Economic Implications of lockdown in India in the Wake of Covid-19

• The Indian Government has taken a prudent measure to lock down the entire country for prevention of the spread of the Covid-19 pandemic.
• Like any good thing to save lives this lockdown also will have inevitable fallout in terms of people at work, loss of production and decline in gross value added (or GVA). As industry sources indicate, a complete shutdown of all  industries for one month, or so may lead to a fall in real manufacturing GVA by 5% in FY21.
• India has good storage of food, which should ensure that there is no problem of scarcity. The storage cost of this surplus can be utilised by feeding it to supply chains and to the poor.
• It is important at this juncture to have contribution as well as cooperation from private sector including social welfare organisations, societies and panchayat/village level organisations.

By now the total number of cases of Covid-19 in India have gone up to 606 and death toll due to it is at 10. Globally, this figure of cases is 452,168 and deaths recorded as 18,906. These figures and the situation are changing every moment. Thus, we attempt a preliminary quick assessment of economic implications of the prudent measure of the Indian Government to lockdown entire country for prevention of spread of pandemic.

Indeed, this prevention strategy of India follows two examples of South Korea and Japan, where the former adopted active search and Japan took recourse to the firewall approach but ultimately also used social distancing (telework, school closure, etc.).  Thus, India’s lockdown, early detection and publicity have the potential to succeed.

Like any good thing to save lives, this lockdown also will have inevitable fallout in terms of people at work, loss of production and decline in gross value added (or GVA).  As the sectoral break up indicates, the services sector accounts for 54.15% of GVA at 2011-12 prices with Agriculture & allied and Industry being at 14.39% and 31.46% respectively.

As a fall out, main segments of Indian manufacturing have stopped work. Among others, this includes auto makers, smart phone makers, consumer electronic firms and appliance majors, as also small and medium enterprises. Obviously, this may cause damage to production of key products.

As industry sources indicate, a complete shutdown of all  industries for one month or so may lead to a fall in real manufacturing GVA by 5% in FY 21. In fact, plants have shut down operations in umpteen districts. Over 30% of construction workers have already stopped reporting to work at sites due to fear of infection and across the country, around 18,000 projects  under construction are affected.

In manufacturing and mining, China is a big market for Indian stones and roughly 25 lakh people are employed in the Indian granite industry – more than half of them have lost jobs in Tamil Nadu because of the fall in demand. Similar is the case for key inputs for the textile industry — chemicals, dyes, resins and non-woven fabric etc. Service industries like tourist travel and restaurants report nearly 70-90% decline with drastic fall in home delivery of ready meals and other snacks.

The result of this halt may not be in terms of food shortage since currently FCA has enough storage of wheat and rice which is around 100 million tonnes or so. And a good measure could be to reduce its storage cost and use the availability of wheat and rice stored with FCI to create new supply chains through channels like food processing industries, for example, Britannia Bread Manufacturing company and Tirupati Food Distribution, which may help meet supply more rapidly. This would not only reduce the storage cost of FCI and the debt of Rs 2 lakh crores but also  provide subsidy to the industry without causing any fiscal deficit or problem of mobilizing resources. In the long run, the solution lies in giving subsidy for storage facilities to the village organizations. For example, if the cost of a storage house is around Rs 4,000 crore, the government could give subsidy of Rs. 1,000 crore. This would sort out many problems of village farmers.

Further in regard to food distribution channels, another measure could be the modification of definition of poor other than the ration holders or the BPL families (used currently). It could be at a little higher level. A cash subsidy like income enhancement by government may not serve the purpose, as it is more prone to misappropriation, misuse, or misdirection. The existing examples of giving Idlis at cheap rate or no cost during the reign of late former Chief Minister Ms Jaya Lalita of Tamil Nadu, or free Langars in Gurudwaras using automation of Roti production could be followed.

The recent fiscal measures, though partial, by the government include: an additional Rs 15,000 crores for health sector and the other administrative measures like extensions of last date for filing income tax, GST returns, payments of central and excise duties and a few others which do not provide relief for corona hit economy immediately.

The need of the hour is that the government supplies essential commodities, especially to the poor and supply chains. While relief measures like moratorium on interest payments to banks, suspension of treating non-payment of interest as bad loans, and rebate of state and central taxes and levies could have their positive effect on producers and exporters, India can also emulate its own examples of tax exempt bond, which could be a good source of revenue along with private contribution for a Corona Relief Fund (CRF). It is important at this juncture to have contribution as well as cooperation from private sector including social welfare organisations, societies and panchayat/village level organisations.

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Dr. Brijesh C. Purohit is currently a Professor at Madras School of Economics, Chennai, India. After completing his Ph.D in Economics from Institute for Social and Economic Change, Bangalore he has nearly 25 years of professional experience which includes teaching, training, research and consultancy. He has served at various reputed institutions in India at different points of time and was a South Asian Visiting scholar at Queen Elizabeth House, University of Oxford, UK. He has published a number of books and articles in reputed national and international journals. His research and teaching interests include health economics and financing, public economics and insurance. The views expressed here are his own.