Optimizing economy during and after a disaster Economic and Legal measures. -Nitin Basavaraj & S.Basavaraj

Disaster is considered as a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area. (Section 2(d), Disaster Management Act, 2005.)

1. Loss due to disaster is both demographic and economic. The loss of life in recent events alone is staggering. Some 2,50,000 were killed across several countries in the 2004 tsunami. An estimated 1,40,000 lives were lost in the 2010 earthquake in Haiti. In Myanmar, 120,000 perished when Cyclone Nargis hit in 2008. The Kashmir earthquake in Pakistan in 2005 and the Sichuan earthquake in China in 2008 each killed more than 85,000. The earthquake and tsunami that hit Japan in 2011 resulted in the death of 18,000 people. Extreme drought was one cause of 2,30,000 deaths in Somalia between 2010 and 2012. Every one of those lives was precious—individual, intricate, human. The glare of numbers sometimes blinds us to this.
2. Pandemics can cause significant, widespread increases in morbidity and mortality and have disproportionately higher mortality impacts on LMICs (low and middle income countries). Pandemics can cause economic damage through multiple channels, including short-term fiscal shocks and longer-term negative shocks to economic growth. Individual behavioural changes, such as fear-induced aversion to workplaces and other public gathering places, are a primary cause of negative shocks to economic growth during pandemics. Some pandemic mitigation measures can cause significant social and economic disruption. In countries with weak institutions and legacies of political instability, pandemics can increase political stresses and tensions. In these contexts, outbreak response measures such as quarantines have sparked violence and tension between states and citizens.
3. Measures during a pandemic: The systemic insurance that is needed for demands of a government-led effort are in four main areas:

(a) Redirecting the economy’s existing productive capacity to overcome the rapidly growing shortages of equipment and services required to respond effectively to the pandemic.

(b) Supporting firms that are not directly involved in efforts to combat the crisis, so that they can continue to supply essential goods and services.

(c) Ensuring that the population has sufficient means to purchase these goods and services.

(d) Creating a financial facility to help those unable to pay their mortgage and meet other obligations, thereby mitigating cataclysmic risks to the financial sector.

4. Such systemic insurances go well beyond current proposals to spend trillions, much of which is marked for policy initiatives that misdiagnose the crisis as one of deficient aggregate demand or as the result of an ordinary supply shock. Substantial sums are to be dedicated to bailouts without conditioning the money on a firm’s participation in the effort to combat the health crisis and its economic consequences.
5. Government officials around the world will have to consider large outlays to combat the pandemic crisis. The most immediate question that comes to doubt is whether the policies currently under consideration provide sufficient insurance against the systemic risks that are now rising. The criteria are;

(a) Is government spending sufficiently laser-focused on overcoming the public-health crisis?

(b) Is the economic rescue package adequate to sustain the population’s wellbeing?

6. Considering the second criterion first, expanding unemployment benefits, together with expanded eligibility for food and other payments, would also help provide the means to pay for essential goods and services.
7. In order to repurpose existing capacity, the government should support any private firm on the firm’s commitment in producing vital equipment (specified by medical experts) and meet its payroll at reasonable wages. To avoid price-gouging, medical supplies must be priced at pre-crisis levels.
8. This conditionality should not apply to firms producing equipment. The systemic approach to allocating taxpayer funds would require that large service-sector companies such as airlines or hotel chains receive bailouts only if they repurpose their capacity to support the fight against the pandemic. Rather than standing idle waiting for passenger travel or resume, airlines should be able to provide funds to re-equip their airplanes to transport medical supplies and equipment, or to move sick patients to locations with the capacity to care of them. Recent transportation of Indians stranded in abroad for example. Similarly, hotel chains should be supported by the government only if they agree to repurpose their hotels to serve as temporary hospitals. Beyond repurposing existing capacity, systemic insurance would require that employees of bailed-out companies continued to be paid an adequate wage. The bailouts should not be allowed to divert to the management pay raises, stock buybacks, or dividends.

Measures After a Pandemic (Moving to a new normal)

9. Fiscal measures are needed to save companies and banks from bankruptcy, so that they can recover quickly once the pandemic is over. Policymakers should be considering various forms of tax relief and public guarantees to help firms borrow if necessary. But the most promising option is a short-time work allowance. This approach, which has been tried and tested in Germany, compensates for the underemployment of the workforce through the same channels that are already used for unemployment insurance. Better yet, it costs hardly anything, because it prevents the losses that would follow from increased real unemployment. All countries should be replicating this part of Germany’s policy to prevent job losses.
10. Stability is fundamental. It provides a deep insight to view the contours of the future. If we could make an informed guess as to whether the future will be more or less stable than the present, we would know a lot about what’s to come. That’s because we know how peoples and societies have reacted during past periods of instability.
11. Stability for ecologists, stable systems are characterized by attributes such as persistence and resilience. Resilience, for instance, enables a system to recover from shocks. These attributes aptly describe the post-World War II period, which saw the global economic order power through the collapse of the Communist empire, multiple financial crises (including 2008), religious fanaticism, and other shocks. Whether the present stability, with its reliance on globalization, will survive the shock of the ongoing pandemic remains an open question. Stability has benefits. A sense of innovation, investment, and technological experimentation and advance. There is also more social experimentation and blurring of cultural identity.

Helicopter Money (importance on Indian economy)

12. Helicopter money is the term used for a large sum of new money that is printed and distributed among the public, to stimulate the economy during a recession or when interest rates fall to zero. It is also referred to as a helicopter drop, in reference to a helicopter scattering supplies from the sky. It is a proposed unconventional monetary policy, when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession). Although the original idea of helicopter money describes central banks making payments directly to individuals, economists have used the term ‘helicopter money’ to refer to a wide range of different policy ideas, including the ‘permanent’ monetization of budget deficits – with the additional element of attempting to shock beliefs about future inflation or nominal GDP growth, in order to change expectations.
13. A second set of policies, closer to the original description of helicopter money, and more innovative in the context of monetary history, involves the central bank making direct transfers to the private sector financed with base money, without the direct involvement of fiscal authorities. This has also been called a citizens’ dividend or a distribution of future. This method however should be used only as a last resort
14. While advanced economies are not using helicopter money in the original sense as most of their liquidity infusion is through secondary market, they are printing money to buy these securities.

How does helicopter money work?

15. Normally, the Central/Reserve Bank prints money and gives it to the Centre for distribution to individuals or corporates, directly as cash or as tax cuts. Money can be transferred to the government as the central bank buys primary issuances of government bonds. But this method can work best in an extremely low interest environment. Also, it will increase government debt.
16. Helicopter money theory explains that since the central bank is but an arm of the government, when the balance sheets of the government and the central bank are consolidated, the bonds held by the central bank on the asset side will be cancelled by the same bonds held on the liability side of the government. Also, the future cash flows to the government through higher tax revenue, with demand getting stimulated, will enable it to repay the debt. Money transfer to the Centre can also happen by directly crediting the government’s account with the central bank by using the central bank’s existing reserves or equity. There are many supporters for this route of money transfer as well.
17. There are 7 ways in which the business industry can have a landscape shift globally embracing to a new normal

(a) The shift towards localisation: The supply chain disruption has brought to light the impact of pandemic events. This is expected to lead to more localisation of supply chains, especially of essentials and for sectors that are seen as strategically important.

(b) Digital gets a real push: Most companies have opted to work remotely and their employees are now ‘online’ and working from home. We have court hearings via Zoom even in High Court of Karnataka. While these trends were already ‘in-motion’, they have now hit the fast-forward button. Even the most brick and mortar organisations have been forced to experiment with digital channels. This presents a real and immediate opportunity to drive efficiencies through digital. At the same time, this crisis has highlighted the importance of investment in enabling technologies like cloud, data and cyber security. This will change the way we ‘work’ with far reaching implications on B2B, B2C, commercial real estate, e-commerce, e-governance, cyber security, process automation, data analytics, self-service capabilities, etc.

(c) Cash is king for businesses: Most situation has proven that cash is king – companies that are over leveraged and ‘living on the edge’ are the most vulnerable. The crisis has reiterated that it is important to be financially prudent and conserve cash.

(d) Move towards variable cost models: One of the biggest lessons, amongst others, is the importance of reducing overall business costs. One significant way to accomplish this is to convert fixed costs to variable costs wherever feasible. For instance, businesses will now determine what they must keep in-house, and explore outsourcing the rest so that fixed costs can be lowered. As with other trends, this will further impact the labour force and ‘how they work’, contract manufacturing, supply chain considerations, etc.

(e) Building sensing and control tower capabilities: This is especially necessary for areas where information is scarce. The downside to this is also challenges such as short histories, collection systems that are prone to change etc. Nevertheless, governments and companies have realised the importance of sensing capabilities, building transparency through ‘digital control towers’ and the ability to process are structured.

(f) Supply chain resilience is key: Individual companies will want to ensure their supply chains are resilient to remain competitive. Risks to supply chains are numerous and continuously evolving. Hence, it is imperative that resilience capabilities are developed in order to respond to repercussions of unexpected events and either quickly return to original state of business or move to a new and better state after being affected by the risk and continue business operations as efficiently as possible. Achieving this will require initiatives from both internal business as well as from the wider network.

(g) Building agility: Going forward, policies will need to evolve faster than the market and policymakers will need to be more responsive, inclusive and agile.

17. Legal provision – During disaster. In India we have Disaster Management Act, 2005 a law on disaster management to provide for requisite institutional mechanisms for drawing up and monitoring the implementation of the disaster management plans, ensuring measures by various wings of Government for prevention and mitigating effects of disasters and for undertaking a holistic, coordinated and prompt response to any disaster situation.
18. The Act provides for setting up of a National Disaster Management Authority under the Chairmanship of the Prime Minister, State Disaster Management Authorities under the Chairmanship of Chief Ministers and District Disaster Management Authorities under the Chairmanship of District Magistrates. The Act also provides for concerned Ministries or Departments to draw up department-wise plans in accordance with the National Disaster Management Plan. It provides for constitution of a National Disaster Response Force and setting up the National Institute of Disaster Management. The Act also provides for the constitution of the National Fund for Disaster Response and the National Fund for Disaster Mitigation and similar Funds at the State and District levels. It also provides for specific role for Local Bodies in disaster management including Panchayati Raj Institutions as well as Urban Local Bodies like Municipalities.
19. Disaster Management is a continuous and integrated process of planning, organising, coordinating and implementing measures which are necessary or expedient for prevention of danger or threat of any disaster; mitigation or reduction of risk of any disaster or its severity or consequences.
20. Under the Act, mitigation measures are aimed at reducing the risk, impact or effect of a disaster or threatening disaster situation; capacity-building; preparedness to deal with any disaster; prompt response to any threatening disaster situation or disaster; assessing the severity or magnitude of effects of any disaster; evacuation, rescue and relief; rehabilitation and reconstruction.
21. The Act provides for several plans to tackle disaster.

(a) National Planprovides for measures to be taken for the prevention of disasters, or the mitigation of their effects; measures to be taken for the integration of mitigation measures in the development plans; measures to be taken for preparedness and capacity building to effectively respond to any threatening disaster situations or disaster; roles and responsibilities of different Ministries or Departments of the Government of India.

(b) State Plan includes vulnerability of different parts of the State to different forms of disasters; measures to be adopted for prevention and mitigation of disasters; manner in which the mitigation measures shall be integrated with the development plans and projects; capacity-building and preparedness measures to be taken; roles and responsibilities of each Department of the Government of the State in relation to the measures and the roles and responsibilities of different Departments of the Government of the State in responding to any threatening disaster situation or disaster.

(c) District Plan includes areas in the district vulnerable to different forms of disasters; measures to be taken, for prevention and mitigation of disaster, by the Departments of the Government at the district level and local authorities in the district; capacity-building and preparedness measures required to be taken by the Departments of the Government at the district level and the local authorities in the district to respond to any threatening disaster situation or disaster; response plans and procedures, in the event of a disaster, providing for allocation of responsibilities to the Departments of the Government at the district level and the local authorities in the district; prompt response to disaster and relief thereof; procurement of essential resources; establishment of communication links; and dissemination of information to the public;

22. The District Authority is empowered to give directions for the release and use of resources available with any Department of the Government and the local authority in the district; control and restrict vehicular traffic to, from and within, the vulnerable or affected area; control and restrict the entry of any person into, his movement within and departure from, a vulnerable or affected area; remove debris, conduct search and carry out rescue operations; provide shelter, food, drinking water and essential provisions, healthcare and services; establish emergency communication systems in the affected area; make arrangements for the disposal of the unclaimed dead bodies; recommend to any Department of the Government of the State or any authority or body under that Government at the district level to take such measures as are necessary in its opinion; require experts and consultants in the relevant fields to advise and assist as it may deem necessary; procure exclusive or preferential use of amenities from any authority or person; construct temporary bridges or other necessary structures and demolish structures which may be hazardous to public or aggravate the effects of the disaster; ensure that the non-governmental organisations carry out their activities in an equitable and non-discriminatory manner and take such other steps as may be required or warranted to be taken in such a situation.
23. The Act empowers the authorities and the officers to requisition (subject to payment of compensation) any resources (men and material resources) any premises (any land, building or part of a building and includes a hut, shed or other structure or any part thereof) are needed or likely to be needed for the purpose of rescue operations; or any vehicle (vehicle used or capable of being used for the purpose of transport, whether propelled by mechanical power or otherwise) is needed or is likely to be needed for the purposes of transport of resources from disaster affected areas or transport of resources to the affected area or transport in connection with rescue, rehabilitation or reconstruction.
24. Loan repayment: The National Authority may, in cases of disasters of severe magnitude, recommend relief in repayment of loans or for grant of fresh loans to the persons affected by disaster on such concessional terms as may be appropriate.
25. The State and subordinate authorities work in tandem with the National Authority and the policy laid down by it.

State Plan includes,—

(a) the vulnerability of different parts of the State to different forms of disasters;

(b) the measures to be adopted for prevention and mitigation of disasters;

(c) the manner in which the mitigation measures shall be integrated with the development plans and projects;

(d) the capacity-building and preparedness measures to be taken;

(e) the roles and responsibilities of each Department of the Government of the State in relation to the measures specified in clauses (b), (c) and (d) above;

(f) the roles and responsibilities of different Departments of the Government of the State in responding to any threatening disaster situation or disaster.

26. The steps undertaken by few States, especially State of Karnataka worked well to mitigate the vulnerable scenario. However, the issue of migrants who want to return to their places and the inability/failure of the Government of Karnataka to effectively deal with this issue haunts us for time to come.
27. Article 123 of the Constitution of India speaks about the power of President to promulgate Ordinances during recess of Parliament. Ordinances can be issued to deal with extraordinary situations. The issuance of Pandemic Diseases (Amendment) Ordinance, 2020 is one such measure. The Ordinance makes assault on health workers a non-bailable offence. The recent order by Government of Karnataka regarding collection of fee by Schools is under the executive power of the Government read with Karnataka Education Act.

Going ahead: Legal measures.

28. Tax holidays, rebates and incentives to small scale industries, consumer care industries are very essential. Legislations at the State and Central level can be enacted providing for fresh provisions or amendments to deal with unforeseen circumstances such as relocation of migrants, outsourcing work etc.
29. Apart from migrants issue, one more tragic scenario we witnessed during this pandemic is our farmers losing their products and on many occasions throwing away for want of transportation and sale. The APMC was shut down during the lockdown resulting in untold misery to farmers. Apart from providing monetary compensation, suitable legislations can be enacted and Government orders be issued for movement of goods vehicles carrying agricultural produce and sale to end customers.
30. Judiciary may consider increasing working hours to deal with pendency issue on war footing. The actual working of courts may not be possible for few months. This results in huge burden on judiciary both in terms of pendency of cases and filing immediately after court re-opening. The Supreme Court has passed an extraordinary order extending period of limitation in exercise of power under Article 142 of the Constitution of India. This, perhaps, first time in judicial history.
31. Law creating separate fund for lawyers who suffer due to loss of work is required. The present legal provisions, schemes and rules do not deal with this issue at all. The Bar Councils must be empowered under the Advocates Act to create a separate funds to help needy lawyers in distress. Today’s judgment of Karnataka High Court shows how badly a legislation is required.

• Nithin Basavaraj, I year MBA, Greenwich University, Cutty Sark London

• S.Basavaraj, Advocate and Member, Karnataka State Bar Council, Bangalore.

References:

· Helicopter Money Must Be The Last Resort. [online] @businessline. Available at: https://www.thehindubusinessline.com/opinion/columns/is-helicopter-money-an-option-for-india/article31408347.ece [Accessed 27 April 2020].

· Time. 2020. What Might The Post-Pandemic World Look Like? [online] Available at: https://time.com/5818578/post-pandemic-world-look-like/ [Accessed 27 April 2020].

· World Economic Forum. 2020. What Will the Post-Pandemic Economy Look Like? [online] Available at: https://www.weforum.org/agenda/2020/03/insuring-the-survival-of-post-pandemic-economies/ [Accessed 27 April 2020].

· Disaster Management Act, 2005.· Constitution of India