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Coronavirus – Health and Governance Issues

Get a step ahead of the virus

op-ed snap | Governance | Mains Paper 2: Health & Education
Context

The COVID-19 pandemic has repercussions beyond the biomedical sector — it impinges on industry, transport, finance, banking and education sectors. All of them must act in unison.

Virus different from its nearest relative
- Comparison with SARS and MERS: The rapid spread of the zoonotic (transmitted from animal-to-human) coronavirus infection in Wuhan in China — several hundreds every day — in December 2019 and January 2020 was a clear signal that COVID-19 is drastically different from its nearest relative viz.-
  - the Severe Acute Respiratory Syndrome (SARS) coronavirus,
  - and its distant relative, the Middle-East Respiratory Syndrome (MERS) coronavirus.
  - The former spread slowly among humans in 2002-2003. It was checked globally within nine months by screening passengers and quarantining travellers from infected countries.
  - There have been no cases since July 2003. MERS coronavirus is, by and large, an inefficient spreader — it has been confined to the Middle-East.
- How COVID-19 is different? COVID-19 has assumed a pandemic form.
  - In less than three months, it has reached more than 180 countries and claimed more than 10,000 lives.
  - The disease has claimed more people in Italy than in the country of its origin.
  - Travel bans, screening travellers and quarantines are necessary to slow the spread of COVID-19.
  - However, there is a limit to the utility of these measures.
- Community transmission: When the infection becomes widespread, screening procedures will become inefficient — the virus will spread stealthily.
  - Indigenous transmission — the virus spreading within communities — has begun in many countries.
  - This is typical of viruses that spread from human to human through the respiratory system.
How India’s health management systems deals with the disease burden?
- Medicine consists of three components —
  - universal healthcare,
  - public health, and
  - research to constantly contextualise solutions to local problems.
- Reaction after falling ill: Many of us in India believe that disease is a matter of fate or karma and disease prevention is not always in human hands — we only react after falling ill.
- No focus on prevention and control: Therapeutics and surgeries — healthcare interventions — are valued much, but not disease prevention and control.
- Cultural beliefs matter: Attitudes and cultural beliefs do matter. If victims are somehow regarded as responsible for their maladies, universal healthcare is perceived as an optional service — not mandatory.
Good reasons to change the attitude
- There are good reasons for such thinking to change.
- Every person who contracts a communicable disease stands the risk of spreading it to others.
- Prevention of disease is states’ duty: At the same time, the state, too, is responsible for the spread of diseases by not mitigating the environmental and social risk factors or determinants. Prevention of disease is the state’s duty.
- Investment in health and its implications: Healthy people create wealth. For example, every year, uncontrolled tuberculosis drains India’s economy of the equivalent of the GDP of roughly 2 million people.
  - Investment in health, therefore, can have implications for the country’s economy.
  - But Indians have never really demanded an effective public health system.
  - Healthcare has never become a political slogan. That’s one reason for the sorry state of India’s public health system.
- Absence of effective public health system: The country does have international obligations to control TB, malaria and leprosy, and eliminate polio.
  - Ad hoc measures: In the absence of an effective public health system, the country has depended on fulfilling these obligations through ad hoc measures that are targeted towards one disease.
  - Need for robust health system: Robust public health systems are needed to prevent typhoid, cholera, dysentery, leptospirosis, brucellosis, water-born hepatitis and influenza.
- Overburdened healthcare system with communicable disease: The absence of an effective preventive element means that healthcare services in the public sector are over-burdened with uncontrolled communicable diseases.
  - The entry of the private sector: This encourages private sector healthcare providers to step in, which brings in problems related to unregulated profits.
  - Questions are often raised over the quality of service.
  - COVID-19 could compound the systems problems: Moreover, uncontrolled communicable diseases vie with the non-communicable ones for the healthcare provider’s attention. The COVID-19 outbreak could compound the system’s problems.
One step ahead of the virus
- SARS and Nipah in Kerala: The SARS and Nipah virus outbreak in Kerala in 2018 were crises that required short bursts of professional activity. Our healthcare systems coped with them.
  - But endemic diseases, even influenza, that has a vaccine, require sustained interventions.
- Test for the country’s healthcare system: Herein lies the test for the country’s healthcare system.
  - It has often been seen that the system is not able to sustain its initial momentum.
  - There is a possibility that COVID-19 could follow the path taken by the HINI influenza – after the epidemic died down, the disease became endemic.
  - The country’s healthcare system has to prepare for that. In other words, it has to be one step ahead of the virus.
Way forward
- Equipping district hospitals: Every district hospital must be equipped to diagnose infections caused by serious communicable diseases — these affect the lungs, brain, liver and kidneys.
  - The system should also ensure that healthcare personnel do not get infected.
- Allocate 5% of GDP to health budget: The country needs to allocate 5 per cent of the GDP to the health budget to have a health management system that can take care of public health emergencies such as the COVID-19 outbreak — and its aftermath.
- Unified control machinery: A unified command and control machinery, under the prime minister’s guidance, to control the spread of COVID-19 is overdue by at least six weeks in the country.
- Define the tasks of various authorities: The tasks of the Directorate-General of Health Services, National Centre for Disease Control, Indian Council of Medical Research, National Health Mission and state health ministries must be clearly defined.
- The mechanism for coordination: Most importantly, a mechanism for coordination between these agencies should be set up to deal with the COVID-19 threat.
Conclusion

The COVID-19 pandemic has repercussions beyond the biomedical sector — it impinges on industry, transport, finance, banking and education sectors. All of them must act in unison.
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Foreign Policy Watch: India-SAARC Nations

Going regional

op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India
Context

Prime Minister Narendra Modi signalled a change in India’s rejection of SAARC as a platform for regional cooperation by inviting all heads of state and government of SAARC countries to a video summit to promote a region-wide response to the Covid-19 pandemic.

SAARC in virtual deep freeze
- Who attended the video conference? The video summit was attended by all SAARC leaders, except for Prime Minister Imran Khan of Pakistan, who deputed his special assistant for health to represent him.
- Status of SAARC: SAARC has been in a virtual deep freeze since India conveyed it would not attend the 19th SAARC summit, to be hosted by Pakistan in 2017, in the wake of the cross-border terrorist incidents at Pathankot and Uri.
  - Other SAARC leaders also declined to attend.
  - The summit was indefinitely postponed.
- Focus on BIMSTEC: Since then India has downgraded SAARC as an instrument of its “Neighbourhood First” policy and shifted the focus to the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) instead.
Backdrop of SAARC revival
- For his swearing-in ceremony in 2014, PM Modi had invited leaders of all SAARC countries including Pakistan.
- For the swearing-in ceremony in 2019, it is BIMSTEC leaders who were the invited guests.
- Soon after taking over as external affairs minister, S Jaishankar referred to SAARC having “certain problems” while BIMSTEC was described as having both energy and possibility and “a mindset which fits in with that very optimistic vision of economic cooperation that we want.”
- Deliberate political message: Against this backdrop, Modi’s initiative in convening a SAARC video summit, instead of a BIMSTEC video summit, conveys a deliberate political message.
Proposal of SAARC Covid-19 Fund and Health Ministers’ Conference
- At the conference, Modi gave a call for the countries of SAARC “coming together and not going apart.”
- A SAARC Covid-19 Fund has been proposed with India committing US$10 million.
- Modi referred to the role which could be played by an existing SAARC institution, the Disaster Management Centre, in enabling a coordinated response to Covid-19.
- Suggestions were made by several leaders, including the Pakistani representative, for a SAARC Health Ministers’ Conference to follow up on the summit. This is likely to be convened soon.
Pakistan on defensive
- India seen as undermining SAARC: Modi’s initiative has put Pakistan on the defensive. So far, it was India which was seen as undermining SAARC in which other South Asian countries have a keen interest.
- BIMSTEC no alternative to SAARC: While there has been readiness on their part to participate in BIMSTEC, they do not consider the latter as an alternative to SAARC. In taking this initiative, Modi may be responding to these sentiments.
- Onus on Pakistan: If Pakistan now drags its feet, then the onus will be on her for weakening the Association.
  - There is a new situation as a result of the abrogation of Article 370 relating to Kashmir, which has been denounced by Pakistan.
- Difficulty for Pakistan: It would be difficult for Pakistan to accept cooperation with India under SAARC because this would compromise its stand on Kashmir.
BIMSTEC not delivered expected results
- Not yielded the expected result: It is also a fact that the focus on BIMSTEC has not yielded the results India may have expected.
- Trade below the set target: Current trade among its members is US$40 billion, though the potential was set at $250 billion.
- Act East policy stalled: India’s Act East policy, which involved a key role for India’s Northeast, has stalled.
- RCEP factor: The Northeast is in political turmoil while India has opted out of the Regional Comprehensive Economic Partnership (RCEP), which would have added substance to BIMSTEC.
Why India should revive SAARC

1.BIMSTEC not a credible option to SAARC
- Today it is difficult to see BIMSTEC as a credible and preferred alternative to SAARC.
- Cooperation both through SAARC and BIMSTEC: In any case, it makes better sense for India to pursue regional economic cooperation both through SAARC as well as BIMSTEC rather than project them as competing entities.
- SCO membership a contradictory position: If the argument is that regional cooperation involving Pakistan is a non-starter due to its ingrained hostility towards India, then being part of Shanghai Cooperation Organisation (SCO), where both are members, becomes a somewhat contradictory position.
2.The China factor
- China making inroad into the neighbourhood: In determining its position towards SAARC, India must also take into account the significant inroads that China has been making in its sub-continental neighbourhood.
- BRI initiative: With the exception of Bhutan, every South Asian country has signed on to China’s ambitious Belt and Road Initiative (BRI).
  - A number of Chinese infrastructure projects are already in place or are being planned in each of our neighbours.
- China likely to become a key player: With SAARC becoming inoperative and BIMSTEC not living up to its promise, China is likely to become a key economic partner for South Asia and India’s hitherto pre-eminent role will be further eroded.
  - On this count, too, it is advisable for India to advance regional cooperation both under SAARC as well as BIMSTEC. Both are necessary.
3.Pakistan factor
- Should not give up on Pakistan: Despite the frustration in dealing with Pakistan, India should not give up on its western neighbour.
- Relation needs to be managed: Relations with Islamabad will remain adversarial for the foreseeable future but still need to be managed with two ends in mind.
  - One, to ensure that tensions do not escalate into open hostilities and,
  - two, to reduce leverage which third countries may exercise over both countries on the pretext of reducing tensions between them.
- No compromise in position on terrorism: This does not in any way compromise our firm stand against cross-border terrorism emanating from Pakistan. The revival of SAARC could be an added constraint on Pakistan’s recourse to terrorism as an instrument of state policy.
4.Afghanistan factor
- Finally, the revival of SAARC would also support the Ashraf Ghani government in Kabul in navigating through a difficult and complex peace process involving a Pakistan-sponsored Taliban.
Conclusion

While these are essentially tactical considerations, there is a compelling reality which we ignore at our peril. Whether it is a health crisis like the Covid-19 or climate change, the melting of Himalayan glaciers or rising sea levels, all such challenges are better and more efficiently dealt with through regional cooperation. The Indian Subcontinent is an ecologically integrated entity and only regionally structured and collaborative responses can work.
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Land Reforms

[pib] Desertification and Land Degradation Atlas of India

| Agriculture | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia
The Union Minister for Agriculture and Farmers Welfare has provided useful information about land degradation in India citing the Desertification and Land Degradation Atlas.

Desertification and Land Degradation Atlas of India
- Space Applications Centre (SAC), ISRO has released out an inventory and monitoring of desertification of the entire country in 2016.
- This Atlas presents state-wise desertification and land degradation status maps depicting land use, process of degradation and severity level.
- This was prepared using IRS Advanced Wide Field Sensor (AWiFS) data of 2011-13 and 2003-05 time frames in GIS environment.
- Area under desertification / land degradation for the both time frames and changes are reported state-wise as well as for the entire country.
Degraded land in India
- About 29.32% of the Total Geographical Area of the country is undergoing the process of desertification/land degradation.
- Approximately 6.35% of land in Uttar Pradesh is undergoing desertification/degradation.
Various move for land conservation
- National Afforestation & Eco Development Board (NAEB) Division of the MoEFCC is implementing the “National Afforestation Programme (NAP)” for ecological restoration of degraded forest areas.
- Various other schemes like Green India Mission, fund accumulated under Compensatory Afforestation Fund Management and Planning Authority (CAMPA), Nagar Van Yojana etc. also help in checking degradation and restoration of forest landscape.
- MoEF&CC also promote tree outside forests realizing that the country has a huge potential for increasing its Trees Outside Forest (TOF) area primarily through expansion of agroforestry, optimum use of wastelands and vacant lands.
Various institutions for land conservation
- Indian Institute of Soil and Water Conservation (IISWC): Bio-engineering measures to check soil erosion due to run-off of rain water
- Central Arid Zone Research Institute (CAZRI), Jodhpur: Sand dune stabilization and shelter belt technology to check wind erosion
- Council through Central Soil Salinity Research Institute, Karnal: Reclamation technology, sub-surface drainage, bio-drainage, agroforestry interventions and salt tolerant crop varieties to improve the productivity of saline, sodic and waterlogged soils in the country
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Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

[pib] Scheme for Promotion of manufacturing of Electronic Components and Semiconductors (SPECS)

| Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
The Union Cabinet has approved Scheme for Promotion of manufacturing of Electronic Components and Semiconductors.

About SPECS
- The scheme aims to offer the financial incentive of 25% of capital expenditure for the manufacturing of goods that constitute the supply chain of electronic products.
- The scheme will help offset the disability for domestic manufacturing of electronic components and semiconductors in order to strengthen the electronic manufacturing ecosystem in the country.
Benefits

The proposal, when implemented, will lead to the development of electronic components manufacturing ecosystem in the country. Following are the expected outputs/outcomes in terms of measurable indicators for the scheme:
- Development of electronic components manufacturing ecosystem in the country and deepening of Electronics value chain
- New investments in Electronics Sector to the tune of at least Rs. 20,000 crore
- Total employment potential of the scheme is approximately 6,00,000
- Reducing dependence on import of components by large scale domestic manufacturing that will also enhance the digital security of the nation
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Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

[pib] Defence Procurement Procedure, 2020

| Security Issues | Mains Paper 3: Various Security Forces, Agencies & Their Mandates
Raksha Mantri unveiled the draft Defence Procurement Procedure (DPP) 2020 that aims at further increasing indigenous manufacturing and reducing timelines for procurement of defence equipment.

Defence Procurement Procedure
- The draft of DPP 2020 has been prepared by a Review Committee headed by Director General (Acquisition) based on the recommendations of all stakeholders, including private industry.
- The first DPP was promulgated in 2002 and has since been revised a number of times to provide impetus to the growing domestic industry and achieve enhanced self-reliance in defence manufacturing.
Features:
- The government is constantly striving to formulate policies to empower the private industry including MSMEs in order to develop the eco-system for indigenous defence production.
- The major changes proposed in the new DPP are:
1) Indigenous Content ratio hiked
- The draft proposes increasing the Indigenous Content (IC) stipulated in various categories of procurement by about 10% to support the ‘Make in India’ initiative.
- A simple and realistic methodology has been incorporated for verification of indigenous content for the first time.
2) New Category: “Buy Global” Manufacture in India
- It has been introduced with minimum 50% indigenous content on cost basis of total contract value.
- Only the minimum necessary will be bought from abroad while the balance quantities will be manufactured in India.
- This would be in preference to the ‘Buy Global’ category as manufacturing will happen in India and jobs will be created in the country.
3) Leasing introduced as a new category
- Leasing has been introduced as a new category for acquisition in addition to existing ‘Buy’ & ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments.
- Leasing is permitted under two categories e, Lease (Indian) where Lessor is an Indian entity and is the owner of the assets and Lease (Global) where Lessor is a Global entity.
- This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, etc.
4) Product support
- The scope and options for Product Support have been widened to include contemporary concepts in vogue, namely Performance Based Logistics (PBL), Life Cycle Support Contract (LCSC), Comprehensive Maintenance Contract (CMC), etc to optimize life cycle support for equipment.
- The capital acquisition contract would normally also include support for five years beyond the warranty period.
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Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

[pib] Production Linked Incentive Scheme

| Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
The Union Cabinet has approved the Production Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.

Production Incentive Scheme (PLI)
- The scheme proposes production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
- The scheme shall extend an incentive of 4% to 6% on incremental sales (over a base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year as defined.
- The proposed scheme is likely to benefit 5-6 major global players and few domestic champions, in the field of mobile manufacturing and Specified Electronics Components and bring in large scale electronics manufacturing in India.
Benefits
- The scheme has a direct employment generation potential of over 2,00,000 jobs over 5 years.
- It would lead to large scale electronics manufacturing in the country and open tremendous employment opportunities. Indirect employment will be about 3 times of direct employment as per industry estimates.
- Thus, the total employment potential of the scheme is approximately 8,00,000.
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Promoting Science and Technology – Missions,Policies & Schemes

[pib] Indian Institutes of Information Technology (IIIT) Laws (Amendment) Bill, 2020

| Science Tech | Mains Paper 3: Achievements Of Indians In S&T
Lok Sabha passed the IIIT Laws (Amendment) Bill, 2020.

About IIIT Act
- IIITs are envisaged to promote higher education and research in the field of Information Technology.
- The IIT Act of 2014 and IIIT (Public-Private Partnership) Act, 2017 are the unique initiatives of the govt. to impart knowledge in the field of IT to provide solutions to the challenges faced by the country.
- Every Institute shall be open to all persons irrespective of gender, caste, creed, disability, domicile, ethnicity and social or economic background.
What are the proposed Amendments?
- Introduction of the Amendment 2020 will amend the principal acts of 2014 and 2017.
- It will grant statutory status to five IIIT in PPP mode in Gujarat (Surat), Madhya Pradesh (Bhopal), Bihar (Bhagalpur), Tripura (Agartala), and Karnataka (Raichur).
- It would declare them as Institutions of National Importance along with already existing 15 IIIT under the 2017 Act.
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Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

Schemes for Electronic Manufacturing

| Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
The Union Cabinet has approved financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme

Background
- To build and create requisite infrastructure ecosystem for electronics manufacturing; Ministry of Electronics and Information Technology notified Electronics Manufacturing Clusters (EMC) Scheme which was open for receipt of applications upto October, 2017.
- A period of 5 years is available for disbursement of funds for the approved projects.
- There was a need for continuation of such scheme in modified form for further strengthening the infrastructure base for electronics industry in the country and deepening the electronics value chain.
EMC 2.0 Scheme
- The Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme would support setting up of both Electronics Manufacturing Clusters (EMCs) and Common Facility Centers (CFCs).
- For the purpose of this Scheme an EMC would set up in geographical areas of certain minimum extent, preferably contiguous, where the focus is on development of basic infrastructure, amenities and other common facilities for the ESDM units.
- For Common Facility Centre (CFC) there should be a significant number of existing ESDM units located in the area and the focus is on upgrading common technical infrastructure and providing common facilities for the ESDM units in such EMCs, Industrial Areas/Parks/industrial corridors.
Aims and objectives
- The scheme aims for development of world class infrastructure along with common facilities and amenities through Electronics Manufacturing Clusters (EMCs).
- It is expected that these EMCs would aid the growth of the ESDM sector, help development of entrepreneurial ecosystem, drive innovation and catalyze the economic growth of the region by attracting investments in the sector, increasing employment opportunities and tax revenues.
Benefits

The Scheme will create a robust infrastructure base for electronic industry to attract flow of investment in ESDM sector and lead to greater employment opportunities. Following are the expected outputs/outcomes for the Scheme:
- Availability of ready infrastructure and Plug & Play facility for attracting investment in the electronics sector:
- New investment in electronics sector
- Jobs created by the manufacturing units;
- Revenue in the form of taxes paid by the manufacturing units
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World Happiness Report, 2020

| International Relations | Mains Paper 1: Salient features of Indian Society
The World Happiness Report for 2020 has been recently released.

The World Happiness Report
- The WHR is an annual publication of the UN Sustainable Development Solutions Network.
- It contains articles and rankings of national happiness based on respondent ratings of their own lives which the report also correlates with various life factors.
- The 2020 report for the first time ranks cities around the world by their subjective well-being and digs more deeply into how the social, urban and natural environments combine to affect our happiness.
Highlights of the 2020 report
- Finland has been declared the world’s happiest nation for the third year running.
- As in each of the previous seven reports, Nordic states dominated the top ten, along with countries such as Switzerland, New Zealand and Austria. Luxembourg also edged into the tenth spot for the first time this year.
Why Finland?
- People in Finland are said to be shy, away from spontaneous demonstrations of joy, valuing instead the quiet and solitude of the country’s vast forests and thousands of lakes.
- The northern country’s long dark winters were reputed to be behind high levels of alcoholism and suicide, but a decade-long public health drive has helped cut rates by more than half.
- Finland’s residents enjoy a high quality of life, security and public services, with rates of inequality and poverty among the lowest of all OECD countries.
India’s dismal performance
- India was at a 144 rank nestled between Lesotho and Malawi nations.
- Pakistan, on the other hand, has been ranked 66.
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Issues related to Economic growth

The double whammy that India’s economy now faces

| Economics | Mains Paper 3: Indian Economy
Context

India is currently in the grip of dual shocks: Covid-19 and a financial one.

The supply and demand shock
- Containing outbreak at economic cost: Even as infection rates have tapered in China, they are rising elsewhere. Countries that have succeeded in containing it have done so at an economic cost, by quarantining people, implementing lockdowns and social distancing.
  - This has resulted in a plateauing of new infection cases in China and South Korea, but they are still rising exponentially across Europe and the US.
- Supply shock: This is both a supply as well as demand shock. On the former, the impact is via disruptions in China-centred supply chains.
- Demand shock: But there is also a hit to final demand as infections spread across the rest of the world, hurting travel, tourism, hotels and local retail activity.
- Tightened financial condition: The correction in equity markets and wider credit spreads have tightened financial conditions, and both consumer and business confidence has faltered.
- Rising infections in Europe a big concern: Rising infections in Europe and the US are a big concern as both are large services-driven economies. Any pullback in their consumption demand will likely result in a demand shock for the rest of the world.
Global spillover of Covid-19
- Hitting economies in waves: One uncertainty pertains to how long this shock will last. There are no definite answers as of now. Covid-19 shocks are hitting economies in waves and countries are imposing lockdowns, one by one.
  - Hence, instead of a synchronized global slump over one or two months, the economic impact is getting spread out.
  - For example, supply chain disruptions and lockdowns in China are gradually easing, and we estimate that factories should be operating at full capacity by mid-April.
- Hit to travel and tourism to last till June: The hit to travel and tourism will last at least until June because even if the number of new infection cases eases, travellers will remain cautious initially.
- Demand in the US and Europe to remain low until April: Curtailment in discretionary demand due to social distancing in the US and Europe only started in March and will likely continue until April, if not longer.
- Global spillover to continue till May: The global spillovers of Covid-19 will likely be spread out over February and May, implying a weak first half of 2020.
  - Whether the shocks last longer will depend on whether countries successfully contain infections.
  - It also depends on the ability of countries to prevent spillover effects onto corporate balance sheets (more defaults) and the labour market (job losses).
- Global GDP to remain low in the first half: Global gross domestic product (GDP) growth in the first half of 2020 is likely to be weaker than during the global financial crisis of 2008-09, due to a sharp first-quarter decline in China, and weaker final demand in developed economies in the second.
What will be the impact on India?
- The economic hit to India will be felt through multiple channels.
- First, India is not a part of China-centric global value chains, but China accounts for a significant share of India’s imports (14%) and its production halt will hit India’s imports of
  - primary and intermediate goods,
  - disrupting domestic production,
  - particularly in industries such as pharmaceuticals, auto, electronics, solar power and agriculture.
- Second, there will be a slowdown in international and domestic travel and tourism. India earns over 1% of GDP as foreign exchange earnings from tourism annually.
- Third, social distancing measures, along with the public fear factor will hit domestic retail activity as people avoid public places.
- Fourth, India will face the indirect effects of weaker global demand, tighter financial conditions and low confidence.
  - Oil windfall offset: Even though lower oil prices are a boon, in the current environment any benefit from lower oil prices will be offset by other negatives.
- Domestic financial sector risk: Another big challenge for India relates to domestic financial sector risks.
  - The spillover effect of Yes bank: Weak growth and financial stability concerns have been brewing for over a year now and the spillover effects of Yes Bank’s takeover are still reverberating through the system.
  - The fallout of the shadow banking slowdown via potential stress for real estate developers and small and medium-sized enterprises is a risk.
  - If the asset quality of both shadow banks and the banking sector deteriorate in the next few quarters, as is likely, then domestic credit conditions may stay tight, as the perceived risk premium could rise further.
- GDP growth rate: In this backdrop, the real activity could suffer. The GDP growth is expected to average around 4% year-on-year in the first half of 2020, with risks skewed to the downside.
  - GDP growth in 2020-21 is unlikely to be more than 2019-20’s 5%.
Way forward
- An optimal policy response to Covid-19: The optimal policy response to is globally-coordinated public health safety and virus containment. India has taken some worthy decisions on this.
  - Since Covid-19 will adversely impact service sectors like retail, hospitality, travel and civil aviation, the government’s fiscal policy response should be aimed well through measures such as tax relief and interest-free loans, particularly for small and medium enterprises.
- Liquidity easing and policy accommodation: On monetary policy, a combination of liquidity easing and policy accommodation would be needed beyond the moves already made.
  - Macro-prudential steps such as lowering the counter-cyclical capital buffer for banks could be announced.
  - Fixing the financial sector, though, would need a broader response, including a recognition of the full scale of the problem and then adequately recapitalising banks and shadow banks.
  - Else, credit risk premia may stay elevated and credit growth may not pick up.
Conclusion

In all, the economic impact on India due to shocks emanating from Covid-19 could get compounded due to weak domestic balance sheets. The coming quarters call for close vigilance of credit risks and the prioritizing of financial stability.
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