 Hello and welcome to Newsclick. On March 26th, Finance Minister Nirmala Sitaraman announced a 1.7 lakh crore rupee financial package to deal with the COVID-19 crisis. But the question that has been on everyone's minds is that, is this enough? To talk more about this, we have with us Tejal Karidkar, who has done some modelling on this issue. Tejal is with the Energy Environment Program of the National Institute of Advanced Studies in Bangalore. Tejal, thank you for joining us. So Tejal, to get straight to the point, as a 1.7 lakh crore, is that number enough considering what the estimates you've done looking at the situation? No, I think as for anybody's estimates, now it is pretty clear that the 1.7 lakh crores is very, very less. And I think a lot of people have also pointed out that 7 lakh crores entirely is not new. Only a part of that is actually new expenditure that has been promised. But even if we consider that entire amount as being new relief, it's going to be grossly inadequate. It's not just my estimates, but also the estimates of the IMF or KPMG has a new report recently, or anybody, the economists all over the world have been talking about how this is going to be a big problem. If you look at, for example, what other countries have promised, I mean, it's anywhere ranging from 10%, 15% of their GDP, that's the kind of fiscal package people are talking about. Whereas, India is really, I mean, whatever we've promised so far is very, very inadequate in comparison to what even some of the other countries which have lower GDPs than us have promised. So, in terms of the impact of the economy based on the models you have done, what is a more likely number in terms of the kind of losses that we are going to suffer? Now, this all depends on the extent of the lockdown. Say, for example, let me talk about some of the other estimates first. There have been numbers such as 20% of GDP loss, etc. that have been put forward. The model that I have done is a simple input output model, which simply basically looks at pro-rata loss of output based on the number of working days lost. And there are some assumptions that are involved here, assuming, for example, that the output in any sector is more or less uniform across the year, which it isn't, especially for example in agriculture or even some other manufacturing sectors. But nevertheless, if you assume that there's a uniform output across the year, then each day you can arrive at some estimate of the output. You can say, okay, if you have a 20-day lockdown or 30 days of work days lost or 40 work days lost, what can be the loss in output? Now, given that we actually have an official 21-day shutdown and this is not uniform across sectors, some sectors are going to be shut down for longer. For example, schools and colleges have been shut down for much longer, whereas the electricity sector or the water supply amenities sectors are not shut down. The health sector is not shut down. So across sectors, you have different varying days of work days lost. But if you take a sense of what is likely to be an average, you take some varying estimates. For an average shutdown of even 27 days, which is at current estimates is less, because like I said, some sectors are going to be shut down for much longer. Even at 27 days, however, we are looking at a loss of GDP of about 30 lakh crores. That's about 13% of the GDP. And this is based on some linear assumptions. So the number should not be taken as sacrosanct. There are no linearities in the system. There are also issues with data. This is a severe underestimate also because a large part of the informal segment of the economy, we do not have data for. And a lot of macroeconomic estimates really tend to underestimate these impacts because there's no data for the informal economy and the loss that they are going to suffer. So this is whatever said, and a conservative estimate, a 13% loss to GDP for a 27-day lockdown. If we take a slightly higher estimate because even though sectors, let's say sectors do work days lost are about 20 to 30 days, but to eventually then kickstart work and production and consumption in the economy is going to take a longer time. So if we assume a 47-day period of work days lost, then we are looking at a loss of about 50 lakh crores. That's 23% of GDP. Now, these are figures that have broadly maybe provide us with some ballpark values that are of estimates. I'm not saying that these are accurate, but nevertheless, they provide us some insight into what is the likely impact that we are going to see. And so 1.7 lakh crores seems really, really measly in comparison to this. Right. So the question that is often posed by the argument that is often posed by critics is that say spending too much, spending too much leads to deficits and those kind of issues. So do you think this is a time to even think about these kind of issues or do we need a mass infusion so to speak, considering these are the numbers? Yeah, you know, you'll probably be, you'll get, you'll ask, you ask 10 different economists, you'll get 10 different answers on that. And I'm not an economist. So maybe my answer would be different from all of this. But look at what is happening around the world. Nobody is worried about deficits anymore. And if we look at what has happened historically also, even the most ardent supporters of fiscal austerity actually give it up when it suits them. So it's sort of almost like a dogma that is imposed on society and then everybody else seems to be sticking to it rigidly, whereas those who pushed it down our throats are giving it up happily. So there is no reason to be worried about this. One of the things I think we should also be thinking about, and I think this is the way in which to think about it is that the lockdown now, lockdown period now is going to have a much longer effect. It's going to have not just an immediate effect in terms of impact on GDP, but a staggered effect across the year. If a recovery is possible, it is likely to be only in the next year. Even that may not be complete. So any kind of deficit spending now should be considered as an insurance against future loss of GDP. So I'm not saying that we will be able to monetize 50 lakh crores or be able to offer that kind, but we definitely need to do much more than 1.7 lakh crores. And where do we get that money from? What happens to our fiscal deficit, etc., is not something that we should worry too much about now. Nobody seems to be worrying about it. I don't know why we are worrying about it. And we should consider it as insurance against what is likely to happen to the kind of losses that we're likely to see to GDP in the future. And I would think that a lot of the targeted, the spending should also be targeted, especially at sectors which are going to be affected the most because right now it's more in terms of a model of direct cash transfers and say specifically targeted at certain sections, which is good. But I would think that many sectors of the economy right now still don't have an answer regarding the government's attitude. Absolutely. And in that sense, it's a unique crisis. And this has been said by others also before that it is going to be a crisis of both supply and demand. It's not going to be simply a crisis of we are not going to have only supply constraints. We are not going to have a drop in aggregate demand. We are going to have both in the economy. So there is going to be lost to wages and there is going to be lost to businesses and therefore the cyclical impacts of this that will prolong over a period of time. The danger of that is actually pretty high. And so your normal methods of thinking about how you emerge from a crisis are not going to work. We are going to have to think about this, of course, more directed support to the most vulnerable sections of the economy. Agriculture, for example, are going to be very important. Also, the small and medium scale industries. So for example, some of the results from the model that I did show that the plastic industry is going to suffer about 36% drop in output. But the plastic industry itself is not homogeneous. If you look at the virgin plastic producers, about 40 to 45% of the companies that produce virgin plastic actually employ less than 20 people. Around 20% of those companies employ more than 200 people. So the scale at which plastic production happens is very varied. In fact, recycled plastic is even more so 70% of the recycled plastic units actually employ less than 20 people. So there's a huge segment here. So that 36% loss that's going to be seen in the plastic segment. And it might not be 36%. Like I said, I'm hedging in terms of the numbers. It can be 45%, it can be 30%, but it's going to be huge. I mean, that much is pretty clear. But who's going to bear it? Those who are going to be the most vulnerable are going to shut down because both their entire supply chain is going to be affected. There's going to be no solvency for their suppliers. There's going to be no money with their consumers to buy their products. So they are going to have to shut down. So protecting this segment of production is also going to be important. It's not simply going to be enough in terms of transferring money because you might then be able to infuse some amount of demand in the economy, but there's going to be a supply shortage. So this is unique in some sense. And we've seen some of this analysis, for example, is done for events like this, which are external shocks to the economy. Like for example, if you have an earthquake in a region or a cyclone or floods, where all of this gets disrupted. It's not only demand, it's the supply also that gets disrupted. But it's usually very localized and a very short duration shock. What we are now seeing is you're going to impact the economy worldwide. And it's going to be a long drawn out shock. I mean, even in terms of how we define a shock, it's going to be very different. So all our imports, exports, everything is going to be affected. So we have to think about this very, very differently than simply saying that we'll give some money right now, we'll give some money later. It's not going to work. This requires a lot more. Thank you so much Teja for talking to us. Thank you for having me.