Tuesday 30 June 2020

CORONA Pandemic and the Economy: India has to manage both innovatively


Devendra Kothari, Ph.D
Population and Development Analyst
Forum for Population Action


Should India care for COVID-19 by imposing restrictions like lockdown or allow the economy to grow? This is a difficult catch-22 situation. The Post (117) argues that restricting economic activities beyond a point will push the cases of Covid-19 and its related consequences.

Even after around 100-day of continuous total lockdown and a curfew like situation in the entire country, we are not in a position to say that these measures were successful in containing coronavirus. Table I indicates that in spite of the stringiest lockdown in the world, India has recorded a quantum leap in the new coronavirus cases, as revealed by the official data.  The average number of cases increased from 531 per day during the Lockdown-1 to 6786 in the Lockdown-4. In June itself, the average number of daily cases jumped to whopping 13,173. Similarly, the number of deaths increased from two on March 25, the first day of lockdown-1, to 506 on the last day of Unlock-1 that is more than 250 times in around 100 days.


Table 1 Total coronavirus cases and deaths in India since Lockdown-1

Phase (Dates)
Total new cases
Cases per day
Total new deaths
Cases per day
Lockdown-1 (21 days)
(March 25 to April 13, 2020)
10,951
521
383
18
Lockdown-2  (19 days)
(April 15 to May 3, 2020)
31,018
2,216
998
71
Lockdown-3(14 days)
(May 4  to May 17, 2020) (14 days)
53,193
3,799
1,634
117
Lockdown-4
(May 18 to May 31, 2020) (14 days)
95,000
6,786
2,383
170
Unlock-1 (June 1-30, 2020)
3,95,183
13,173
12,002
400
Source: Worldometer Coronavirus  at: https://www.worldometers.info/coronavirus/country/india/


And, this has happened when India did not allow any large scale gatherings since the imposition of lockdown. All kinds of social, political, sports, entertainment, academic, cultural and religious congregations have remained suspended.

Looking to these trends, one can conclude that India is not a suitable place for lockdown which is based on the social distancing given its settlement patterns and congested and unplanned urban areas dominated by slums.  13 cities accounted for 70 per cent of the total COVID-19 cases in the country at the end of the Lockdown-4, as per the MoHFW. These cities are: Mumbai, Chennai, Delhi/New Delhi, Ahmadabad, Thane, Pune, Hyderabad, Kolkata/Howrah, Indore, Jaipur, Jodhpur, Chengalpattu and Thiruvallur (Tamil Nadu)

Further, it is difficult to   understand why the lockdown was imposed on the entire country.    It is worth noting that those large countries that have so far done a relatively good job of containing the coronavirus pandemic have refrained from imposing a complete, nation-wide lockdown. Even China, where it all started, placed only the Hubei province under complete lockdown, not the whole country like India. This precipitant step has distrusted the supply chain line and manufacturing unit. 

The current financial year ended on March 31, 2020, for which a GDP growth of 4.2 per cent was announced. India went into a lockdown at the end of March so the effects of the stay-at-home order will only be fully visible by Q1 of the new fiscal year. It can be seen from the Gross Domestic data (Table 2) that the economy had already been weakened by years of mismanagement before this crisis struck. It was largely on account of demonetisation (November 8, 2016) and GST (July 1, 2017) implementation led turbulence.

Table 2 Trends in Gross Domestic Product, 2008-2020
Financial Year
GDP Growth (%)
Annual change (%)
2020
4.20
-1.90
2019
6.10
-0.71
2018
6.81
-0.36
2017
7.17
-1.88
2016
8.17
0.17
2015
8.00
0.59
2014
7.41
1.02
2013
6.39
0.93
2012
5.46
0.22
2011
5.24
-3.26
2010
8.50
0.64
2009
7.86
4.78
2008
3.09
-4.57
Source: Ministry of Statistics and Programme Implementation, GoI.


Whether the lockdown was able to save lives or not it is not clear but it has further damaged the economy which was already in the poor shape. Economist Jean Drèze stated that the lockdown had been "almost a death sentence" for the underprivileged of the country, in an interview with News18. He went on to say, "The policies are made or influenced by a class of people who pay little attention to the consequences for the underprivileged" [1]

The coronavirus has taken 17,140 lives during the lockdowns and Unlock-1 period, according to official figures. But depending on the way deaths are counted, the real human cost could be far greater. That may be the reason why Prime Minister Narendra Modi extended until the end of November his government’s scheme to provide free food grains to 80 crore or 800 million poor in the country.

In short, as if a corona pandemic and a severe economic recession weren’t enough, we now have a dangerous Indo-China border conflict.  So what India should be doing in containing the coronavirus pandemic and revive the economy?


Consider the COVID battle first: Nobody knows about the future of neither COVID-19 nor vaccine/treatment regime. However, the sharp increase in positive cases has led experts/investors to worry about renewed broad lockdowns with large negative effects on the economy. But there are also other ways to reduce infections, including stringent bans on large gatherings and greater use of face masks. Further, WHO has acknowledged wearing mask is a must to protect from COVID airborne transmission.

Based on the recent research, Lancet suggests wearing masks properly could achieve substantial reductions in the spread of COVID-19 without the need of for the strict nationwide lockdowns of the kind virtually brought all commercial activity to a halt, resulting in massive economic losses and lives. [2] Jan Hatzius, head of Goldman Sachs Research and the chief economist, reported: “We find that face masks are associated with significantly better coronavirus outcomes.” It is, therefore, wearing a mask in proper way in the public places should now be made mandatory. [3]

In addition, India’s medical facilities are limited. Its density of doctors of 8 per 10,000 people is lower than that of even Silence (10/10,000) but nothing to China’s 20 or America’s 26. Had the infection numbers grown here into millions, its healthcare system would have struggled?

The number of COVID-19 cases recorded per day in India may surge to 287,000 by early 2021 if a vaccine or treatment isn’t developed soon, researchers from Massachusetts Institute of Technology (MIT) warned in a recent study. [4] India has to follow a different regime of treatment.  It is, therefore, proposed that those who are elderly and frail, and who happen to have diabetes and other health issues, should be given preference. The asymptomatic cases could be treated at community clinics/homes, as noted by Sunetra Gupta, professor of theoretical epidemiology at Oxford.[5]

As far as the management of COVID-19 is concerned, it is becoming clear that the whole process should have been driven by a group of epidemiologists, doctors and social scientists and not the bureaucrats in Delhi.


Moving on to the management of the economy: Not Mask alone can push the economy and lower the risk of coronavirus, one has to take specific measures to revive the economy to generate resources to manage the pandemic. My recent work suggests the following ten steps to create the enabling environment for reviving the economy:[6]

First, the current pandemic has forced us to think about the plight of workers in India. It has enhanced public awareness of the pivotal role of migrant workers in our economy. We have been completed to release that more than 140 million people leave their villages including small  towns, families and homes  to find work far away wherever they can find it;  their invisible hands harvest the crops and feed us, clean streets, run factories, build roads, construct our houses. In fact, they are the backbone of India’s economy.

We have to boost the confidence and morale of the migrant workers. A regime of social security must be installed to meet the basic needs of these workers including housing all times – not only during the pandemics and riots. [7] In addition, resuming public transport is one of the organic solutions to the current travails of migrant worker movement. Once regular services start, migrants will be secure in the mind that they can leave when they wish. It will ingrain the perception that normalcy is fast returning with employment opportunities in places of destinations.

Second, the agricultural sector has been facing a number of problems. One cannot resolve these problems without absorbing at least two-thirds of those dependent on the farm in non-farm jobs. Further, India needs to create 10-12 million jobs every year in the coming decades to provide quality of life for its growing population.

Third, in India, capital is scarce and labour abundant. The Micro, Small and Medium Enterprises (MSMEs) are thought to have lower capital-output and capital-labour ratios than large-scale industries, and therefore, better serve growth and employment objectives. Not only do MSMEs generate the highest employment per capita investment, but they also go a long way in checking rural-urban migration by providing people living in isolated areas with a sustainable source of employment.

Fourth, India has to improve the basic infrastructure with special reference to the uninterrupted cheap power supply to generate non-farm jobs. Moreover, emphasis should be on renewable energy since its production can be decentralized and this will be a great help in promoting MSMEs even in the remote areas. Moreover, solar and wind power now cheaper than coal. [8]

Fifth, ease of doing business (EODB) is to facilitate the domestic producers as well as foreign. Do we have the needed institutional framework for ensuring that skilling, productivity, technology development are on par with countries like China or even Thailand and Vietnam? Do we have enough technocrats in the governance system as ministers, bureaucrats to enable the processes? It is interesting to note that of the 56 companies that moved bases from China in 2018-19, the World Bank found that Vietnam got 26, Taiwan 11, Thailand 8 and India 3. Now the “shift” sentiment favours us even less.

Sixth, the economies which have peaceful environment accumulate more physical and human capital accumulation and enhance to economic growth rapidly.  Here the issue of communal harmony is very important to attain economic growth.  India should not raise controversial issues like the Citizenship (Amendment) Act, 2019, which disturbs the harmony and creates an obstacle for economic development. The Government of India should either repeal CAA in its entirety or put the CAA/NPR/NRC in cold storage.

Seventh, India has to create conditions for the demand generation in order to create jobs. This would require changes in labour and land laws, cutting corporate and general taxes to the level of East Asian countries. Further, the pay and pensions have soared in the public sector as compared to the private sector. Such irrationality can’t last when the economy in turmoil. COVID-19 should be used as an opportunity by the government to correct its mistakes – roll back excessive salaries/pensions of government employees and provide tax relief to the middle class to generate demand.

Eighth, for India to emerge not from the corona crisis but also to revive the economy there is a need for greater dialogue in a federal setup. It is because India is a big and diverse country. So we can’t have one monolithic one size fit all economic models. What suits the northeast will not fit in south India. What suits Bihar will not suit Maharashtra. In addition, real change comes about when the states are involved in the decision-making process.  It is therefore the decentralization should be the base for economic planning.

Ninth, India needs smaller states for better governance, an essential requisite for economic development. There are 28 states in India at present.   Their populations range massively in size – the largest, Uttar Pradesh, holds around   200 million people, the smallest, Sikkim, just over half a million. About half of the country's population lives in five States, namely, Uttar Pradesh, Maharashtra, Bihar, West Bengal and Andhra Pradesh in 2011; and ten most populated states or super states of India contribute more than three-fourth of India's population . The 2021 Census will reveal an unmanageable picture of population in these states. For example, the Uttar Pradesh population may be more than 250 million in 2021.

As such, there is a widespread perception that splitting super states into smaller ones will improve administration and governance by bringing power centres closer to the people, thus paving the way for rapid economic development.

Finally, the structural reforms, as discussed above, are important in generating employment and creating an enabling environment for economic development; but for sustained growth, the issue of labour productivity is a must.

Labor productivity measures output per labor hour. It is largely driven by investment in physical capital, technological progress, and human capital. The government can enhance labor productivity by investing in infrastructure, technology and human development. [9]

With technology changing the nature of work, and India’s population expected to reach 1.7 billion by 2050, investing in human development has never been more critical.  It is argued that investment in people (especially poor) early, often, and at the household level, can lay the foundation for human capital formation that will enhance productivity.

To start with, India must focus on essential components of human development in a more closely integrated form. These are:

1.   Improving the quality of elementary education,
2.   Facilitating water and sanitation,
3.   Enhancing primary health,
4.   Reducing the gender gap, and
5.   Stabilising population. 

In essence, the above reforms will provide a better option to build an efficient, globally competitive economy not only to manage the pandemic but also prepare India to reply the Chinese aggression in a language they understand.  

In Conclusion, India should rapidly ease the COVID restrictions to revive the economy. Otherwise, it may suffer the worst of both worlds — economic collapse without checking the virus.  At a Princeton University webinar – The Economic implications of COVID-19 - on July 10, 2020, economics Nobel laureate Angus Deaton did not mention India by name, but he highlighted the danger of poor countries getting the worst of both worlds.

In short, saving the economy saves lives.





[2] Source: ResearchGate, Lancet, Health Affairs, Nature, Axios, media  reports.  


[6] Kothari, Devendra (2020). A strategy for new India:  Effective measures for the rapid economic growth, FPA Working Paper #21, Forum for Population Action, Jaipur.

[8] Read news item: Solar and wind power now cheaper than coal (June 25, 2020) at: https://www.evwind.es/2020/06/25/solar-and-wind-power-now-cheaper-than-coal/75326


[9] Kothari, Devendra (2019). Nurturing Human Development: A Strategy for New India, New Delhi: Paragoan International Publishers.


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