Coronavirus – Economic Issues

Restarting the coronavirus-hit economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Reproduction number-with respect to pandemic.

Mains level : Paper 3- What was the extent of damage caused by the Covid-19 to the India economy?

The theme of the article is the restarting of the Indian economy. Striking the right balance between livelihood and the spread of the virus is important for India. While India has been doing well on the curbing of the spread of the virus, its economy remains in the complete shutdown. So, we must restart our economy and this article offers some suggestions to do so and some trends that our economy is showing are discussed here.

Striking the balance between the economy and the spread of the virus

  • One critical problem is striking the right balance between curbing the spread of the virus and keeping the economy functioning.
  • We cannot have the poor, the labourers and the migrants bear the brunt of the effort to contain the spread of the virus.
  • And nor do we want to weaken the foundations of the economy so much that we emerge from the pandemic onto an economic wasteland.
  • The choice between lives and economy is also a choice between lives and lives.

Appreciation of India’s effort to curb the virus

  • India’s effort to curb the spread of the virus has received appreciation — not just the state of Kerala, which has got accolades from around the world, but the country as a whole.
  • The incidence of COVID-19 remains low in India.
  • Of every 10 million people, there are as yet 5 lives lost in India.
  • Comparison with the world: This is vastly lower, not just compared to Belgium, which tops the list with 5,180 fatalities for every 10 million people, but many other nations, such as the United States with 1,370 fatalities, Spain with 4,550, Italy with 4,080 and the UK with 2,550 fatalities.

One of the many puzzles associated with the Covid-19 is variation shown by it in fatality rate across the globe. Following are some figures about it.

Worldwide variation in the fatality rate

  • To be fair, the low fatality, per 10 million population, is not specific to just India.
  • We have comparably low figures currently in almost all African and South Asian nations.
  • Thus, it is seven for Bangladesh, three for Sri Lanka, nine for Pakistan, two for Tanzania, one for Nigeria, and 0.3 for Ethiopia.
  • No one fully understands these huge differences between Europe and North America, on the one hand, and Africa and South Asia, on the other.
  • Isolation of nation, not a factor: This cannot be because these nations are more isolated.
  • Bangladeshis are among the most globally scattered people and Ethiopia has huge interactions with China, but the fatality rates are low in both countries.
  • Why is this so? The short answer is we do not know.

Defeating the virus by keeping reproduction number below one

  • It is important to realise that the risk cannot be cut to zero — nothing in life is a zero-risk activity.
  • To defeat the virus, the aim has to be to keep the “reproduction number”, or R-0, down to less than one.
  • R-0 refers to the number of people, on average, who get infected by each infected person.
  • When R-0 reaches less than one in any given region, such as is the case in Kerala, we know that the incidence of the disease is winding down in that region.

Following points are important from the UPSC perspective. A question can be framed on the economic damage of the Covid-19, opportunities provided by it, its implications for the vulnerable section of the society, unemployment, international trade, changes in the economic policies of the government etc.

Coming out of lockdown: Economic policy challenge

  • The economic policy challenge is about how to come out of the lockdown.
  • This has to be done carefully, but quickly.
  • The stringency of India’s lockdown at top: A study by researchers at the University of Oxford, of the stringency of lockdowns in 73 countries, places India right on top.
  • For a short while, this is worth it, and also impressive for a populous nation like India.
  • Not desirable position: The top rank on the stringency index is not something any country will want to occupy for long.
  • That will have a devastating effect on the poor and damage the nation’s long-run economic prospects.

Trends in the Indian economy

  • Unemployment rate at an all-time high: There are studies showing that India’s unemployment rate is now at 24 per cent, an all-time high.
  • Biggest ever capital outflow in a month: March also saw the biggest outflow of capital from the nation ever recorded in one month — roughly $15 billion left the nation.
  • This also happens to be the largest capital outflow from any emerging economy in March.
  • Clearly, global players are reacting to the fact that the economy is not functioning.
  • Rupee at an all-time low: These sentiments have weakened the Indian rupee, which is now at an all-time low.
  • Some of these problems are inevitable in this dystopian world; we can deal with these problems for a short while.
  • Global trade: If these trends persist, India would end up ceding space to other nations in global trade, exports and business, and the suffering will be huge on the working classes.

Way forward in opening the economy

  • Once this phase of the lockdown ends on May 3, we will have to start opening businesses, allowing the private sector, especially the informal enterprises and small firms, to operate.
  • Rule of behaviour: There will have to be rules of behaviour in place, such as social distancing, masks, hand-washing, but we have to begin to facilitate poor labourers to reach their place of work, and our farms and factories to function.
  • Focus on participation, not permission: We have to encourage the rules of behaviour to continue by “participation” and not by bureaucratic “permission”.
  • India has a long history of the “permit raj”, where all businesses were beholden to the bureaucracy for what they did.
  • This had a tendency to strangle all but a few big firms and had held up the nation’s economic growth for long.

Conclusion

India stands at an important juncture. A misstep at such moment could turn the course of history for the nation. So, the right steps at various fronts from containing the spread to the reopening of the economy are required from the government.

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments