Covid19 Curve : Don’t Crush it, just Ride it!

First wave of policy decisions globally were driven by “flatten the curve” crowd and “extreme infection/death model” makers. However as the time passed, neither the curve flattened nor extreme infection deaths happened on predicted timelines (NewYork Officials had estimated that 140,000 hospital beds might be needed to treat coronavirus patients by 11th April 2020 but in reality only 18500 were in use as on 11th April 2020 (almost 86% lower) as per news in NewYork Times).

But has these deterred the new age evangelists ie the internet age gurus (VCs / entrepreneurs), journalist modellers and statistical porn champs! well they conveniently moved to next war cry.

So now we are not looking to flatten the curve, we are going to “Crush the curve”. Crush the damn thing with 100% tests/hospitals/lockdowns and what not. And Like any other bad idea, it is spreading like wildfire and floating like straw on the water so can be seen everywhere. Tweets, retweets, sharing of the models and yes, advise for government is spreading faster than the virus itself. 

Flatten the curve! Crush the curve! The preachers and their converts are now constantly shouting to do mass testing with rigorous follow up and then rinse, repeat. Great advice but then the real challenge with any mass testing is not the “test” but “accuracy of the test”. False negative or false positive can happen due to a variety of reasons from it being early-stage (too early), quality of reagent or faulty procedure. Important thing to remember is that even at 1% fault rate, there will be 10,000 false negative out in open if 1 million tests are done. if we consider mass testing of say 1 billion people, there are 100 million people who are not identified and still out in the system. All this mind-boggling data of today’s infections had started with just 1/2 cases in Feb-March, so what will 10 million infected people will do after crushing the curve! So you get the drift. 

Hence it is very clear that crushing the curve or flattening the curve is not possible. We have to live with this and lockdown is not a solution at all.

While everybody is talking about job losses in the private sector and misery for the migrants, very less discussion has happened about the finance of the Indian Government. Indian govt earns close to 1 lakh Cr even every month from GST and some 50,000 Cr from the sale of Oil and quite a large amount from the sale of liquor ( in a lot of states liquor contribute to almost 20% of its revenue). A one month of lockdown will mean almost 90% drop in govt’s revenue and will not only wreak havoc with the finance of state but also weaken the capability and capacity of the state to fight this menace. 

Hence the only solution is to build capacity in the health care system. As they say that it is too bad to waste any crisis, India must use this crisis to build its medical capacity like crazy and fix our crumbling health infrastructure. India generally hovers at 0.58 beds per 1000 and now it must strive to build at least 4 beds per 1000 in next 6 months ( Japan has 13 beds per 1000 while the median is around 3.5 per 1000). And if one does the maths, it is not that crazy impossible. This can be achieved with the right policy framework and fiscal push. Govt should treat building hospitals as infrastructure with 30-year loan term and generous coupon rates at par with housing. To further push, Govt should put a $10 billion such which  should support projects where an equal amount is put-up by funds/entrepreneurs and have 4x leverage. A $10 billion Govt fund with an equal contribution by private funds and 4 times leverage can easily build $100 bn war chest to build health infrastructure in the country. This will not only build the health infrastructure in the economy, it will act as a huge stimulus to the economy and might have a three time multiplier effect. 

However, as we build this medical facility and kickstart the engine, the other action plan is to seize this opportunity as the world goes through a major reset. A lot of companies are looking to move away from China. Japan has already initiated a megafund to help companies to move their manufacturing away from China. While there is a lot of chatter among the faithful and advisors on the internet about capturing this moment and kickstart “make in India moment”, India is definitely going to miss the bus if top policymakers keep on listening to industry lobby groups or empowered group of experts. 

This may come as a shock but the real challenge to building business in India is not taxation but compliance and very high-interest rate. Thankfully RBI is working on interest rates and is focussed to reduce interest rates on all saving schemes but its high time to push banks in passing the interest rates to small businesses and reduce the fat spread enjoyed by banks either by allowing banking sector to open up or pulling up banks for not transferring the gains down the value chain. Without some serious push, interest rates will not come down. 

Apart from high lending cost, the biggest spanner in running a company in India is compliance cost and endless compliances imposed by its jumbo size ministries and departments. One needs some 26 compliances to build a building.  NBFC need  fire department license to disburse auto loans. There are endless certificates, compliances, PF, ESI and yes now a form to declare your CoviD19 preparedness. India as a country is wet dream of arm chair experts and paper pushers. Doers are punished while people giving sermons from high pedestal are encouraged and rewarded. Given the zero accountability of officers/departments, compliances in India are less about safeguarding public/environment or saving taxes but are more an avenue of harassment, corruption and red-tapism.

So while everybody talk of China model and how lack of democracy has propelled it to growth, everybody conveniently suppress the fact of high accountability the officers face there. China had executed its top drug regulator for approving untested drugs by taking bribe. Regulation without accountability is a nightmare and India has become unending nightmare for businesses and startups alike. 

This is a golden opportunity for Govt to cut regulation and kick start the next wave of reform which has been pending since 1991. Govt should scrap things like ESI and transfer everyone to health insurance and move PF to NPS kind of program. Ideally it must deliver to every citizen what it does for central govt employees or PSUs. Thumb rule should be as what is available for central govt employees in health care and education, should be available to every citizen of the country.

Thumb rule should be as what is available for central govt employees in health care and education, should be available to every citizen of the country.

Whenever there is a crisis of cash flows, the first casualty is statutory dues. This creates a unique paradox for the businesses as they are left with the choice of either closing down or becoming a criminal. As the majority of businesses (barring a few bad apples) are perpetual optimist, they end up being a victim of it. In search of hope that things will be fine one day, they tend to defer statutory payments, only to suffer when things don’t improve.

Hence rather than getting into giving tax incentives/cash backs and free land, Govt must open up manufacturing/businesses with minimal compliances. If cutting red tape for all, is a herculean task, then probably compliances should be reduced by at least 80% for any company with top-line below 50 Cr. This is probably ideal time for Pm Modi to go over drive on deregulation and cut the flap accumulated in last 70 years of over regulation. This will unleash the wave of investment as well as reduce the burden on the government in terms of reduced fiscal incentives and lower compliance cost.

Every crisis has resulted in some nation getting prominence and probably COVID 19 will give same opportunity to India. 

Looking at past mass hysterias ie Y2k, AIDS, Weapons of mass destruction, Libya, one will only know in the future that if Covid19 will end up like a real crisis or like another mass hysteria but then as one great thinker told me “ Spectacles at the coliseum never get smaller!”


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