The challenge in the second wave of
the coronavirus orginatiing in China is managing the economy. In the previous
instance of the first wave of 2020, India had gone in for an early lockdown
when the cases were hardly in double digits. India had perhaps one of the
strictest lockdowns in the world. This certainly managed to contain the wave
and slow down the spread. The peak came something later around mid-September,
partly causes by the increased flow of migrants across the country. The gravity
was essentially a result of mismanagement in contact tracing by states like Maharashtra
and Delhi. The lockdown took a heavy toll on the economy. The economy crashed
to fall nearing 25% yoy. The lockdown also led to the recession for the first
time in India. The economic scars is something government wants to avoid this
time around. The economic impact and consequent social transfers led to the
fiscal deficit hitting close to 10% of the GDP. There is of course a question whether
India would be able to afford another such heavy deficit.
The answers to this question
obviously depends on the reaction of both centre and states and the political flavor
of the economic agent being queried. There would be definite setback to the
economy which was just getting back on its legs. The last quarter of financial
year 2020-21 was expected to see a positive (albeit very small) growth in the
GDP. The gains of the previous two quarters might be squandered as GDP would
perhaps go back into the negative zone in the first quarter of the current
financial year. The second wave is yet to hit a peak and therefore, going
forward, it would seem the cessation of economic and social activity seems
inevitable. The states are left with little option but to enforce a lockdown. The
lockdowns might become stricter with passage of time. In the last instance,
there was a very strict lockdown followed by relaxations in a slow and gradual
manner. In the current context, the lockdowns seem to be progressing in a graded
manner which would result in stricter lockdown and perhaps for a longer period.
While the powers to lockdown or otherwise have been left to the states, the
centre is more of an observer and adviser.
The states like Maharashtra, Madhya
Pradesh, Chattisgarh, Delhi among others have imposed a lockdown though they
might not have called it one. There have been weekend lockdowns and there have
been night curfews to curb the social life which has been primarily responsible
for the latest outbreak in the Wuhan pandemic. The other states are expected to
follow suit in some manner or the other. In this context, the economies
operating at the state level are bound to take a hit. Given the virtual non-essential
retail sector is closed, there would be a certain drop in the GDP numbers. More
than they shutting down, it is the backward spillover effects that would close
down production in the industries owing to suppression of demand at the front
end. The industries would be as good as lockdown without mentioning so. Furthermore,
as the intensity of wave is very high, there exists a labour shortage in many
parts. In fact Indian Railways have cancelled or curtailed services because of
the numerous cases detected in the organization.
Each person detected positive, has
to be quarantined effectively for fourteen days at the least. This would
deprive them of livelihood unless the employees are ready to pay for the same. There
might be many who may not want to do that. Secondly, it is not just once that
one might get infected, but reinfections are common. This leads to constant
infection and quarantine apart notwithstanding the possible health risks and
complications both short and long term. Therefore, a loss of man-day is
something that has to be calculated and not merely the artificial lockdown
induced impact. It is just not one labour but the whole network of workers
might get impacted leading to shut down of the firm. In this context, even in
the absence of lockdown, there would losses in jobs. Economy first might sound
nice but it has its own spillovers.
To many, it would be a matter of
trade-offs. There is a possibility of contracting the virus if one goes out and
there is a possibility of loss of salary, a prospective starvation if one stays
at home. To the government, it is about compensating people for loss during
their quarantine period apart from their medical expenses, while in case of
lockdown, it is the onus of the government to have the kitchens running. It is
something of an individual choice of risk assessment if there doesn’t exist a
lockdown while the government bears the risk of lower output and thus
non-productive environment in case of a lockdown. Thus in terms of economy, it
seems to heading to a Hobson’s choice.
Except in a dictatorship like China,
the lockdowns are hardly perfect. The nature of India itself would create to
enough imperfections even in the strongest of the lockdowns. The monitoring of
masks is almost impossible. The social distancing has to be simply given up. The
only solution that seems currently would be localized lockdowns at perhaps
district or city levels. To compound each district would have to act as an
independent node, something akin to Gram Swarajya. Unless each node can exist
independently of the others, the society would find it difficult to recover
from ruin event. A single wave might not be ruin event yet multiple waves are
potential ruin events. There has to be accompaniment of massive vaccination
which is unlikely given the resources. The massive testing to isolate all the
infected at one go too is unlikely. In this context, the economy either way
will take a massive hit. The government might want to save the economy. The options
are however running out. Either way, there would an artificial suppression of
demand or disruption of supply through the spread of the virus. There does not
seem to be an escape. It looks lockdowns are not effective, but not having one
too results in a similar damage albeit through different means. Damned if you
do, damned if you don’t.
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