India's chance to press the 'reset' button?

In the midst of crisis

According to Foreign Affairs, so far, the Indian Prime Minister deserves credit for his swift and timely actions. The country evacuated its citizens from China, Iran, and other outbreak hotspots in February and March. It also closed its borders to most foreign visitors and launched a campaign to test and trace the contacts of returning Indians. In late March, when the coronavirus had clearly spread within the country, the Indian government announced a nationwide lockdown, which has since slowed the infection rate. Observers say that if Modi takes this opportunity to address the country’s underlying problems while fighting Covid-19 and dealing with the economic consequences of the pandemic, the leader could emerge from the crisis in a stronger position, both domestically and internationally.

Passengers wearing face masks on a subway train in New Delhi, India. Photo: Xinhua

In fact, after being re-elected in 2019, the Modi government has shown its efforts to focus on economic development. But in the first months of this year, India is still in the midst of a sharp economic recession. The International Monetary Fund (IMF) has just announced that the second most populous country in 2019 grew by only 4.2%, much slower than previously forecast and down sharply from 8% in 2016. The Modi government has been struggling to create more jobs for the young population, when the unemployment rate is at a 45-year high.

The pandemic has worsened the job crisis. In late March, Modi took the drastic step of 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 has also affected millions of poor people in the country who work in the informal sector and hundreds of thousands of stranded migrant workers. Media inside and outside India have broadcast scenes of thousands of migrants crowding bus stations in major cities, trying to get tickets to their hometowns to “escape the pandemic,” forcing Modi to apologize for the sudden lockdown.

Still, there is no denying that India’s nationwide lockdown was the right move. Thanks to Modi’s swift action, the country of more than 1 billion people has recorded only about 33,000 positive Covid-19 cases by early May. Updated figures show that the rate of new infections is slowing, with the number of cases now doubling every 10 days, compared to every 4 days at the beginning of April.

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

Of course, experts say it is too early for India to celebrate. The lack of widespread testing means there may still be many undetected cases. Out of an abundance of caution, India has extended its lockdown by two weeks to May 3. In the coming days, Modi will face intense pressure to balance urgent public health concerns with the economic damage the lockdown has wrought. The IMF has forecast that Covid-19 will cut India’s economic growth by just 2% in 2020, while other analysts believe it could shrink by as much as 1% this fiscal year. India could suffer its worst growth in 40 years because of the pandemic.

The government has already announced a $22.6 billion stimulus package, including cash handouts and food security measures for millions of poor people. Meanwhile, India’s central bank has cut its benchmark interest rate to a record low of 4.4% and injected $49 billion into the financial system to boost liquidity. But the government will need to consider other measures to chart a path to recovery, as the pain is far from over, especially with the awareness that easing social distancing too soon could lead to disaster.

"Change skin and flesh"

India could emerge from the crisis severely depleted, or stronger, advancing its long-held aspirations of becoming a global power. Which path India takes will depend on whether the Modi government can simultaneously make progress in three key areas: economic reform, regional stability, and internal social cohesion while tackling Covid-19.

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

The government must resist the temptation to rely on “instinctive” protectionist measures. Since March 24, India has imposed restrictions on the import of some 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 spoke to Modi in early April, India agreed to partially relax its export ban on the anti-malaria drug hydroxychloroquine. It would gain international goodwill if it eased trade restrictions on pharmaceuticals, medical supplies and equipment.

With a large majority in Parliament, Mr. Modi can use the current urgency to enact structural reforms, improve infrastructure, streamline the tax code, increase labor market flexibility, reduce red tape that hinders business in the country, and open up more to imports and foreign investment. This is the only way to quickly access global finance and supply chains needed to boost domestic manufacturing and create jobs after the crisis.

Domestic economic reforms could pave the way for India to take 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 a medical team to the Maldives in March to help fight the pandemic and is also increasing support to other South Asian countries. Modi also called for coordinated action from the South Asian Association for Regional Cooperation and initiated a virtual summit in March. They also announced the creation of 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 reducing tensions with Pakistan, a task that Modi has yet to accomplish. Tensions have simmered during the pandemic, not only affecting regional security, but also tying up diplomatic and medical resources that India could use to project a greater role on the international stage and contribute to a more stable balance of power in the Indo-Pacific. The task now facing Modi is also to unite the country and prevent a health disaster from happening. The Indian government can turn the current situation into an opportunity to boost confidence in democracy.

With four years left in his second term, if Modi can now slow the spread of Covid-19, implement economic reforms, assume a regional leadership role, and reduce domestic tensions, he can help India emerge as a global power, something many of its people, as well as many international friends, want to see.