Coronavirus crisis: Why not a salary challenge at the national level?

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The new coronavirus outbreak has pushed the world into a deep recession, the most severe economic crisis since the Great Depression of 1930s. In the latest World Economic Outlook report, IMF has said that the world economy will contract by 3% in 2020. The Indian economy is expected to fare better with 1.9% growth, but this is based on the assumption that the country would roll out fiscal and monetary stimulus to boost growth. But, most emerging market economies, including India, doesn’t have the fiscal room to spend close to 10% of their GDP, needed to stimulate growth.

The 10% nominal GDP growth projections on the basis of which finance minister Nirmala Sitharaman had prepared the Union Budget was itself challenged by several economists and policy makers. By that time, there were tell-tale signs that the economy is facing a severe slowdown. Now the new coronavirus pandemic had made the situation worse for the Indian economy and presented it with a crisis of the magnitude unseen since the country won independence. After the first 21 days of the nation-wide lockdown, the nation has entered the second phase that will hopefully come to an end on May 3.

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States such as Andhra, Telangana and Kerala have resorted to mobilisation of resources through cuts in pay and allowances of employees and pensioners to meet the severe shortage of funds to address the distress among the poor and the unemployed. Kerala has gone a step further, demanding state government employees to contribute a month’s salary towards meeting the unforeseen expenditure. In fact, the state government had done this earlier during the devastating floods in 2018. The demand met with wholehearted support from trade unions. Extraordinary circumstances require of governments to take such decisions. While states have set the trend, there is no reason why the Union government should not do the same. Why can’t there be a salary challenge at the national level?

Given that the separate disaggregates relating to pay, allowances and pension (PAP) are not available at hand in the expenditure Budget, one has to rely on the estimates of the Seventh Pay Commission. The pay and allowances account for 1.8% of the GDP of the country. Back of the envelope calculations give a figure of Rs 4.06 lakh crore for 2020-21. In the worst-case scenario, keeping the outgo at 1.3% of the GDP, this figure comes to Rs 2.93 lakh crore.

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Under the assumption that the pay and allowances outgo is Rs 3-4 lakh crore, if the Union government declares a salary challenge of 10%, it could result in the mobilisation of Rs 30,000-40,000 core. This extraordinary measure would get unconditional support from the public sector trade unionists, provided the government convinces them that the same would be utilised towards supporting income transfer programmes. This would prove to be a much-needed solace, though only a small part of what is required to stabilise consumption in unforeseen times.

Salary challenge apart, given that the revenue projections of the year are never going to be met, the government should not shy away from resorting to the process of monetisation of debt. In these difficult days, “whatever it takes” should be the motto.

(Krishnakumar S teaches economics at Sri Venkateswara College, University of Delhi)