Coronavirus crisis: India simply can’t afford another lockdown extension
Financial Express
Sunil Jain
May 01, 2020
Sunil Jain
May 01, 2020
If the government continues with an effective lockdown for most parts of the country—the so-called green zones account for under a fifth of all economic activity—chances are the ILO’s estimate that 400 million people in the country could slip into poverty may just turn out to be correct; whether it is momentary or longer-lasting will depend on how long it takes for people to start working again. An analysis by Shweta Saini and Pulkit Khatri in this newspaper yesterday (bit.ly/2VOrJYu) showed that just a 25% fall in incomes could send as many as 354 million Indians below the poverty line. Indeed, in the short run, the impact will be even greater since, thanks to the lockdown, the majority of people are facing much larger income shocks—in many cases, especially in the informal sector, they have lost their jobs. That is the reason why migrant workers thronged the borders in tens of thousands, desperate to go home; with no money coming in, how were they to afford the higher costs of the city?
That is why, apart from humanitarian reasons, the home ministry did well to lift the ban on inter-state travel, which will now allow migrant workers to go home. The ban was ill-conceived, but one that several people—including this writer—initially supported due to the fear that migrants going back home in tens of thousands would spread the novel coronavirus in rural areas as well. With more quarantine facilities being built and a ramp-up in testing facilities—it is better than in the past, but still inadequate—allowing them to go back may not be as fraught with danger.
It also helps that, thanks to the lockdown, India has managed to dramatically slow the growth in infection levels, and also used this time to ramp up hospital facilities to take care of those infected. A worrying bit, though, is the fact that, while there are many contenders for a cure as well as a vaccine, there is considerable uncertainty over how exactly the virus attacks our bodies (bit.ly/2Wg8oid); this makes successful treatment that much more difficult. And, while India is testing 59,000 people every day now as compared to 2,000 in March, there is still a huge backlog in tests—the current waiting period in government facilities is around a week, and the backlog ensures it takes 4-5 days to get the result. This pretty much makes a mockery of quarantines—the people the infected person met can’t be quarantined till the results are out—and comprehensive contact tracing becomes that much tougher.
While that puts a question mark over the time it will take to gain control over the virus, the other immediate danger is of people slipping into poverty very fast. This, in addition to the long-term impact on India’s supply lines should firms remain shut for too long, or simply go bankrupt. And, while experts debate what the size of the relief package should be and whether excessive relief will result in a downgrade—their concerns on the deficit and a possible downgrade aren’t without basis—the simple point is India can’t afford to remain locked down for much longer. Data from primary research firm Price shows that the 46 million households in the bottom two deciles in the country just about meet their expenditure from their annual incomes; even a small fall in their incomes means they go straight into the hands of the moneylender.
Even households in the two deciles above that—D3 and D4—have a slim margin of safety, and Price data shows that they earn around Rs 1,000-2,000 more per month than they spend. In other words, they too have slipped into poverty over the past 40 days of the lockdown, assuming that they had jobs before that; the economy was slowing even before the novel coronavirus gripped it.
Few can afford to be without employment for too long, but if the government is to focus on just the bottom 40% of the population, and give them half their earning, that works out to a whopping Rs 65,000 crore a month! This figure doubles if the total salary loss has to be made up. Little wonder, then, that the home ministry decided to allow migrants to go back home since, in the absence of jobs, at least their living expenses will come down dramatically, and they can possibly get some minor agricultural work in the village.
Since the dramatic decline in demand in the lockdown—those with jobs are seeing salary cuts, and a very large number have no jobs—will also result in a wave of bankruptcies across the country, there will be large costs in terms of rising NPAs in the financial sector. Once again, this is a cost the government will have to bear—one that it clearly does not have the capacity to.
The government’s only option is to open up the lockdown—in the orange/red areas as well—and find ways to mitigate the spread of the virus. This involves wider testing to include asymptomatic persons, larger tracking of people for symptoms of infection, ensuring social distancing is maintained, and continuing to ramp up medical facilities to take care of a surge in those requiring medical attention. Nothing else will work.
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