Why India is losing its grip over Covid

Partha Chatterjee | Updated on April 26, 2021

After a good start, the policy response has become lax — the vaccination programme is a case in point

India is in the grip of the second wave of Covid-19. A pall of gloom has descended across the nation. Daily infections are at a record high, oxygen and medicine are scarce, even crematoriums and burial grounds have run out of capacity. Several States have announced lockdowns.

This situation will no doubt have a long-term impact on all our lives, whether we be directly affected by the virus or not. It is not only lives, but livelihoods too are at stake. The economic impact is likely to be substantial.

With the second wave, it is clear that any hope of a quick economic recovery is dim.

The ever-busy forecasters have already started downgrading projected growth for the next year, even before realising the full extent of the second wave. As it stands now, they might just have to further adjust their projections. Even getting back to pre-pandemic level will take long.

In fact, India runs the risk of being one of the biggest losers in this crisis. One thing that is clear is the economic performance of a country is intertwined with how well it manages the health crisis. Angus Deaton in a recent paper (www.nber.org/papers/w28392) looks at cross-country data till December 2020 and finds that countries which had fewer deaths per million had also fared better economically. Poorer countries generally had fewer deaths per million and also lower economic loss. The big exception was India.

While India, like many other emerging economies, had recorded lower deaths per capita, it fared worse than the rich OECD countries on the economic front. This, according to a Pew Research Center report (www.pewresearch.org/fact-tank/2021/03/18/in-the-pandemic), has meant increase in the number of poor in India by a staggering 75 million people.

India had made significant gains in poverty reduction, but almost one-third of those who came out of poverty in the last decade has slid back into poverty in less than a year.

There are significant setbacks for the middle class too, the number of people in this segment shrunk by 32 million — that is, more than 50 per cent of how much India added to the middle-class category in a whole decade. As is clear, particularly from the experience of other countries, such a huge setback is neither solely due to the pandemic nor inevitable.

Inconsistent response

An inconsistent and direction-less policy response has contributed towards this. In the early stages of the pandemic, the Indian government imposed a nationwide lockdown, which was among the strictest in the world. However, it did not use that time to come up with any plan to manage the economy, nor, as is clear now, to enhance health facilities significantly.

The restrictions went from being the strictest in the world to being rather lax, even allowing large, unfettered crowds to gather. What was needed was a plan to manage both the health and the economic crises. As early as May 2020, in an article in EPW, the need to do that and also a way to do that, though only for the manufacturing sector, was discussed (www.epw.in/journal/2020/22/ special-articles/).

India also had a chance to get out of the crisis quickly through an aggressive vaccination programme. Among emerging economies, India being a powerhouse of vaccine manufacturing, had the best chance to get lives and livelihoods back on track.

Some of the developed countries, particularly the US under the new leadership, are well on track to vaccinate a significant share of their population by the end of summer. That can translate to a boom for these economies.

They have done that by aggressively purchasing vaccines even before the completion of vaccine trials. This means the financial risk of experimenting to produce a vaccine at a fast pace was significantly transferred away from the vaccine makers and they could press ahead. In India, the policymakers, even with their new-found love for markets, have scant understanding of how markets work.

Not only that, India did not have purchase agreements for vaccines before they were produced — so the whole financial risk was on the private vaccine makers — and the way the government went on controlling price and delivery of vaccines meant there was very little incentive to ramp up production.

While vaccine equality is a must — it is necessary to provide vaccines at low cost to a large share of the population — there has to be a plan to make it available to a far larger share of the population at a much shorter time than what it seems possible at this point of time.

The risk of not having a cohesive plan will be that when the developed economies start growing at a fast pace, India will still be struggling to contain the health crisis.

This will lead to capital outflow and further slow the economy. In emerging markets, the risk of a sudden stop in capital flows is real. Signs are already there with the rupee under pressure at this point.

With growth slowdown and high inflation, a prolonged crisis cannot be ruled out.

Is there hope? Certainly. There is plenty that can be, and needs to be, done. There has to action on three fronts. First, create a graded response plan that can be implemented at the local level so that we do not swing between full stop and all go.

Second, vaccination drive has to be ramped up manifold. In this, involving the private sector is a dire necessity. And, third, there has to be support for not only those who are below the poverty line, but also those who are on the brink of it. Steps must be taken to keep the middle class dream alive.

When the pandemic hit us there was still hope, but now it is only despair. We need to bring back hope.

The writer is Dean of International Partnerships, Professor and Head, Department of Economic at Shiv Nadar University

Published on April 25, 2021

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