Archives: Publication

Economic cost of the lockdown

The Indian economy will face an income loss of Rs 1.7 lakh crore per week or a total of Rs 5.1 lakh crore during the three-week-long shutdown called by the Govt

The pandemic COVID-19 has already affected over 1016395 people across the world and there have been 53238 deaths worldwide. Out of this over 20000 people died in the last three months alone. Health experts across the world are yet to discover a vaccine for this deadly virus that can be applied for human use worldwide. This is despite the fact that about 35 companies and academic institutions are racing to create an anti-Coronavirus vaccine. There are at least four candidates which are being tested on animals now. The first firm to conduct a human trial Boston-based biotechnology firm Moderna will enter Phase-II of trials which means widespread human application by early summer. But this is not fast enough. The World Health Organisation (WHO) is expecting an exponential spike in the number of Coronavirus cases across the world in the coming days and is providing necessary information  to vulnerable countries. As a result national and local governments across the world are encouraging social distancing among the people and more and more nations are going into a lockdown mode.

India is already in the second week of its 21-day lockdown that was announced by Prime Minister Narendra Modi on March 24 in a televised address to the nation. Despite its size and the density of the population the entire country that includes 28 States and eight Union Territories has gone into a lockdown making it the largest such exercise in the world.

The country which has a poor healthcare infrastructure has no option but to do this as social distancing is probably the surest way of stopping the spread of the Coronavirus among the 1.3 billion Indians. However health experts say that nothing can prevent the country from going into stage-III of the outbreak and the lockdown is just delaying our entry into it. It is giving us more time to prepare for stage-III and increasing the chances of us taking advantage of any medical breakthrough that takes place.

But the big question is for how long can India afford to shut itself down? As it is the Indian economy was in a shambles before the outbreak. Now it also has to bear the huge economic loss of the three-week-long complete shutdown and the burden of the financial relief package of Rs 1.75 lakh crore that was announced by the Government for the country. 

Once this nightmare is behind us it will become really hard for the Finance Ministry to prepare an effective package for a quick revival of the economy. Here are some estimates of the direct economic loss to the nation and some possible interventions for quick recovery.

The third advance estimate of India’s Gross Domestic Product (GDP) published by the Central Statistical Organisation (CSO) revealed that India’s estimated GDP for 2019-2020 stood at Rs 47 lakh crore which turns out to be Rs 3.6 lakh crore per week of which 17 per cent is earned by casual labour 21 per cent by regular wage employees and 62 per cent by self-employed workers. The lockdown will affect all these workers on a different magnitude. According to the Periodic Labour Force Survey (PLFS) data for 2017 a whopping 25 per cent of total workers in India are casual labourers (i.e. almost 93 million people) earning about Rs 1754 per week. Another 23 per cent of the total are regular wage earners who get an average Rs 4063 per week. The rest 52 per cent workers are self-employed ones that include own account workers the self-employed and helpers in household enterprises. According to the PLFS’ estimates a self-employed person earns about Rs 3460 per week. The complete shutdown will affect casual labourers the most as their income depends on working days available in a week.

The situation is of course marginally better for regular wage employees. But nearly 46 per cent of the total regular wage earners in India do not have the benefit of paid leave. Therefore if their salary is not protected during the lockdown period they will lose their income. On the other hand self-employed people will lose profit earning from their enterprises/firms due to close of operations. 

The lockdown will affect various sectors differently. As Modi’s speech indicated only production and distribution of essential commodities and services have been allowed to be operational. That includes food supply goods transport manufacturing of medical equipment pharmaceutical medical facilities communication and financial services. Therefore workers will definitely suffer income loss if they are engaged in the locked down sectors. 

Another 40 per cent casual labourers are engaged in the construction sector which will surely be closed for 21 days leading to income loss to the respective workers. A further 10 per cent of casual workers are engaged in manufacturing industries where almost 90 per cent of economic activities are closed for now. The assumption of 90 per cent shut down of manufacturing is based on the output share of food and medical equipment sectors in total production. 

The estimate is based on the 2016 Supply Use Table (SUT) of the CSO which indicates that foodgrain processing and medical equipment contribute to about 10 per cent of the total GDP of the manufacturing sector. Thus about 45 million casual workers (i.e. 50 per cent of total casual workers) will be vulnerable provided agriculture and allied sectors continue to provide job opportunities to the rest of the workers. This is a reasonable assumption for the agriculture sector as harvesting of Rabi crops usually starts in most of the States in late March/early April coinciding with the complete lockdown period in the country. Hence the aggregate income loss of the casual workers will be Rs 0.3 lakh crore per week during the lockdown period if we consider their per week income earning to be of the same level as in the third quarter (October-December 2019) of 2019-20.

Additionally as 46 per cent of regular employees do not have the benefit of paid leave it is estimated that almost 15 per cent of total regular wage employees will lose their income due to the shutting down of economic activities. Thus it is estimated that the regular salaried group will lose Rs 0.35 lakh crore per week as compared to their weekly income obtained during the third quarter of the Financial Year 2019-20. 

Since 53 per cent of self-employed people are engaged in agriculture we assume there will be no direct impact on their income during this time. However the income of the rest of the 47 per cent of self-employed people will be affected if they are engaged in locked down sectors. Based on calculations of the sector-specific impact almost Rs 1.05 lakh crore income of the self-employed people will be lost per week. 

In effect the Indian economy will face an income loss of Rs 1.7 lakh crore per week or a total of Rs 5.1 lakh crore during the three-week-long lockdown.

Considering that almost 95 million workers/entrepreneurs will be hit and if we consider that each of them supports on an average four people nearly 380 million people will face severe welfare threats. This estimate is only for the direct impact on income for a period of 21 days. The economic loss will be much higher if timely recovery does not take place and if we are forced to go in for an extended lockdown going forward. So what should the Government  do to improve the situation?

As per estimates the shutdown will cause a loss of Rs 5261 per casual worker which is nearly equivalent to the income support given by the Government to the farmers through the PM-KISAN scheme (i.e. Rs 6000 annual income support to farmers). It makes sense to extend this scheme to the casual labourers engaged in the non-agricultural sector.

Regular wage employees without entitlement of paid leave are highly vulnerable during this period. Therefore firms can be encouraged to compensate wage loss to those employees and a tax benefit package for the firms may be thought of.

Self-employed people will also face a severe loss due to the economic downturn. Boosting effective demand in the economy can encourage investment and in this context the first two measures will play a key role. So far an amount of Rs 15000 crore has been allocated for the heath sector for improving healthcare facilities.

The Finance Minister’s recent announcement of a Rs 1.75 lakh crore package to help the economically-weaker sections survive the loss of jobs and income that would be the inevitable fallout of the Coronavirus outbreak is not adequate.

As indicated above this is only one-third of the loss of income estimated during the shutdown. Of course the Government has issued instructions exempting workers and labourers from paying rent for a month and assured wages for them during the lockdown period. This may no doubt lessen the burden. However foolproof implementation would not be an easy proposition despite the Government’s best intention.

(The writers Barund Deb Pal is with IFPRI and Sanjib Pohit Professor works for the National Council of Applied Economic Research. The views expressed are personal)

Sensitivity of Work Participation Rates to Survey Design

This is the first of a series of Measurement Briefs from the NCAER National Data Innovation Centre based on the findings from the Delhi Metropolitan Area Study. This particular Brief on employment outlines the challenges in measuring women’s work and demonstrates how different approaches of employment measurement determine the status of women’s employment. The results in the Brief suggest the need for caution in interpreting the declining trend of women’s work participation and point to the need for a simpler but comprehensive approach that would better capture activities omitted in traditional labour force surveys

No more shifting goalposts

As Coronavirus attacks the manufacturing sector  the Govt’s farm policy will have to be more consistent to help kickstart the economy

In spite of the best efforts of the Government since 2014 manufacturing growth has not picked up in the country. It is not likely to do so in the near future too due to the global economic meltdown brought on by the COVID-19 pandemic. In this scenario agriculture is expected to remain the main source of livelihood for over 50 per cent of the Indian population in the foreseeable future. Therefore a vibrant agricultural sector is vital for India’s employment and growth story. However the Narendra Modi Government has not witnessed any significant recovery in the farm sector despite the fact that the Centre came out with numerous schemes aimed at it since 2014. Given the multiplicity of schemes and fund constraints priorities shift from year to year and new schemes invariably garner more funds while old schemes flounder. Also there is a very obvious lack of research on the ground before suggesting and approving a scheme for implementation. Take for instance the river interlinking scheme which cost $87 billion at the time of the launch.  Once interlinking of 60 of India’s largest rivers is completed it is expected to help end farmers’ dependence on rainfall bring millions of hectares of cultivable land under irrigation and help generate thousands of megawatts of electricity.  Even though water is listed as entry 17 in List II of the Seventh Schedule of the Constitution the NDA initiated work for linking the Betwa and Ken rivers which pass through Uttar Pradesh and Madhya Pradesh quickly. The work is nearly complete but there is no word on when it would be operational. In fact no substantial fund is being allocated to start work on linking other rivers. Of course linking of the Godavari and Cauvery figures in the report of the Task Force of the Department of Economic Affairs under National Infrastructure Pipeline (NIP) projects but there is no mention of linking of other rivers like the mighty Brahmaputra in the NIP’s vision document.

Doubling the Farmers’ Income (DFI) is another scheme that was launched by the Centre and in the Union Budget the Finance Minister announced a 16-point action plan for this. It included measures to provide growers access to distant markets through trains (Kisan Rail) and flights (Krishi Udaan). Here too the plan did not take into account the abundance of farmers with small and medium-sized holdings whose only worry is to get a remunerative price for the produce in the nearby market and not be exploited by traders. The DFI committee has made multiple recommendations for achieving its goal by 2022 but most of these instructions are the outcome of a top-down approach at the Union Government level even though much of these policy decisions need to be implemented by State Governments. Moreover only some of these recommendations pertain to particular States and these are to be identified after examination at the ground level which was not undertaken in the committee’s deliberations. Finally even though committee reports provide estimates of the investment required for DFI no attempt has been made to sequence the fund needs. After all given the monetary constraints for investment and time limitation the top priority should have been to identify the most binding constraints for DFI State-wise and allocate funds accordingly. Given the fund limitation even the Union Government has only been able to undertake a few of these recommendations. In fact the largest chunk Rs 75000 crore of the farm budget for 2020-21 went to the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) another newly-launched scheme for providing cash support to farmers.

Last year the Union Government launched Jal Jeevan Mission under which all rural households are expected to have piped water supply by 2024. No doubt it is an excellent scheme given that the rural population suffers significantly from water/vector-borne diseases. However given the water stress in India it is not clear where the supply would come from. As one recalls the NITI Aayog’s recently-released report argues that India is not only facing the worst water crisis in history this will aggravate over time. By 2030 the country’s water demand is projected to be twice the available supply implying severe water scarcity for hundreds of millions of people and an eventual over six per cent loss in the country’s Gross Domestic Product (GDP). Moreover the States which would be hit the hardest by the water crisis contribute to nearly 20-30 per cent of our agricultural output. Ideally in view of the impending water crisis the Government should have provided more incentives to those who cultivate less water-incentive crops in water-deficient States. However no such steps have been taken though the DFI committee has advocated them. Since growers overuse water due to the absence of water meters and free power to the farm sector there are only two ways to tackle this water crisis. In the short-run provide more incentives for cultivating less water-incentive crops and in the long-run large investment should be undertaken to expand “per drop more crop” schemes with increased use of technology. The Government must realise that it is best to stick to a few schemes over a period to reap their benefits. In the aftermath of the COVID-19 pandemic it is likely that the economy will pass through a recession. Since agriculture is a vital source of livelihood it is the responsibility of the Government to increase farm incomes as this would raise demand and help kickstart the economy.

The writer Sanjib Pohit is Professor at the National Council of Applied Economic Research. The views expressed are personal.

Welfare schemes need tweaks to accommodate Covid-19 impact

The schemes in place for essentials like food healthcare and income support should be appropriately modified to minimise economic burden on the affected communities.

Our economic and social lives as we know it have been thrown in disarray. While some of the productive activity in the services sectors has moved to ‘work from home’ it is difficult to move the manufacturing sector home. At this point both households and firms need economic support. A complex country like India needs economic policies to guide it through difficult times both during and after the crisis. Here are some possible social welfare policies for households that can be implemented during the crisis.

As firm after firm industry after industry shuts down with possible increase in unemployment without pay it is absolutely imperative that the Central and State governments focus on social welfare in these tough times. This would be even more imperative if the country moves from Stage 2 to Stage 3 of the novel coronavirus (Covid-2019) outbreak viz the spread of community transmission. In any case approximately 92 per cent of our labour force is in the informal sector.

The developed countries are looking at cash transfers for households and postponing payments. Closer home Kerala has come up with a comprehensive social welfare package for the State involving the public distribution system income transfers cooked food and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). In India transferring of social welfare benefits has involved the Direct Benefit Transfer (DBT) mechanism which has matured over the years.

When it comes to formulating schemes we must return to the three basic questions in economics – what how and to whom? Given the urgency of providing support quickly in the next week or so we have to focus on schemes which can achieve scale efficiency and timely delivery with already existing matured processes.

The two key things that any human being would need to survive in these tough times are food and medicine. We have two working schemes in place that fit the criteria PDS and Ayushman Bharat. Other schemes are the National Social Assistance Programme (NSAP) and the MGNREGS. An income support scheme for unemployed urban workers would also be needed. The tweaks needed in the schemes are given below and proposed only for the first quarter of 2020-21.

Food: The PDS would need two major tweaks to serve the current objectives. First it needs to be made universal or semi-universal. This obviates the need for any kind of authentication biometric or otherwise. Second one could potentially offer additional food products via the PDS for a more holistic nutrition. These changes need to be implemented by the Central government. Right now State governments can only increase support for existing PDS beneficiaries.

Health: All citizens which do not have health insurance should be encouraged to sign up for the Ayushman Bharat scheme for the first quarter with any co-pay costs borne by the government. The scheme should cover Covid-19 with tests medicines hospital admission etc. This should be implemented by the Central government.

Senior citizens at least should be provided free medical tests and medicines for non-Covid-19 diseases similar to the Aam Aadmi Mohalla Clinics in Delhi. The State governments can play a larger role here.

Telephonic or digital support to all citizens is critical. The local communities at the municipal and gram panchayat level can ensure that helplines are working with support staff round the clock.

Income support: The NSAP for senior citizens and disabled citizens may be enhanced. The in-cash DBT mechanism at work may be used for this. Although this is a Central government scheme and must be tweaked by it many States also provide additional support. They too can increase their share.

The biggest challenge in providing income support for urban unemployed workers is that there is no working database for reference. To quickly deliver benefits employers’ help could be sought. The employers with their unique identifiers could help fill up the forms online for laid-off employees with the necessary details for in-cash DBT monthly transfers for three months. This could be implemented by the State governments.

Farmers and rural workers: Rural labour whether in the agricultural or non-agricultural sector would need support. However increased work at rural areas via the MGNREGA may result in less social distancing helping the spread of Covid-19. Hence the MGNREGA may continue without tweaks. In-cash DBT mechanism may be used here too.

For farmers fertilisers subsidy may continue albeitwithout biometric authentication. This tweak has to be implemented by the Central government.

The point is that alternative mechanisms for transfer of social welfare benefits at scale are available in India. They are being leveraged by Central and State governments in myriad ways. With some tinkering each of them (individually or together) could potentially be used to provide holistic support to all citizens.

The writer Bornali Bhandari is a Senior Fellow at the National Council of Applied of Economic Research. Views are personal.

Governments need to move fast if we’re to stop the coronavirus

That is our best hope to contain the viral outbreak and avert getting overwhelmed by a possible jump in the number of cases

It is often said that India’s administrative system performs poorly under normal conditions engaged more in serving itself rather than the public but performs remarkably well—sometimes not always—when there is a natural disaster. The Bhuj earthquake of 2001 cyclones Phailin (2013) and Fani (2019) in Odisha and the drought last year are some examples. The robust response of the Central and state governments to the coronovirus pandemic is perhaps another example.

The virus has spread like wild fire. There were just a handful of cases in Wuhan at the end of December. By 13 March when the World Health Organization declared a pandemic there were 132536 confirmed cases across 123 countries though just ten countries—China South Korea Iran Italy Spain Germany France Switzerland Japan and USA—accounted for over 90% of the confirmed cases. Much of the spread occurred through international travel-related imported transmission. Hence the Central government has focused on containing such transmission. It introduced thermal monitoring and quarantining at borders and airports progressively cancelled visas banned flights first from the worst affected countries then from most other countries. It has closely coordinated with state governments on containment measures including quarantining social distancing and testing and placed emergency orders for 1 million additional testing kits. State governments led by Kerala have quickly expanded the number of testing and quarantine facilities introduced contact-tracing quarantining of all potential patients and treatment of those who have tested positive. Many states are in quasi lock-down with closure of schools colleges malls cinema halls gyms and banning of all events requiring large gatherings of people till end-March.
Advisories have also been issued to increase social distancing contain visits to crowded places and events and ensure personal protection through frequent hand-washing use of sanitizers and masks when in crowded environments. The media too has helped a great deal through exhaustive coverage of the spread of the virus in India and abroad the steps being taken and expert views on what needs to be done to contain the pandemic. As a consequence of such containment measures the spread of the virus in India has been minimal so far. A total of only 166 positive cases and four deaths (as of 19 March) is not even a drop in the ocean.
But this could change. If India moves on from this phase of international travel-related transmission (direct or indirect) to local community transmission—or phase 3—the number of daily new cases would grow exponentially. Such an exponential increase in infections would quickly overwhelm our weak healthcare infrastructure resulting in a huge number of deaths especially among the elderly and those with other ailments that weaken the immune system.
Assessing the risks and potential consequences requires sifting through the massive outpouring of discussions articles and statistics some of them ill-informed and contradictory. This is not an easy task. Fortunately on 13 March Dr. Devi Shetty India’s iconic heart surgeon circulated a compelling article by Stanford data scientist Tomas Pueyo which I strongly recommend as essential reading for a reasonable evidence-based assessment. Meanwhile a few salient points relevant for India are summarized below.
First without containment measures in the initial stages the virus spreads at an exponential pace. This was first seen in Wuhan and the Hubei province where the spread had already peaked by 26 January. Then the exponential rise of new cases took place in South Korea from around 21 February followed by Italy and Iran. By end-February the number of daily new cases in these three countries was higher than in China. By now an exponential increase in daily new cases was also taking place in a large number of other countries in Europe and in the US. By 6 March over a dozen countries mostly in Europe had the number of new cases doubling every two days.
Second the reported number of confirmed cases can grossly underestimate their true number because an infected person may remain asymptomatic though contagious for up to two weeks. Hence the number of confirmed cases on a given day actually reflects the incidence of infections that prevailed two weeks ago. In Wuhan for which there is the most information available 21 January was when the phase of exponential rise began with the reported positive cases increasing by 100 that day. But the Chinese Center for Disease Control and Prevention has estimated that the exponential increase of the number of cases had begun a week earlier and that the true number of new cases on 21 January was actually 1500 not 100. But they didn’t know this at the time. When Wuhan was locked down on 23 January the official number of new cases that day was 400 but the true number of new cases is now estimated to have been 2500 that day. Cumulatively there were 444 reported cases by then but the true number of cases had grown to 12000.
Third the virus spread can be sharply curbed through quick stringent measures including lockdown social distancing mandatory extended holidays etc. By 24 January in addition to Wuhan another 15 cities in the Hubei province were locked down and stringent restrictions were imposed in the rest of China. The true number of new cases immediately started declining. The curve of new cases in all provinces of China had flattened out by around 10 February. Though the Covid-19 is still spreading at an exponential rate in many western and middle-east countries—doubling every two days in many cases—several Asian countries such as Singapore Thailand Hong Kong and Taiwan have successfully pre-empted the explosive growth of new cases through stringent measures flattening the expansion curve. Two distinct approaches can be discerned. The Wuhan or Chinese strategy of lockdown versus the South Korean strategy of maximum testing. Both approaches of course require quarantining of potential vectors social distancing and treatment of confirmed cases and they have been very effective in curbing the spread of the virus.
Finally if early containment pre-empts the healthcare system getting overwhelmed by the explosive spread of the virus providing appropriate treatment to those who need it can save thousands of lives. Of all the confirmed cases only a small percentage of around 20% will be serious and require hospitalization; of the hospitalized cases only a small fraction will be critical; and only a fraction of those critical cases will result in death. Thus in the Hubei province which was unprepared for the virus when it first appeared the fatality rate (deaths per number of confirmed cases) was around 4.8% compared to only 0.84% in the rest of China which was affected later when it was better prepared. Similarly unprepared Iran and Italy are converging towards a fatality rate of around 3-4% while South Korea—which quickly got its act together after the initial shock—has contained the fatality rate at only 0.6%.
Given this backdrop how well is India coping with the crisis? Because of limited testing and the two-week time lag when infected patients are contagious but asymptomatic the true number of positive cases is probably much larger than the reported 166 as of 19 March. According to Pueyo’s rule of thumb—of 1 death per 800 cases—the true figure may be around 3200 cases. That is still very small for a country with a population of over 1.3 billion and the confirmed positive cases are not yet growing at an exponential rate. All confirmed cases seem to be of imported transmission directly or indirectly travel-related and the government has moved strongly and pro-actively to contain such imported transmission. That is good news.
The bad news is that testing has been very limited so far. South Korea-style mass testing is not an option for India given our large population. Our only option is to follow the China strategy—the lockdown of high density urban areas combined with social distancing to minimize the risk of community transmission. Meanwhile testing needs to be stepped up in line with the availability of kits to reduce the information gap on community transmission. According to reports India has a stock of only 1.5 lakh test kits and another 1 million have been ordered. This is being rationed for about 6000 tests a day mainly for travel-related symptomatic cases. This is the right approach if testing capacity and availability of testing kits is limited since the highest risk is from imported transmission. But the information gap on community transmission remains a large risk. Officials at the Indian Council of Medical Research have indicated that private laboratories are being added to public testing centres to quickly expand testing capacity and that a small sample of respiratory illness patients are also being tested. If any patient from the sample tests positive—indicating community transmission—testing capacity will be strengthened in those areas and testing extended even to asymptomatic persons to contain transmission in those clusters. This is a sound strategy under the circumstances but the risk of community transmission cases slipping through undetected remains.
If that were to happen and the virus begins spreading exponentially India’s weak health infrastructure could be overwhelmed resulting in a large number of deaths. As against 3.8 hospital beds and 1.8 doctors per 1000 population in China—size being the only real comparator for India—we have only 0.7 hospital beds and 0.8 doctors per 1000 population. Availability of some anti-HIV drugs now being tried in severe cases of Covid-19 patients is limited. Ventilators and Extra-Corporeal Oxygynation machines required for critical patient care are also in short supply. These capacity constraints cannot be removed in a few days or weeks. State governments are also progressively strengthening lockdown measures as their main strategy. But they need to move fast. Moreover absent China’s command-and-control administrative system enforcement of lockdown and social distancing measures is a challenge.
Preventing the community transmitted exponential increase of Covid-19 patients despite these constraints is the main battle our health workers are fighting along with the public. The next 15-30 days will tell whether India has won or lost the battle.
Tailpiece: As India and the world battle the Covid-19 pandemic there is much discussion about how it will affect the economy. It would be premature even irresponsible to hazard a quantitative forecast since the pandemic is still evolving and we do not know how long it will last. But we know that this mega shock has hit India when the economy was already slowing down amid other economic shocks in the financial real estate and small-medium enterprises sectors the oil price collapse and socio-political tensions both within and outside India. The economy is in the midst of a perfect storm. It is almost certain that India along with the global economy will experience a major recession—something the world has not seen since the Great Depression of 1929.
Sudipto Mundle is a distinguished fellow at the National Council of Applied Economic Research. Views are personal.

    Get updates from NCAER