The challenge of reconstruction in a world battered by Covid-19


Ahead of the G-20 summit in Rome at the end of October, deliberations are underway on what can be done through a global partnership to undo the damage caused by covid. Past experience with the 2008 global crisis was that the G-20 put in place a concerted fiscal stimulus among countries to pull the global economy out of the abyss, but then lost consistency and let each country slow down the recovery. by himself. The taper tantrum in 2013 was the result of the G-20’s indifference to the need for continued concerted action. I do not see an agreed path emerging on how to deal with the problem of taper that is now looming. The G-20 serves the individual interests of the dominant countries, claiming to involve its other members, including successively elevating them to the presidency of the club.

This covid has resulted in a more unequal world that is commonly known. Even though companies around the world have benefited from a sharp reduction in payrolls, there is a shocking new initiative to further squeeze employees as workplaces open up. Those who choose to work from home will receive salaries euphemistically adjusted to their “geographies,” meaning that if they move to places where the cost of living is lower, they will therefore be paid less. work, but more importantly, takes away a new opportunity for outlying regions to see a resurgence of prosperity as people choose to settle there. Will the G-20 really tackle this battle with big companies like Microsoft?

In India this has not happened yet, but we have to make sure that it does not happen. We want company employees to move to district or tehsil headquarters if they think they can operate from there. This could serve as a critical trigger for improving inequalities of access, which existed before covid and made post-covid outcomes more unequal than they otherwise would have been.

Inequality of access to what? The triumvirate of sadak-bijli-pani shades from the public (roads) to the public-supplied albeit excludable and rival (electricity and water). Access to roads has been significantly equalized by the Rural Roads Program, although the rejection of the Fifteenth Finance Committee’s (XVFC) provision for rural road maintenance will result in a serious decline in the quality of rural roads. by 2026. Even national highways are in terrible shape today, although there are significant differences between states in this regard.

Access to water was seriously distorted before the pandemic, although it was not quite a rural-urban divide. Rather, it is the old division between drought-prone and well-watered regions. These inequalities of access have determined transmission rates in the country’s fight against covid.

As for electricity, regional inequality between metropolitan centers and cities and homes on the outskirts remains strong. The market for battery-generated electricity remains robust in small towns and villages. It does not make sense to talk about spatial equilibrium in the economic recovery from covid without doing another serious blow to reform the electricity sector.

Electricity falls under the jurisdiction of states, which retain their right to levy an electricity tax even after the constitutional amendment to introduce the GST. This tax right, by normal reasoning, should have provided states with a clear incentive to promote measured consumption and a progressive tariff structure, so as to increase state tax revenues. Unfortunately, things did not turn out that way. The need to appease voters and funders has made the tariff structure and availability of electricity hopelessly chaotic and unreformed.

The XVFC responded to the urgent need for reform of the electricity sector by recommending that states borrow an additional half percent of the state’s gross domestic product (GDP) per year for four years, including the fiscal year in progress, subject to certain entry conditions. (Article 293 (3) of the Constitution subjects the borrowing rights of the State to the approval of the Center). The additional borrowing was intended to allow state governments to take over the accumulated debt that hampered the debt service of distribution companies (where they did not default). Distribution companies continue to accumulate losses, the consequence of poor pricing structure and poor metering.

The entry requirements of XVFC were designed to assess reform intention on the basis of measurable indicators such as reduction of technical and commercial losses over a defined period in the immediate past, and greater transparency in the accounts. formal.

Effective notification of entry requirements by the Ministry of Finance requires a gradual commitment from states to support current year losses from distribution companies up to 100% beyond 2025-2026. As a requirement, this is simply a hardening of XVFC terms and does not really violate their spirit, but a commitment beyond the hardened borrowing period is difficult to make, and by no means enforceable. The deadline is December 15, so we don’t know how many states will apply.

A new, revamped, reform-based, performance-linked, overlapping sector distribution program from the Center will directly fund distribution companies, with a deadline of October 31. It provides central funding of about half a percent of GDP, is complementary to the XVFC provision and coincides with the XVFC horizon. A joint team from the ministries of finance and energy should reconcile the two funding channels for maximum efficiency.

Indira Rajaraman is an economist

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