Is this an opportunity for India to press the 'reset' button?

In the midst of a crisis

According to Foreign Affairs, the Indian Prime Minister deserves praise for his swift and timely actions. The country evacuated its citizens from China, Iran, and other epicenters of the outbreak in February and March. They also closed their borders to most foreign visitors and launched a testing and contact tracing campaign for returning Indian citizens. In late March, when the coronavirus had spread significantly within the country, the Indian government declared a nationwide lockdown, which has since stabilized the infection rate. Observers suggest that if Modi seizes this opportunity to address the country's underlying problems while combating Covid-19 and dealing with the economic consequences of the pandemic, he could emerge from the crisis stronger, both domestically and internationally.

Passengers wear face masks on the subway in New Delhi, India. Photo: Xinhua.

The reality is that after his re-election in 2019, the Modi administration demonstrated a concerted effort to boost economic development. However, in the early months of this year, India remained in the midst of a severe economic downturn. The International Monetary Fund (IMF) recently reported that the second most populous country grew by only 4.2% in 2019, much slower than previously forecast and a sharp decline from 8% in 2016. Modi's administration has been struggling to create jobs for its young population, as the unemployment rate is at its highest level in 45 years.

The pandemic exacerbated the job crisis. In late March, Modi took drastic action, issuing a nationwide stay-at-home order and closing most shops and businesses. As a result, India's unemployment rate nearly tripled, from 8.7% to 23.4% in just one month. The lockdown also affected millions of the country's poor working in the informal sector and hundreds of thousands of migrant workers who were stranded. Media outlets both inside and outside India broadcast scenes of thousands of migrants crowding bus stations in major cities, trying to get tickets to return home to escape the pandemic, prompting Modi to apologize for the abrupt lockdown.

Nevertheless, it's undeniable that India's nationwide lockdown was the right move. Thanks to Modi's swift action, by early May, the country of over a billion people had only recorded around 33,000 positive Covid-19 cases. Updated figures show that the rate of new infections is slowing down, with the number of cases now doubling every 10 days, compared to every 4 days at the beginning of April.

Indian citizens light candles to show their determination to fight Covid-19 in Mumbai in April. Photo: Reuters

Of course, according to experts, it is still too early for India to celebrate. A lack of widespread testing means the country may still have many undetected cases. As a precaution, India has extended the lockdown for another two weeks, until May 3rd. In the coming days, Mr. Modi will face immense pressure to balance pressing public health concerns with the economic damage caused by the lockdown. The IMF forecasts that Covid-19 will cause India's economy to grow by only 2% in 2020, while other analysts believe it will even shrink by 1% this fiscal year. India may suffer its lowest growth rate in 40 years due to the pandemic.

The government has announced a $22.6 billion economic stimulus package, including cash payments and food security measures for millions of poor people. Meanwhile, the Reserve Bank of India has lowered its benchmark interest rate to a record low of 4.4% and injected $49 billion to increase liquidity in the financial system. However, the government will need to consider further measures to chart a path to economic recovery, as the pain remains, especially given the awareness that easing social distancing measures too soon could lead to disastrous consequences.

"A complete transformation"

India could emerge from the crisis severely depleted, or stronger, furthering its long-held aspirations of becoming a global power. Which path India chooses depends on whether Modi's government, while addressing Covid-19, can simultaneously achieve progress in three key areas: economic reform, regional stability, and internal social cohesion.

US President Donald Trump and Indian Prime Minister Narendra Modi. Photo: PTI

The government must avoid the "temptation" of relying on "instinctive" protectionist measures. Since March 24th, India has imposed restrictions on the import of certain medical supplies and equipment, as well as pharmaceuticals and raw materials. India – the source of nearly 40% of generic drugs in the US – could disrupt US supplies through such measures. After President Donald Trump personally spoke with Mr. Modi in early April, India agreed to partially ease the export ban on the anti-malarial drug hydroxychloroquine. They would gain international goodwill if they eased trade restrictions on pharmaceuticals, medical supplies, and equipment.

Holding a large majority in Parliament, Modi can leverage the current urgency to enact structural reforms, improve infrastructure, streamline the tax code, increase labor market flexibility, reduce bureaucracy hindering business, and open up more to imported goods and foreign investment. This is the only way for India to quickly access global finance and supply chains necessary to boost domestic production and create jobs post-crisis.

Domestic economic reforms could pave the way for India to gain a stronger position in the world. The country is currently taking a leading role in the fight against Covid-19 in South Asia. New Delhi sent medical teams to the Maldives in March to assist in the pandemic response and is also increasing support for other South Asian countries. Modi also called on the South Asian Association for Regional Cooperation to coordinate action and initiated an online summit in March. Along with that, they announced plans to establish an electronic platform to help health officials exchange information about the pandemic.

An Indian soldier patrols along the border with Pakistan. Photo: moderndiplomacy.eu

These are positive signs, but regional stability and cooperation ultimately require de-escalating tensions with Pakistan, a task Modi has yet to accomplish. During the pandemic, tensions simmered, not only impacting regional security but also crippling diplomatic and medical resources that India could have used to demonstrate a greater role internationally, contributing to a more stable balance of power in the Indo-Pacific. Modi's current task is to unite the nation and prevent a health catastrophe. The Indian government could turn the current situation into an opportunity to boost confidence in democracy.

With four years remaining in his second term, if Modi can now curb the spread of Covid-19, implement economic reforms, assume regional leadership, and ease domestic tensions, he could help India emerge as a global power, something many of its citizens, as well as a significant portion of the international community, hope to see.