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The answer to the question of how to vaccinate a billion Indians is perhaps to be found in basic economics.

What is the most important health imperative as well as the most significant economic stimuli for India today? Unarguably it is Covid vaccination. We must remember that the story does not end with the strains of Covid-19 present now; perhaps we will all need annual booster shots. We therefore need to think through policy pathways for the long run with one immediate objective. Get the overall system to herd immunity as soon as possible.

In modern public economics the big but simple idea is that freedom works well and that state intervention is only justified in the face of “market failure”. There are four categories of market failure: Presence of market power externalities information asymmetry and provision of public goods. Government intervention requires two checkpoints: The presence of market failure and a credible pathway to successfully implementing the proposed state intervention. This provides us with the concepts and principles through which to think about vaccination.

With only two major sellers of vaccines in India there is concern about market power. However once we open up to the world market there is significant competition. This is a recurrent theme in addressing market power: Instead of getting into complicated state intervention in India into a monopolistic sector it is better to open up to trade and thus avoid the problems of state capacity in competition policy in India.

Vaccination will protect the person getting vaccinated. By enabling her mobility and interaction with a lower likelihood of spreading the disease it creates an important positive externality. This is normally not factored in by her in determining how much she is willing to pay for vaccination if it was a priced good. Hence she will typically be willing to pay less than what is optimal given the benefits to her and society. This divergence of social benefit and private benefit is a good reason for state intervention in the market for vaccines.

Information asymmetry is at one level the core societal interaction problem with Covid. Since X has no credible way of knowing whether Y is likely to be a Covid spreader interactions get restricted to only people who know each other’s Covid status. Credible third party signalling i.e. vaccination passports re the infection status of X is a potential solution to the problem of information asymmetry caused by Covid.

In economics curative health and vaccinations are not categorised as “public goods”. X’s use of a dentist’s chair prevents Y from using it at the same time. Likewise the dentist can exclude anyone from availing of his services. Hence curative health services are excludable and non-rival and unlike national security are not “public goods”. Ignoring this private good characteristic of curative health is likely to lead to wrong types of state interventions which cause more harm than good. Similarly vaccination against flu or polio drops are also not “public goods” though the state may decide in view of their importance for the well-being of the individual and society to provide it either free or at a subsidised price.

On Covid vaccination there is no real difficulty on the first checkpoint — the presence of market failure — but what about the second? Do we have the state capacity for doing a lot of vaccination through the government machinery? The best that India has done and in peaceful and non-pandemic type conditions is reach about 50 million persons (mothers and infants) and vaccinate them each year. For Covid the estimate is that about 950 million Indians above the age of 18 will need two shots. The vaccinations that need to be done then are 1.90 billion doses. Public sector delivery can meet only about 3 per cent of this. In addition adult vaccination of this nature is very different from vaccinations that governments have done till now. This is the state capacity problem that the vaccination drive needs to factor in when deciding on private/public sector modes of delivery.

What is the way forward?

Currently what is available in the world market is about $10/dose. On some reasonable assumptions the vaccination cost per person will be $25. Ayushman Bharat has identified about 500 million people as eligible for government-funded health care. Of these about 200 million are estimated to be under 18 leaving a balance of 300 million who should be provided free vaccination. At current rates of exchange this will mean an expenditure of Rs 56250 crore. If the government were to buy 600 million vaccines (300 million X2) in a global tender with assurance of a certain minimum offtake the price will be less. Experts say it could be about 20 per cent less and future prices are expected to be lower. The outgo then is likely to be around Rs 45250 crore. This vaccination expenditure needs to be compared with expenditure saved by the scheme on prevented hospitalisation. Given the usual pathologies of the Indian state in beneficiary identification if required a drive to include left out eligible beneficiaries could be undertaken so that no poor person ends up without vaccination. Ayushman Bharat has empanelled 24000 hospitals for providing curative health care. To begin with these can be the delivery points for the vaccination while efforts are launched to massively increase this number in the next three months.

Like in other curative health care services the non-poor can pay for their vaccination or be taken care of by schemes like Employees’ State Insurance Central Government Health Services and other formal sector employee insurance schemes.

This approach to roll out vaccination rapidly while addressing market failure and potential state failure was suggested by many experts as far back as August 2020. It is not too late even now. Instead of multiple states individually tendering (unsuccessfully?) for vaccines a composite large GoI tender will bring scale in procurement and help in securing competitive prices at least initially. Depending on the success of this in future more decentralised procurement processes can be thought of. The state and markets can thus potentially jointly solve independent India’s biggest challenge.

The writer retired as a secretary to GoI and is now a professor at the National Council of Applied Economic Research. Views are personal

The East’s low may worsen the regional imbalance as the second Covid wave rages on.

The NCAER Business Confidence Index (BCI) a measure of business sentiments fell for two consecutive quarters in 2019-20:Q4 and 2020-21:Q1 on a quarter-on-quarter basis. After the lockdown restrictions were withdrawn business sentiments recovered in a V-shaped form in 2020-21:Q2 and then at a moderating pace in Q3. However the index has remained virtually unchanged between Q3 and Q4.

The NCAER Business Expectations Survey (N-BES) collects data from six cities representing four regions. Bengaluru and Chennai represent the South; Mumbai and Pune West; Delhi North and Kolkata for East.

Being major urban centres these six cities accounted for a large share of Covid cases in March. Amongst the six cities included in the N-BES sample Pune was one of the worst affected accounting for 11 per cent of the total cases in India in March. This was followed by Mumbai (7.5 per cent) Urban Bengaluru (2.4 per cent) Delhi (1.9 per cent) Chennai (1.2 per cent) and Kolkata (0.4 per cent). Together the six cities accounted for 24.5 per cent of the total national cases in India in March 2021.

Figure 1 shows the divergence of regional business sentiments after 2019- 20:Q4. The range (maximum minus minimum) of the four regional BCIs fell from 57.6 in 2019-20:Q2 to 34.7 in 2019-20:Q4. It rose to 81.1 in 2020-21:Q1 and reached its peak at 97.3 in 2020-21:Q3. The Q4 has seen the range falling to 92.0.

Business sentiments in the North have been quite robust. In 2020-21:Q1 it was the only region which experienced improving business sentiments despite coinciding with the national lockdown. Business sentiments in the North improved steadily in Q2 and Q3 of 2020-21 but saw some moderation in Q4.

In contrast business sentiments in the South have seen improvement for three consecutive quarters in Q2 Q3 and Q4 of 2020-21. The BCI of the South recovered rapidly to converge with the North in Q2 and Q3 and outpaced the latter in Q4 of 2020-21. Overall business sentiments of the two regions were relatively buoyant and close to each other compared to East and West.

The BCI of the West has been lower than the North and South (Figure 1) but higher than the East. After falling for two consecutive quarters in 2019-20:Q4 and 2020-21:Q1 BCI recovered in Q2 and Q3 of 2020-21 but fell again in Q4 of 2020-21. This coincided with the survey period when the second wave of the Coronavirus cases had hit both Pune and Mumbai as mentioned earlier.

Before the pandemic the BCI of the East was close to other regions. The eastern BCI fell from 90.9 in 2019-20:Q4 to 9.7 in 2020-21:Q1 and stayed at 9.2 in 2020-21:Q2.

Although business sentiments have recovered in Q3 and Q4 the eastern BCI remained the lowest amongst all the regions.

The BCI is driven by four components with equal weights in the Index: ‘overall economic conditions will improve in next six months’ ‘ financial position of firms will improve in next six months’ ‘present investment climate is positive as compared to six months ago’ and ‘present capacity utilisation is close to or above the optimal level’.

We specifically discuss the East. Only 1.7 per cent of firms in the East responded that “overall economic conditions will be better in next six months” and “present investment climate is positive”. These two form the macro components of the BCI which means that Eastern firms’ macro perceptions of the economy is very weak. The gap between the East and South on these components is quite marked. Last but not the least only 6.1 per cent of firms in the East perceived that “financial position of firms will improve in next six months”.

Business sentiments are weak across regions for the “present investment climate” is positive. While the share of positive responses of firms are 60 per cent in the South it was lower than almost 30 percentage points in other regions. Sentiments about capacity utilisation in the North is the highest at 94.4 per cent. It is but obvious that this is going to suffer in the first quarter as lockdown was imposed in Delhi in April-May 2021.

In sum the last fiscal has seen a large variation in business sentiments regionally. Business sentiments recovered fairly quickly in the northern and southern regions. In particular firms’ business sentiments in the eastern region have lagged behind especially the macro sentiments. Essentially the improvement in the eastern BCI seen in Q3 and Q4 have been driven by improvements in capacity utilisation. The pessimistic macro business sentiments in this region is worrisome. It has implications for future economic growth investment employment etc. in the region. Although better than in the East business sentiments in the West remained very weak too and have been driven by improvements in capacity utilisation. At the national level imbalanced regional growth can have its own set of implications. Given the on- going second wave of the Covid-19 the government has to walk a very fine tightrope between lives and livelihoods. More importantly it is puzzling why firms’ sentiments have not recovered in the East and West despite normalising economic patterns.

Bhandari is a Senior Fellow Gupta and Urs are Associate Fellows and Sahu is a Senior Research Analyst at NCAER. Views expressed are personal.

The Covid-19 pandemic and associated lockdowns have had a significant adverse impact on jobs and livelihoods. Using 2006-2021 data from a quarterly survey on business sentiments this article examines fluctuations in firms’ hiring of temporary/casual and permanent workers across three major economic events – the Global Financial Crisis demonetisation and the Covid-19 crisis. It shows that firms use temporary workers to adjust to changes in the demand of their products in response to macroeconomic uncertainty – increasing vulnerability among workers

The Indian economy has been characterised by jobless growth between 1977 and 2011. Basu and Das (2015) and Abraham (2017) reported stagnant employment growth during 2012-2016. Despite a slowing economy since 2018-19¹ quarterly Periodic Labour Force Survey (PLFS) data show that urban unemployment rate of people aged 15 and above had fallen from 9.2% in 2018-19:Q4 to 7.8% in 2019-20:Q3 before going up to 9.1% in 2019-20:Q4 at which point Covid-19 hit India.

The National Council of Applied Economic Research (NCAER) Business Expectations Survey (N-BES) has been collecting data about business sentiments since 1991 on a quarterly basis across industry region firm size (based on annual turnovers) and ownership. The NCAER Business Confidence Index (N-BCI) – a measure of business sentiments – fell for two consecutive quarters in 2019-20:Q4 and 2020-21:Q1 by 30% and 40% respectively on a quarter-on-quarter basis. It fell to its historical lowest in 2020-21:Q1 recovering by 41.1% and 29.6% respectively in Q2 and Q3 of 2020-21 on a quarter-on-quarter basis. What did this V-shape path of fall and recovery of business sentiments imply for temporary and permanent labour markets? How does the ongoing Covid-19 pandemic compare with previous episodes of economic shock specifically the Lehman Brothers bankruptcy that is the beginning of the Global Financial Crisis (GFC)?

Comparing three major economic events

The Centre for Monitoring Indian Economy (CMIE) reported that urban unemployment rate rose from 8.7% in February 2020 to 25% in April 2020 gradually – though not continuously – falling to 9.1% in December 2020. The N-BES offers a comparable indicator to assess the impact of the pandemic on labour markets from the perspective of firms. As part of the N-BES survey we have been asking firms about the ‘change in employment of workers over the last three months’ since 1991. There are three possible responses – increase decrease and no change. We use these responses to gauge the comparative impact of the Lehman Brothers bankruptcy (15 September 2008) and the Covid-19 pandemic (25 March 2020) on two different types of workers’ markets – permanent and casual/temporary. Exploring labour market decisions of firms can be useful since demand for factor inputs are linked to the expected demand for final goods and services indicating the macro expectations of firms.

At the outset there are many limitations to this exercise – we list three of them here. First one happened more than a decade ago and another is still unfolding with its full impact likely visible only a few years from now. Second the GFC impacted the economy negatively mainly through demand-side channels². In contrast the nationwide lockdown imposed in March 2020 due to the pandemic affected the economy adversely both through demand- and supply-sides channels. The counteracting policies for the Lehman crisis leveraged the demand-side channels whereas during the pandemic it was concentrated on the supply side³.

We use N-BES data from December 2006 to December 2020 to analyse labour market trends and the impact of various shocks in the 14-year period. Our key findings are discussed below.

Key findings

The share of firms with the response that there has been no change in ‘labour employed over the last three months’ has been quite stagnant. The mode – the value that appears most frequently in the dataset – for this response for temporary workers has been 67% over the last 14 years and 87.5% for permanent workers. It confirms the empirical evidence about ‘jobless growth’ evidenced between 2004-05 and 2011-12 and thereafter (Basu and Das 2016).

The difference in the magnitude of the modes between temporary and permanent workers indicates that there is a tendency of firms to hire the former. This is consistent with the evidence of increasing contractualisation of workers in India (NCAER 2018). We look at the impact of three major shocks on the labour markets – Lehman Brothers bankruptcy demonetisation and the Covid-19 pandemic.

First we consider the Lehman Brothers bankruptcy (Figures 1 and 2). The share of firms that reported an increase in hiring of temporary workers went down from 20.6% in September 2008 to 10.1% in March 2009. For permanent workers the share of firms that reported an increase went down from 14.9% in September 2008 to 5.4% in December 2008 before going back up again from March 2009. The share of firms which responded that they had decreased hiring of temporary workers went up from 5.1% in September 2008 to 14.8% in March 2009 declining thereafter. For permanent workers it increased from 1.6% in September 2008 to 4.5% in December 2008 falling thereafter.

Next we look at the case of demonetisation. Its impact on labour markets was relatively small and short-lived. Overall we find that that the post-demonetisation period is characterised by high volatility for hiring temporary workers.

Finally we consider the Covid-19 pandemic. The share of firms which responded that they had increased hiring of temporary workers went down from 26.5% in March 2020 to 10.1% in June 2020 before going back up again from September 2020. The corresponding numbers for permanent workers were 14.9% and 5.1% respectively. The share of firms which responded that they had decreased hiring of temporary workers went up from 7.5% in March 2020 to 44.7% in June 2020 declining thereafter. For permanent workers the corresponding numbers were 2.6% and 30.2% respectively. By December 2020 we find that 16% of firms responded that they had decreased employment of temporary workers over the last three months 47.3% responded that it was unchanged and 36.8% responded that they had increased. The corresponding numbers for permanent workers were 3.6% 72.5% and 23.9% respectively.

Concluding thoughts

From the figures above three observations are noteworthy. First the Covid-19 pandemic had a much steeper impact on hiring decisions of firms compared to the GFC. Second while the immediate impact was stronger in the recent crisis the recovery in hiring decisions is also steeper. These observations indicate that businesses have so far perceived the current crisis as being short term with the impact bound to vary with the spread of the Virus. As the lockdown was eased and cases decreased in the later part of 2020 firms’ demand for key factor inputs went up.

Third firms are using temporary workers to adjust the increase/decrease of demand of their goods and services in response to the macroeconomic uncertainty. The increased share of temporary workers in the workforce would increase their vulnerability. The latest available numbers from the March 2021 survey indicate that the labour market has faltered further for both temporary and permanent workers. The medium-term goal of an equitable and sustainable growth path looks increasingly unattainable given the likelihood it may take India a few years to catch up on its pre-pandemic growth path (NCAER 2020) with the combined impact of macroeconomic uncertainty and rapid technological changes (Fourth Industrial Revolution) on the quality and quantity of job creation. Without a coherent social security policy (trinity of pensions unemployment insurance and health policy) India may get caught up in a vicious cycle of inequitable and inefficient growth patterns.

Notes:

1. GDP growth rate fell from the peak of 7.9% in 2018-19:Q1 to 3.1% in 2019-20:Q4.
2. Kumar and Vashisht (2009) argued that the Lehman Bankruptcy affected India through three distinct channels: financial markets trade flows and exchange rates. Export demand and credit flow were affected both of which affected the Indian economy through the aggregate demand side.
3. Kumar and Vashisht (2009) document an expansionary budget in 2008-09 which included measuresto increase the purchasing power of the farmers and rural sector. Some of these measures were farm loan waivers allocation to Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) Bharat Nirman Prime Minister’s Rural Road Programme and increased subsidies for fertiliser and electricity. This boosted consumer demand for durable and non-durable goods. Further this was accompanied by three fiscal packages after the Lehman Bankruptcy in September 2008 including increased government spending on infrastructure reduction in indirect taxes and some assistance for export-oriented industries. Monetary policy had also become expansionary.During the Covid-19 pandemic the Atmanirbhar Bharat package concentrated on providing credit and carrying out structural reforms (NCAER 2020). It included increased allocations for foodgrains for the National Food Security Act beneficiaries higher MNREGA allocations free liquefied petroleum gas (cooking gas) to Ujjwala beneficiaries and cash transfers to the Pradhan Mantri Jan Dhan Yojana accounts. Hence monetary policy was expansionary in this crisis as well (NCAER 2020).

Bornali Bhandari Senior Fellow; Samarth Gupta Associate Fellow; Ajay Kr Sahu Senior Research Analyst and K S Urs Associate Fellow at the National Council of Applied Economic Research. These are the author’s personal views.