·         Dedicated to COVID Warriors.

·         It constitutes 2 volumes

o   Volume 1 – It attempts to provide evidence based economic analysisof the challenges of policymaking and tools to make it more effective.

o   Volume 2 – It reviews recent developments inthe major sectors of the economy with a focus on the challenges faced due to the pandemic this year.

Here, we are providing key highlights from Volume 1.

Chapter 1- Saving Lives and Livelihoods amidst a Once-in-a-Century Crisis

Theme of the chapter - An attempt has been made to provide an assessment of the India’s response for tackling COVID-19.

Important points to note –

·         India focused on saving lives and livelihoods by its willingness to take short-term pain for long-term gain, at the onset of the COVID-19 pandemic.

·         This strategy was also tailored to India’s unique vulnerabilities to the pandemic – high population and population density, high absolute number of elderly and overburdened health infrastructure.

Result of such a strategy - 

·         India’s strategy flattened the curve, pushed the peak to September, 2020. After the September peak, there has been declining daily cases despite increasing mobility.

·         V-shaped recovery, as seen in 7.5% decline in GDP in Q2 vis-à-vis the 23.9% GDP contraction in Q1.

Chapter 2-Does Growth lead to Debt Sustainability? Yes, But Not Vice- Versa!

Theme of the chapter –The chapter throws light on the relationship between growth rate and debt sustainability.

Important points to note –

·         Growth leads to debt sustainability in the Indian context but not necessarily vice-versa. This is because the interest rate on debt paid by the Indian government has been less than India’s growth rate by norm, not by exception.

·         Debt sustainability depends on the ‘Interest Rate Growth Rate Differential’ (IRGD), i.e., the difference between the interest rate and the growth rate.

·         Given India’s growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios.

Policy Recommendations-

·         Desirable to use counter-cyclical fiscal policy to enable growth during economic downturns. This is not a call for fiscal irresponsibility.

Chapter 3 – Does India’s Sovereign Credit Rating Reflect Its Fundamentals? No!

Theme of the chapter – It looks at India’s sovereign rating and analyses whether India’s rating and its fundamentals are in sync with each other.

Important points to note –

·         India’s sovereign credit ratings (BBB-) do not reflect its fundamentals.

·         Credit ratings map the probability of default and therefore reflect the willingness and ability of borrower to meet its obligations. On both counts, India should have highest rating.

Policy implications-

·         Rating methodology needs corrections as they affect FPI flows.

Chapter 4 – Inequality and Growth: Conflict or Convergence?

Theme of the chapter – It looks at the relationship between inequality and socio-economic outcomes vis-à-vis economic growth for India.

Important points to note –

·         In India, economic growth and inequality convergein terms of their effects on socio-economic indicators. This is not the case in advanced economies.

·         Economic growth has a greater impact on poverty alleviation than inequality.

Policy recommendation –

·         Focus on expanding the overall pie - India must continue to focus on economic growth to lift the poor out of poverty.

·         Redistribution in a developing economy is feasible only if the size of the economic pie grows.

Chapter 5 – Healthcare takes centre stage, finally!

Theme of the chapter – The chapter analyses Indian healthcare sector. This is important because COVID-19 pandemic emphasized the importance of healthcare sector and its inter-linkages with other sectors - showcasing how a health crisis transformed into an economic and social crisis.

Important points to note –

·         To enable India to effectively respond to future pandemics, the healthinfrastructure must be agile.

·         National Health Mission (NHM) played a critical role in mitigating inequity as the access of the poorest to pre-natal/post-natal care and institutional deliveries increased significantly.

·         An increase in public healthcare spending from 1% to 2.5-3% of GDP can decrease the out-of-pocket expenditure from 65% to 35% of overall healthcare spending.

Policy recommendation-

·         Emphasis on NHM in conjunction with Ayushman Bharat should continue.

·         A regulator for the healthcare sector must be considered given the market failures stemming from information asymmetry.

·         Telemedicine needs to be harnessed to the fullest by investing in internet connectivity and health infrastructure.

Chapter 6 – Process Reforms

Theme of the chapter – The chapter throws light on the problems of India’s administrative processes. The issue of over-regulation has been illustrated.

Important points to note –

·         India over-regulates the economy. The root cause of this problem is an approach that attempts to account for every possible outcome.

·         Increase in complexity of regulations, intended to reduce discretion, results in even more non-transparent discretion.

Policy recommendation-

·         Simplify regulations and invest in greater supervision which, by definition, implies greater discretion.

·         Discretion, however, needs to be balanced with transparency, systems of ex-ante accountability and ex-post resolution mechanisms.

Chapter 7 – Regulatory Forbearance an emergency medicine, not staple diet!

Theme of the chapter–The chapter throws light on the regulatory forbearance. Regulatory forbearance for banks involved relaxing the norms for restructuring assets. It analyses the consequences of prolonged forbearance policies by taking the example of Global Financial Crises.

Important points to note –

·         Banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy.

·         Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, not a staple diet that gets continued for years.

Policy recommendations-

·         An Asset Quality Review exercise must be conducted immediately after the forbearance is withdrawn.

·         The legal infrastructure for the recovery of loans needs to be strengthened de facto.

Chapter 8 – Innovation: Trending Up but Needs Thrust, Especially from the Private Sector

Theme of the chapter–Survey examines India’s innovation performance in the light of India entering the top-50 innovating countries for the first time in 2020 since the inception of the Global Innovation Index in 2007.

Important points to note –

·         For its level of development, India is a positive outlier.

·         However, India’s gross domestic expenditure on R&D (GERD) is lowest amongst top ten economies.

·         The government sector contributes a disproportionately large share in total GERD at three times the average of top ten economies.

Policy recommendations-

·         India’s business sector needs to significantly ramp up investments in R&D.

·         India must focus on improving its performance on institutions and business sophistication innovation inputs.

Chapter 9 –JAY Ho! PM‘JAY’ Adoption and Health outcomes

Theme of the chapter - It demonstrates strong positive effects on healthcare outcomes of thePradhanMantri Jan Arogya Yojana (PM-JAY).

Important points to note –

·         PM-JAY is being used significantly for high frequency, low cost care such as dialysis and continued during the Covid pandemic and the lockdown.

·         Comparing data from National Family Health Survey (NFHS)-4 (2015-16) and NFHS-5 (2019-20), states having PM-JAY have seen greater improvement on health outcomes.

Chapter 10 – Bare Necessities

Theme of the chapter – It throws light on the access to bare necessities in the country in 2018 as compared to 2012.

Important points to note –

·         The survey creates a Bare Necessities Index to analyse the change in access.

·         Improvement in each of the five dimensions- access to water, housing, sanitation, micro-environment and other facilities.

·         Improved access to the ‘bare necessities’ has led to improvements in health indicators such as infant mortality and under-5 mortality rate and also correlates with future improvements in education indicators.

Policy recommendations-

·         Thrust should be given to reduce variation in the access to bare necessities across states, between rural and urban and between income groups.

·         The schemes such as Jal Jeevan Mission, SBM-G, PMAY-G, etc. may design appropriate strategy to reduce these gaps.