Economic Survey: How govt used ‘Barbell’ strategy, ‘Agile’ framework to mitigate Covid risk

Rivai H Tukimen
NEW DELHI: The sudden onset of Covid-19 pandemic in March 2020 had created a wave of uncertainty among all sectors of the economy.
With countries across the world imposing stringent lockdowns to curb the spread of virus, the vulnerable sections of the society were the worst affected.
The government recognised the adverse impact that nationwide lockdowns and quarantines could have on economic activity. Therefore, it moved quickly to put in place economic safety nets comprising multiple measures to prevent distress.
The Economic Survey 2022 released today highlighted this “barbell strategy” that the government adopted and prioritised saving lives over growth.
Even though situations have somewhat stabilised now with increased awareness and administration of Covid vaccines, repeated waves from mutating virus, travel restrictions supply-chain disruptions and, more recently, global inflation still pose a threat to pace of economic recovery.
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What is Barbell Strategy
It is a common strategy used in financial markets to deal with extreme uncertainty by combining two seemingly disparate legs.
According to Economic Survey, it uses a combination of safety nets are put in place for vulnerable sections and real-time information-based policy adjustment is used to tackle the challenges that come forth.
In simple words, it uses real-time data to identify, realise and mitigate the risk.
It is essentially same as the widely-used ‘Agile’ framework that uses feedback-loops and real-time adjustments.
In an uncertain environment, the Agile framework responds by assessing outcomes in short iterations and constantly adjusting incrementally.

How did govt put this to use
Understanding the threat posed the virus, the government decided to shift from ‘Waterfall’ framework to Barbell strategy.
The survey said waterfall framework has been the conventional method for framing policy in India and most of world. It entails a detailed, initial assessment of the problem followed by a rigid upfront plan for implementation.
The methodology works on the premise that all requirements can be understood at the beginning and therefore, pre-commits to a certain path of action, it added.
This is the thinking reflected in five-year economic plans, and rigid urban master-plans, the survey noted.

The intensity of Covid-19 pandemic called for a rapidly changing policy approach to cater to the needs of the people. The ever-mutating course of the virus made the Waterfall approach unfit to meet the needs of this unforeseen exigency.
Hence, the government adopted the two pillars of supply side Barbell Strategy where on one hand it focused on creating flexibility in the economy through deregulation and reforms, thereby allowing the economy to better respond to uncertainty. On the other hand, it focused on improving resilience through various measures like Atmanirbhar Bharat Abhiyan, PLI and more.

Availability of real-time data made it easy
Over the last 2 years, government leveraged a host of high frequency indicators (HFIs) from departments/agencies as well as private institutions that enabled constant monitoring and iterative adaptations.
Such information includes GST collections, power consumption, mobility indicators, digital payments, satellite photographs, cargo movements, highway toll collections, and so on.

The survey said these HFIs helped policy makers tailor their responses to an evolving situation rather than rely on pre-defined responses of a Waterfall framework, the Economic Survey said.
However, the flexibility of Agile improves responsiveness and aids evolution, but it does not attempt to predict future outcomes. This is why the other leg of the Barbell strategy is also needed. It cushions for unpredictable negative outcomes by providing safety nets.
That is why the government announced multiple measures, especially catering to the poor and vulnerable sections of the society.
Measures adopted
After the pandemic struck, government mainly focused on making food available to the poor. Thereby, it provided emergency liquidity support for MSMEs and held the Insolvency and Bankruptcy Code in abeyance, the survey noted.
Once these were in place, the government made its way forward by regularly announcing packages targeted at specific challenges.
Hence, it adopted a careful mix of emergency support and economic policy actions to provide a cushion against pandemic induced shocks while flexibly adapting to an evolving situation.
The survey said imposing stringent lockdown when cases were in March 2020 was the first step towards this approach. It provided the necessary time to ramp up testing infrastructure, create quarantine facilities and so on. Most importantly, it gave time to understand the Covid-19 virus, its symptoms and how it spread.

Monetary, financial support
The Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) cut the policy repo rate by 115 basis points (bps) during February to May 2020, on top of a reduction of 135 bps in the preceding 12 months.
Since then, the MPC has maintained status quo on the policy repo rate keeping it unchanged at 4 per cent.

The Marginal Standing Facility rate and the bank rate have also remained unchanged at 4.25 per cent and so has the reverse repo rate at 3.35 per cent.
RBI in its latest MPC statement has further decided to continue with this accommodative stance as long as necessary to revive growth on a durable basis.
A number of additional steps were taken throughout the period to ensure that there was adequate liquidity in the system to allow the central and state governments to finance themselves at lower rates.

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