India will watch with bated breath the trajectory of the return of Covid-19. The virus has always derailed mankind’s best calculations. Hope the enemy is wrong this time, writes Navin Upadhyay
The return of the Covid-19 pandemic in several countries and the fear that India may not remain immune to its spread could seriously challenge the country’s health infrastructure and the state of its fragile economy.
The resurfacing of Covid was widely expected during the winter. Two months ago, White House chief medical adviser, Dr. Anthony Fauci, who is one of the most respected voices on the threat of Covid-19, said that the world should not be surprised if a new Covid variant drives another winter surge in cases.
“We should anticipate that we very well may get another variant that would emerge that would elude the immune response that we’ve gotten from infection and/or from vaccination," Dr. Fauci said.
But even those who revered Fauci would not have dreamt of such vicious resurfacing of Covid-19 as has been the case in China. For decades, China has been the growth engine of the world, as such its current Covid explosion situation has sent alarm bells ringing across the world already reeling under the economic impact of the Russia-Ukraine war and an overall slowdown in the economy.
Because of large-scale vaccinations, this time around India may be better placed to deal with the threat of Covid as far as health challenges are concerned. But in a globalized world, India could not remain immune to the shockwaves economies are feeling across the world from the return of the pandemic. The memories of the lockdown and fears are back. Amid the grim forecast that the world is headed for a major recession, consumption may take a big heat. Even in the best-case scenario—where there is no lockdown to deal with Covid—tours and travel, as well as transport sectors, could be badly affected and manufacturing and consumption sectors could also face a slowdown. The combined effect of all these could impact the nascent recovery in the economy.
A world bank report on the economic impact of the pandemic says that the COVID-19 pandemic triggered the largest global economic crisis in more than a century.†The crisis led to a dramatic increase in inequality within and across countries. Preliminary evidence suggests that the recovery from the crisis will be as uneven as its initial economic impacts, with emerging economies and economically disadvantaged groups needing much more time to recover pandemic-induced losses of income and livelihoods.†The report said.
The impact of the Covid-related lockdown on the Indian economy still lingers on even after two years of the lockdown. According to a CRISIL report, the economy contracted 6.6% in fiscal 2021 on account of the pandemic and then staged a mild recovery in fiscal 2022, when it grew 8.7%. However, the impact varied across states, while some states were laid low by the virus, other states were able to withstand the shock to a great extent. Bihar at one end of the spectrum logged the fastest positive growth (2.5%); Kerala was at the other end, shrinking 9.2%, the report said.
The report further said that the sharp rise in inflation in the current fiscal has been mirrored in most states. “So far this fiscal, 13 large states recorded higher inflation than the national average, with Telangana, Maharashtra, and West Bengal recording the highest inflation. Most states facing maximum inflation are the richer states,†it said.
Fiscal stress, as measured by debt-deficit levels, has increased across states during the past two years. Bihar, Kerala, Punjab, and Rajasthan are especially fiscally vulnerable, and their debt (as a percentage of gross state domestic product) is projected to be the highest among states in this fiscal as well. Finances of Andhra Pradesh, Bihar, Kerala, Madhya Pradesh, Punjab, and Rajasthan, it said.
India would desperately hope that Covid-19 does not cause the sort of economic disruption it triggered in 2020 and 2021. Because that would cause serious humanitarian crises despite the government's decision to extend the free ration scheme by another year. After all, the extension of the scheme has a price tag of Rs 2 lakh crore, which is bound to put pressure on inflation and compel the Reserve Bank of India either to further tighten the monetary policy or keep the interest rate at this enhanced level. In both cases, millions of people have to bear extra burden in payment of installments on car and housing loans.
Any disruption in the economy could directly hit the job market. The unemployment rate in India increased to 8 percent in November from 7.80 percent in October of 2022. Free ration may be a good social and political move, but it is unlikely to solve the country’s problem of unemployment and growth. Economists have consistently argued that in the country where nearly 80 cr people are getting free food, productively is going to be badly hit-- and in the long run, this could have serious consequences for the country's growth.’
India will watch with bated breath the trajectory of the return of Covid-19. The virus has always derailed mankind’s best calculations. Hope the enemy is wrong this time.
(The writer is Executive Editor of The Pioneer)
A World Bank report on the economic impacts of the COVID-19 crisis
The COVID-19 pandemic sent shock waves through the world economy and triggered the largest global economic crisis in more than a century. The crisis led to a dramatic increase in inequality within and across countries. Preliminary evidence suggests that the recovery from the crisis will be as uneven as its initial economic impacts, with emerging economies and economically disadvantaged groups needing much more time to recover pandemic-induced losses of income and livelihoods.1
In contrast to many earlier crises, the onset of the pandemic was met with a large, decisive economic policy response that was generally successful in mitigating its worst human costs in the short run. However, the emergency response also created new risks—such as dramatically increased levels of private and public debt in the world economy—that may threaten an equitable recovery from the crisis if they are not addressed decisively.
Worsening inequality within and across countries
The economic impacts of the pandemic were especially severe in emerging economies where income losses caused by the pandemic revealed and worsened some preexisting economic fragilities. As the pandemic unfolded in 2020, it became clear that many households and firms were ill-prepared to withstand an income shock of that scale and duration. Studies based on precrisis data suggest, for example, that more than 50 percent of households in emerging and advanced economies were not able to sustain basic consumption for more than three months in the event of income losses. Similarly, the average business could cover fewer than 55 days of expenses with cash reserves. Many households and firms in emerging economies were already burdened with unsustainable debt levels prior to the crisis and struggled to service this debt once the pandemic and associated public health measures led to a sharp decline in income and business revenue.
The crisis had a dramatic impact on global poverty and inequality. Global poverty increased for the first time in a generation, and disproportionate income losses among disadvantaged populations led to a dramatic rise in inequality within and across countries. According to survey data, in 2020 temporary unemployment was higher in 70 percent of all countries for workers who had completed only a primary education. Income losses were also larger among youth, women, the self-employed, and casual workers with lower levels of formal education. Women, in particular, were affected by income and employment losses because they were likelier to be employed in sectors more affected by lockdown and social distancing measures.
Similar patterns emerge among businesses. Smaller firms, informal businesses, and enterprises with limited access to formal credit were hit more severely by income losses stemming from the pandemic. Larger firms entered the crisis with the ability to cover expenses for up to 65 days, compared with 59 days for medium-size firms and 53 and 50 days for small and microenterprises, respectively. Moreover, micro-, small, and medium enterprises are overrepresented in the sectors most severely affected by the crisis, such as accommodation and food services, retail, and personal services.
The short-term government responses to the crisis
The short-term government responses to the pandemic were extraordinarily swift and encompassing. Governments embraced many policy tools that were either entirely unprecedented or had never been used on this scale in emerging economies. Examples are large direct income support measures, debt moratoria, and asset purchase programs by central banks. These programs varied widely in size and scope (figure 1.1), in part because many low-income countries were struggling to mobilize resources given limited access to credit markets and high precrisis levels of government debt. As a result, the size of the fiscal response to the crisis as a share of the gross domestic product (GDP) was almost uniformly large in high-income countries and uniformly small or nonexistent in low-income countries. In middle-income countries, the fiscal response varied substantially, reflecting marked differences in the ability and willingness of governments to spend on support programs.
