The Indian Prime Minister went on national television on Tuesday night and announced a countrywide lockdown until April 14. The tradeoff between a medical lockdown and an economic lockdown is acute in India. India has chosen to go by the advice of health experts, evidently. A good friend pointed to the work of a team in University of Michigan which, according to him, has guided India’s thinking. The article linked here has a link to their full report.
Paragaph 5 is important:
5. What long-term impact will interventions like travel bans and social distancing have on India?
Though the epidemiologic and mathematical calculations make a convincing case for enforcing severe interventions, they come at a tremendous price to social and economic health. Economic losses can spread from directly impacted sectors (like hospitality and transportation) to others (like online retail and apparel) through a contagion process not dissimilar to that of the virus itself. It can last months or even years after the restrictions on social mobility are lifted, because the damage from business closings and layoffs are often irreversible.
Amar Bhide of Tufts University makes a good point:
Lockdowns each winter could potentially turn a bad year into a good one, saving 50,000 deaths, reducing stress on intensive care units and forestalling catastrophes. Fatal car accidents would also fall, further reducing demands on emergency care.
Yet sensibly, we reject safety at all costs: we risk more deaths to live better lives. That’s a lesson worth remembering now
In other words, we face the same trade-off every winter and we make a different choice. Why choose differently now? Is it because, as Devi Shetty, it is much more easily transmissible than the already-circulating flu?
That said, could India have exercised its brains more and burnt the midnight oil and come up with a better balance between ‘medical lockdown’ and an ‘economic lockdown’ especially since there is no sign, still, of an economic package that includes fiscal and monetary policies?
Gulzar Natarajan and I did not burn the midnight oil but still wrote six drafts to come up with this piece for the ‘Swarajya’ magazine which carried it online last evening. We do make the point that the economic consequences of this could, arguably, be worse than that of the 2008 Global Financial Crisis. Of course, the action in US stock markets on Tuesday mocked at us. No problems.
Discussions are raging in many forums on whether India needed a lockdown or can it withstand a lockdown. It is an impossible question to answer. India has gone, according to a friend, as per the UMich group recommendations. We do not know. It does not matter really.
India has to announce an economic package that includes fiscal and monetary policy actions. It has to commit the error of doing too much rather than too little. There will be free riders. There will be leakages. Criteria will have to be set so that those who did not deserve are excluded. Even then, some who did not deserve would manage to avail of the relief. That is par for the course. That cannot be the excuse for being tight-fisted nor inaction.
A friend sent a chart of capital outflows from Emerging Economies:
But, this has to be broken down: (1) We need to parse this into three categories of EM nations: (a) Current account deficit + commodity producing countries are cutting rates – their currencies are weakening dramatically and their bond yields are rising. That is, markets are not approving of them. They need the rate cushion. Example: Indonesia and South Africa.
(b) Current account surplus countries + global trade dependent countries – South Korea, China and Taiwan – they cut rates and yet their currencies are not collapsing BUT depreciating mildly. Their bond yields are not spiking up like in (1) above.
(c) Current account deficit countries + Oil Importer + Less globally exposed via trade: That is India. Our remittances will fall this year but it will be made up by reduced bilateral trade deficit with China. Our oil import bill will drop so sharply that the current account will balance this year. Our exports were growing barely if at all. So, no major impact there. Our real GDP growth will be between 4% and 5% this year (2020-21).
Therefore, the market will not treat India (of course, it is a prediction and guess, I admit) the same way as it has treated South Africa and Indonesia.
Therefore, our central bank can afford to cut rates without waiting for too long.
At the same time, India has to implement the lockdown with sensitivity and firmness. Admittedly, easier to say it in a blog post than to do it on the ground amidst pressures. We can only hope that we are lucky that, somehow, law enforcement achieves that just with minor exceptions.
After the rate of infections is slowed, testings increased and hospital facilities prepared better, the Union Government has to find ways to adopt and disseminate best practices from other States, eg., Kerala.
What specific lessons can the rest of India learn from Kerala?
(1) local civic bodies and field workers from the health department to keep a tab on communities for people who have returned from abroad
(2) The scarcity of masks and dispensers was addressed in the way that all prisons in the state were asked to manufacture them
(3) While educational institutions are closed, but 375,000 children are provided mid-day meals at their homes.
(4) telecom operators were asked to strengthen the broadband system to allow people to work from home.
(5) The state libraries are also working overtime providing books to those in quarantine.
(6) Besides engaging psychologists for infected persons put under quarantine, ….
(7) the patients have been allowed to use laptops and other communication devices.
(8) Two robots have been deployed to distribute masks and dispense sanitizers by spraying it on people’s hands in Kochi….
Perhaps, a meeting of the GST Council can be called to share best practices. It will also ‘defang’ critics and opposition and smoothen Centre-State and State-State coordination.
In the meantime, India must hope that scientists who are now guessing that warmer weather would be a deterrent to the spread of virus are actually right.