India’s lockdown is running up an unsustainable economic cost

The Centre’s decision to further extend the lockdown by two weeks may or may not flatten the Covid-19 infection curve, but will certainly decimate India’s growth curve. In a sign of things to come, India’s eight core sector industries, which account for a weight of 40 per cent in the Index of Industrial Production, contracted by 6.5 per cent in March. Steel and electricity output fell by 13 per cent and 7 per cent, respectively, while cement, natural gas and fertiliser production fell 25 per cent, 15 per cent and 12 per cent, respectively. Meanwhile, power consumption fell 9.2 per cent in March, due to lower commercial and industrial demand in the wake of the lockdown, according to the National Load Dispatch Centre data. India’s drop in energy consumption mirrors global trends; according to the International Energy Agency, global energy demand fell 3.8 per cent in the first quarter of 2020 over the same period in 2019. The IEA observes: “If lockdowns last for many months and recoveries are slow across much of the world, as is increasingly likely, annual energy demand will drop by 6 per cent in 2020, wiping off the last five years of demand growth. Such a decline has not been seen for the past 70 years.” Given the perception that the pandemic is likely to be around for another two years, most countries are bound to set aside lockdowns as a strategy to contain the virus. India cannot afford to be different, given the crippling impact of the lockdown on businesses and workers.

Leading lights of India Inc have expressed their dismay over the prevailing situation. Auto sector sales were virtually zero in April. A long-term strategy to keep the economy running, while combating the virus, must be worked out: one that focusses on intensifying testing and possibly curbs on the vulnerable population, while allowing the rest to resume economic activity with the necessary precautions.

On Friday, the Centre issued a detailed list of ‘red’, ‘orange’ and ‘green’ zones, with a view to relaxing curbs on the ‘green’ and ‘orange’ areas. However, geographical containment may not spur economic activity, given the interlinkages across regions, of materials and people. There may be no point in opening up manufacturing without freeing retail. Economic revival can be led by sectors that employ large numbers across the value chain and work on low inventories, such as food processing, other FMCG products and perhaps electronic goods. Construction can be revived with safeguards. But for this thrust to work, a fiscal stimulus is a must. The Centre needs to act. Now.

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