The Tragedy of India's Poor: Despite his poor performance, Modi remains popular.

• Author: Bardhan, Pranab

Indian Prime Minister Narendra Modi's penchant for theatrics has had deadly consequences for India's poor. That was certainly the case with his disastrous demonetization policy in 2016 and his government's rushed implementation of a national Goods and Services Tax, which resulted in widespread harassment of small businesses.

But these flubs were merely the opening act. By imposing one of the world's harshest Covid-19 lockdowns before preparing adequately or consulting with lower levels of government, Modi has inflicted unprecedented damage on India's economy and on the poor, who live hand-to-mouth at the best of times. According to some estimates, more than 120 million people lost their jobs and incomes immediately after the lockdown was ordered on March 24. And about half of the country's population of 1.38 billion is likely to have been impoverished, with many approaching starvation levels.

Shortly after the lockdown started, India's finance minister, Nirmala Sitharaman, announced a relief package amounting to under 0.5 percent of GDP. The program consists primarily of extra food rations, and merely frontloads preexisting small income grants for farmers, while offering a pittance in cash assistance for women with bank accounts tied to the government's financial inclusion program, known as Pradhan Mantri Jan Dhan Yojana. And survey data suggest that only about half of India's poor women have Jan Dhan bank accounts.

Then, after seven excruciating weeks, Modi announced with great fanfare on May 12 that his government would adopt a rescue package worth 10 percent of GDP. But while this sounds much better than what came before, a closer examination reveals that the amount of immediate relief for the poor remains minimal. That "10 percent of GDP" includes all the liquidity enhancements announced over the previous three months by the Reserve Bank of India. Worse, most of these funds remain unused, because commercial banks have been unwilling to lend them on to private sector firms.

The banking sector's stance is understandable. It has been obvious for years that India's economy suffers from deficient demand, which is why it was in a prolonged slowdown before the pandemic arrived. Now that the lockdown is inflicting deep economic losses, an increase in bank lending would most likely do little more than add to the stock of bad loans.

To be sure, the latest rescue package includes a credit guarantee (not actual loans) for 4.5 million...