prepared as far back as the end of January. And at the time, absolutely no one could have predicted the dire economic consequences of the SARS COV-2 pandemic for all the nations without exceptions. In fact, the World Health Organization called COVID-19 a global pandemic almost a month after India’s annual budget for 2020-2021 had been compiled.

And during the approval process at the end of March, it became apparent that changes would have to be made to the budget because of the worsening epidemiological situation in the country and the need to resolve problems stemming from it. Again it is worth reiterating that none of these issues had been anticipated at the beginning of the year.

Towards the end of April, i.e. at the end of the 2nd stage of the nation-wide lockdown declared on March 25 (initially meant to last for 3 weeks), the situation in the country took a serious turn for the worse. Since India implemented one of the toughest lockdowns in the world during the first and second stages, such actions essentially paralyzed the economy on every level and led to clearly negative consequences for individuals as well as various legal entities, especially medium-sized businesses, in India. And the first tranches of Narendra Modi’s package are meant to provide immediate assistance to average-sized companies and to agriculture, which is becoming a critically important sector of the nation’s economy. Over several days, following the announcement on May 12, Minister of Finance and Corporate Affairs Nirmala Sitharaman elaborated on the details of the stimulus plan.

It is worth mentioning that the government relief package does not provide for money being simply distributed to individuals and businesses. Key components of the plan include “a 25 per cent reduction in TDS (tax deducted at sources) and TCS (tax collected at source) rate for the current financial year”, that is from May 14 to March 31, 2021, and obtaining loans with greater ease. The measure is estimated to “release liquidity worth” $6.7 billion.

Approximately $120 will be provided to each of the almost 5 million street vendors in India via a special credit facility. Nearly 80 million migrants who have been unable to work due to travel restrictions are to receive altogether 5 kg of grains and 1 kg of pulses per person for free (for a 2-month period). 25 million farmers will be able to gain access to institutional credit ($2,300 per individual) through Kisan Credit Cards issued by the government.

Still, the most important aim of Narendra Modi’s stimulus package is to create the right conditions to ensure India continues on its path (declared during the preparation of the 2020-2021 budget) to become a highly developed nation, excelling in each of its socio-economic spheres. Based on its annual GDP, India replaced its former colonial ruler to reach 5th place at the end of 2019, and since then, the Indian leadership has been tasked with improving all of the aforementioned sectors as rapidly as possible.

This was evidenced in a speech made by Nirmala Sitharaman on May 16, when the Finance Minister “announced bold structural reforms in eight key sectors” of the economy.

At this stage, the author thinks it is apt to digress from the main topic of the article and to once again share his opinion on underlying thought processes that he believes exist among India’s political elites, and that envision gradually positioning India as a successor to the British Empire (within the framework of the concept Empire 2.0). There is also room for India’s former colonial ruler, which is in an uncertain place at the moment after leaving the EU, in this ambitious plan.

India adapted the Westminster model (a parliamentary democracy system) and British traditions are still prevalent (even visually) in this nation’s army. Hence, the process of transforming a former colony into a hypothetical Empire 2.0 would be fairly painless. Members of the royal family may not even need to move to their new capital (New Delhi).

However, for now, all of these plans (including the ability of the Indian government to successfully achieve the aforementioned aims) are purely hypothetical in nature. After all, turning these ambitions into reality is, as always, fraught with challenges. And the key issue here and now is still the SARS COV-2 pandemic.

Earlier, we reported that the epidemiological situation in India, whose efforts against COVID-19 have been praised by the World Health Organization, had been relatively OK in comparison to that in Europe and the United States. India’s success is even more evident once factors that are indicative of the spread of the Coronavirus are compared to those of other nations. After all, 1.3 billion people live in India.

These fairly effective measures to fight the pandemic and, first and foremost, the critical state of the economy (a fact that became apparent as early as the end of April) prompted the nation’s leaders to ease some restrictions during the third stage of the lockdown, which finished on May 17. Other curbs will continue to be lifted during lockdown 4.0, which will last until May 31.

Citing recommendations from the scientific and medical community, Prime Minister Narendra Modi announced the extension of the lockdown, whose fourth stage would take a new form because the Coronavirus was expected to be a part of everyone’s lives for a very long time and hence, “it would be impossible to confine one’s life” around COVID-19.

It is worth noting that during lockdown 4.0, some domestic travel is expected to resume. For instance, starting on May 25, airlines operating within India can restart operations, and from June 1, domestic rail services will also partially resume. However, two important issues are yet to be resolved, i.e. the need for passengers to adhere to safety guidelines and the ability of transportation companies to make a profit in such conditions.

Restrictions still in place remain on the agenda. After all, the growth in confirmed COVID-19 cases has been increasing by almost a third on a daily basis since May 17 (after the rate supposedly stabilized during the previous days). In order to track changes in the overall number of people confirmed to have been infected with the Coronavirus in India, visit the following website.

It is impossible to state with any certainty that the increased growth in COVID-19 cases since May 17 stems, in its entirety, from the easing of restrictions that had started 2 weeks prior. Still, India’s leadership will have to take such numbers into account as they continue with their plans to keep lifting further lockdown measures. A forecast stating that “almost 70% of hotels and restaurants in India” could start closing within the next month is indicative of the fairly pessimistic sentiments prevalent in certain sectors of the economy.

It is also impossible to ignore the external environment that could take a turn for the worse and thus have a negative impact on the plans announced by Narendra Modi. For instance, the situation in one of two mountainous border regions with the PRC, where some incidents involving Indian and Chinese military patrols took place at the beginning of May, has not normalized as yet. On May 20, military sources said that India and the PRC “rushed additional troops” to the border area located in Ladakh.

Then a “certain supporter” of improved ties between India and China, i.e. Washington, decided to get involved. On May 21 (a day before her retirement), Principal Deputy Assistant Secretary and Acting Assistant Secretary for South and Central Asia, Ambassador Alice Wells, expressed her concern about China’s aggressive behavior on the border with India. “Chinese aggression is a reminder of what’s at stake in building a world order and sustaining a world order,” she said.

The Indian government seems to have started on its radical reforms of the country’s economy in a fairly tough internal and external environment. Hence, due to current uncertainties, it is hard to say whether the economic stimulus package announced by Prime Minister Narendra Modi on May 12 would succeed or not.

Vladimir Terekhov, expert on the issues of the Asia-Pacific Region, exclusively for the online magazine “New Eastern Outlook”.