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With a phased opening, India tries to avoid a grave economic toll: Bibek Debroy

We are not in an ideal world, across the world, and within India. The health Scylla is obvious, with many heads and legs (as a metaphor for heterogeneous states) driving up both infection and death numbers, though India’s fatality rates are still low. The increase in numbers is partly due to more testing and better reporting, but more transmission plays a role. There is only so much governments (Union, state, local) can do and government capacity varies. Citizens may have shown support for lockdown, but there are several instances of social distancing violation.

Hence, we are nowhere near the peak of Covid-19, not to mention a possible second phase. Infection numbers of 200,000 within a month aren’t improbable guesses and these are symptomatic cases, perhaps 25% of total infections. Any risk-averse sailor would steer away from the monster Scylla, with a prolonged and undiluted lockdown lasting till September or beyond. But there is Charybdis, the whirlpool of an economic toll.

Mortality and morbidity apply to enterprises, too; MSMEs more pronounced than most. Baseline GDP growth was already in slowdown mode and a capital crunch was compounded by lockdown’s labour constraint. There were both supply and demand shocks. That Scylla/Charybdis metaphor is apt, because Homer’s account tells us what Odysseus did. He passed closer to the sea monster Scylla and lost a few sailors, rather than lose the entire ship through proximity to Charybdis.

The phased opening can be interpreted as that. Pareto’s 80/20 rule applies to many phenomena. If 80% of India’s geographical area is virus-free, or has maintained to contain it, why subject it to lockdown? The red/orange/green template isn’t only for states or districts, it is finer still. Therefore, if a place is not a containment zone, why not open up there, recognising this is short of ideal? It is second best. Comparing it with first best is futile.

Unfortunately, 80% of productivity, growth and revenue also occur in infected areas, in red districts, and even in containment zones. If one takes away Maharashtra, Gujarat, Delhi, Tamil Nadu and Uttar Pradesh, what is left of contribution to growth and government revenue? If one takes away Mumbai, Pune and Thane, what will be the answer for Maharashtra? If one takes away Ahmedabad, Surat and Vadodara, what will it be for Gujarat? With a rural/urban lens, so far, symptomatic infections are correlated with urban agglomerations. That’s where secondary and tertiary sector activities are also concentrated.

Extensive economic revival will be a long haul, requiring at least two years. Meanwhile, as robust employment numbers aren’t available, fragmentary evidence is scary. With partial opening and a focus on rural, the door opens a bit.

What is produced has to be distributed. Like employment, trucking data is also imperfect. For what it’s worth, it shows average trucking activity is now 40% of what it was, pre-lockdown.

Understandably, this reversal is concentrated in agro and food and beverages. Can rural focus trigger growth and employment? No one argues it is enough. Rural can’t provide employment to returning migrants. Orange/red zones will be constrained by restrictions on labour mobility and migration. Both industry and services require labour, and MSMEs will find it difficult to bear additional health-related compliance costs. But, as I said, there is a rock and a hard place. Green/orange/red identifications are dynamic and contingent on contagion spread.

At the moment, the ship has inched a bit away from Charybdis.

(Chairman, Prime Minister’s Economic Advisory Council)


May 10, 2020

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