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A post-Covid economy: Towards a sustainable and resilient recovery in India

As the novel coronavirus, Covid-19, rapidly spreads across the world, health services in many nations are increasingly overwhelmed, while the global economy is falling into an unprecedented recession. The World Bank has cut India’s growth forecast for 2020-21 to 2.8%, down from 5% in 2019-20. Informal sector workers and members of lower income groups have been hit particularly hard as their wages have disappeared. The International Labour Organization estimates that 400 million people in India are at risk of sinking deeper into poverty.

The pandemic has reinforced the links between health, environment, and the economy. There is evidence that air pollution has contributed to higher Covid-19 mortality rates. While deforestation has increased our exposure to pathogens carried by wildlife, melting ice due to climate change can release undiscovered viruses frozen in the permafrost.

But this crisis has also demonstrated that governments and individuals are capable of strong and rapid action in the face of an overarching challenge. As India looks to shore up its economy, it is worth reflecting on the other systemic actions that are needed to shift towards a more sustainable and resilient economy. Here are five interrelated recommendations.

1. Invest in sustainable infrastructure

Infrastructure investments are an effective way to boost economic activity and create jobs. But what kind of infrastructure should be built? Data from the 2008-09 financial crisis shows that South Korea, which directed 80% of its stimulus towards green measures, rebounded faster than other economies in the Organisation for Economic Co-operation and Development (OECD). In the United States’ 2009 recovery package developed in response to the Great Recession, investments in clean energy and public transport created more jobs than traditional investments.

India too should take this opportunity to increase support for renewable energy, particularly rooftop solar, through appropriate policies and business models. Decentralized solar power can help spread critical services in remote regions if the upfront capital constraints can be addressed. It should revisit the potential import duties on solar panels, since this may not increase domestic production, but may raise the cost of solar power.

Similarly, scaling up the electrification and adoption of public transport will be critically important to reduce traffic congestion and air pollution. This should involve closer coordination with the electricity sector, and a greater focus on vehicle charging infrastructure. Continued investment in cold storage facilities and supply chains will ensure the preservation and timely delivery of agricultural produce and reduce losses to farmers.

2. Build the resilience of the most vulnerable

About 90% of India’s workforce is informally employed, which includes gig economy workers. This population is extremely vulnerable to economic shocks and needs greater access to formal credit and social safety nets such as insurance and pension schemes.

Beyond employment guarantees, a universal basic income – broader than current schemes that are conditional upon occupation and land ownership – can help provide vital resources for subsistence, or for investing in education and health. Greater access to bank accounts for the 191 million adults that didn’t have one, per 2017 data, would help efficiently deliver this income to households.

Lastly, it is critically important to expand access to clean water, clean air, and primary health care. These will improve life expectancy and increase economic and physical resilience.

3. Use fiscal mechanisms for recovery and resilience

Fiscal mechanisms can help support recovery and resilience efforts, while promoting low-carbon development. The Indian government has announced an economic stimulus of INR 1.7 trillion (USD 24 billion), and is exploring another bailout of INR 750 billion for Micro, Small and Medium Enterprises (MSME), among other steps. Though MSMEs need immediate finance to deal with their wage bills, the government can also infuse capital for them to undertake needed industrial energy efficiency upgrades.

Several sectors, such as the aviation and the auto industries, will need support in order to recover. This will require a consideration of the fiscal situation, and it presents an opportunity to encourage greater sustainability, by making this support conditional on cleaner technologies and fuel efficiency.

Meanwhile, the government can increase taxes on luxury sectors with high environmental impacts. It can also use this opportunity to rationalize fertilizer subsidy and increase taxes on fossil fuels, with the savings and proceeds returned to the target populations through cash transfers or social safety nets.

4. Encourage long-term change in behavior

The current crisis has changed patterns of consumption. Electricity usage patterns have shifted as people are working from home on more flexible schedules. Non-essential purchases have temporarily ceased. All these offer an opportunity for implementing demand-side solutions to drive long-term behavior changes for more sustainable development.

For instance, encouraging conservation in energy – through nudges and tariff reforms – can drive down consumption. Promoting reuse, recycling, and repair models for consumption can contribute to a circular economy and reduce the waste generated by current business models. Supporting the continuation of work-from-home policies can drive down road traffic congestion and air pollution.

While encouraging the continuation of these new trends, the government should also foster new behaviors. For example, with nearly 80% of the population expected to be in the middle-income bracket by 2030, it is extremely important to attract them to public transport options. The government could explore achieving this through expanding connectivity to business districts, improving and streamlining the network, and discouraging the use of cars through measures such as road congestion pricing, paid street parking, and higher taxes on luxury vehicles.

5. Regulate enabling technologies

Finally, it is useful to consider that the future may see greater employment in the gig economy and e-commerce sectors, as well as in new technologies that can help support future response and resilience mechanisms. While supporting the development of such sectors, it is very important to put the right regulations in place, to ensure data privacy and consumer protection.

The decisions taken today can provide immediate relief, but also secure a lasting economic recovery, increase community resilience, and ensure a long-term pathway to sustainable development. We shouldn’t let this chance slip.

This blogpost was originally published in Mint on 24 April.

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