State action to mitigate coronavirus impact
It is bracing that RBI stands ready to cut rates if needed. Even as the US Fed reduced policy rates by a surprise 50 basis points, Fed chairman Jerome Powell pointed to the limited role of monetary policy in containing the impact of the coronavirus. When supply chains are broken — the links in China having gone into hibernation — lower rates of interest cannot fix the problem. If alternate supplies had been forgone in favour of those in China because of higher cost, lowering import duties might help. Supply chains span many countries. Hyundai might import components from China to South Korea, form larger assemblies and ship them to India. If Hyundai’s plants have stopped working in South Korea, because of missing parts from China, action to induce substitutes has to be taken in South Korea, rather than in India.Increasing the production of needed medical supplies — masks, protective clothing, testing kits, ventilators, sanitisers — is an automatic choice. So are identifying and developing vaccines and cures. If clinical trials anywhere identify an effective drug, India should issue compulsory licences to mass-produce it here. While strategic diversification of supplies is something the world will undertake, at least in the case of things like active pharmaceutical ingredients, it would not be economical to replicate that strategy in every case. When the virus scare disappears and Chinese factories hum again, their output would outcompete any new fledgling alternate supplies, unless these are ring-fenced by high tariffs, raising the cost to the consumer and inviting a race to fragment global production. What is feasible is to accelerate the pace of economic activities that are not affected by broken supply chains or fear of the virus, to compensate for slack in those affected by the virus.
Reviving stalled real estate projects, building rental housing in towns, reviving and fast-tracking town-building projects such as under the Delhi-Mumbai Industrial Corridor or Amaravati, Andhra Pradesh’s new capital, would help. These call primarily for policy and vision — not State funds.
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