Finding A Balance Between Lockdowns And The Economy During The Covid Pandemic - Vivek Kumar

INTRODUCTION

The unprecedented COVID-19 pandemic has brought governments around the world on their toes. To arrest the spread of the virus, lockdown and social distancing have become a norm. During the first quarter of 2020, when the virus first emerged on a worldwide scale, more than half of the world’s population was put under restriction to stop the spread of the virus.[i] The figure rose quickly as more and more countries started imposing mandatory restrictions on their citizens.

However effective these restrictions have been in stopping the disease, one cannot ignore the economic impact that they have had especially on the developing and under-developed nations. Developed countries can easily bear the brunt of lockdowns and social distancing because they have the necessary capital that allows them to either work from home, or stop working for some time. However, this privilege is not available to people in developing and under-developed countries; therefore, the level of voluntary social distancing is generally very low.[ii]

Due to this, the Governments in these countries have to make a tough choice. They have to choose between lockdowns and economic wellbeing. This has been the case with many countries around the world, one of them being India. Initially, the Indian government hesitated to impose a lockdown but it was prompted by a rapid spread in COVID cases to do so. There was a complete lockdown in India for well over 2 months, after which there was phased easing of restrictions. The second wave of the pandemic was even more devastating, ushering a new wave of lockdowns around the country.

To assess the effectiveness of a lockdown, it has to be examined from two perspectives: Firstly, its impact on the spread of infection, and secondly, its impact on the economy. Assessing the impact of a lockdown on the economy is of paramount importance because the economic viability of a country cannot be sabotaged to fight a disease. Therefore, a two-fold analysis will be undertaken to understand the true impact of lockdown on the lives of Indian People.

IMPACT OF LOCKDOWN ON THE SPREAD OF THE VIRUS

There has been a lot of debate on the effectiveness of lockdowns. A research paper published in European Journal of Medical Research found out that 15 days after the lockdown there was observed a trend toward a decline, but there was no significant decline in the mean prevalence and mean mortality rate due to the COVID-19 compared to 15 days before in 27 countries where the research was conducted.[iii] This research paper makes a strong case for longer lockdowns as compared to shorter ones, which have an even more devastating impact on the economy.

In India also, there has been controversy regarding the effectiveness of lockdowns. While it is generally agreed upon by all that lockdowns did help lower the number of new infections, it is the extent of this which is the source of controversy. On 11 April, Lav Agarwal, the joint secretary of the health ministry, argued that the lockdown prevented over 8.1 lakh cases of Covid-19. [iv]Again, on 24 April, V.K. Paul, a member of NITI Aayog, applauded the government for the lockdown, claiming the lockdown had reduced the doubling rate of COVID cases.[v]

Even though these predictions have been criticized by experts for lack of data and opaque methodology[vi]; generally speaking, there is a consensus between the experts that the lockdown has indeed helped arrest the spread of virus to some extent.[vii] This would be a strong case for lockdowns in developed economy, but to understand the true effects lockdown in countries such as India, we also have to understand the economic costs of these lockdowns.

IMPACT OF LOCKDOWNS ON THE ECONOMY

When the first lockdown of 21 days was imposed, the Indian economy was expected to lose over $4.5 billion (32000 crore) every day[viii]. The country wide restriction led companies to either lay off workers or shut down business altogether. This, in turn led to soaring unemployment rate of 23.5% during April and May[ix], which translated to approximately 14 crore people losing their jobs due to the lockdown. Consequently, there was also a drop in household income of over 45% households around the country.[x]

Further, countrywide electricity consumption went down 30% by end of March and remained below the normal till August. There was also a decrease in mobility and light intensity over the length and breadth of the country.[xi] Overall, the effect of COVID induced lockdown was grave on the Indian economy, which drove the country to worst-ever contraction of 24.4% in 2020. Moreover, the economy shrank by a rate of -7.3% which pushed the economy in a recession.

The Government tried to jog the economy by its various schemes and stimulus packages. Over the course of the year, the government launched three stimulus packages collectively worth almost 30 trillion rupees or 15% of the GDP. However, the stimulus packages, intended to aid economic recovery and growth did not adequately address the problems created due to lockdowns[xii].

CONCLUSION

In conclusion, even though lockdowns have some use in arresting the spread of virus, there are some caveats that come with this: firstly, the lockdown has to be imposed early on for it to be the most effective; secondly, if the lockdown has been imposed when there has already been a considerable spread, then the lockdown needs to be much longer and stricter; and lastly, the lockdown has to be put in place after considering the economic health of the country.

An ill-planned lockdown can wreck havoc on the economy. In India, even though the lockdowns helped reduce the spread of the virus to some extent, it was not the bone of contention. There was immense lack of planning and the lockdowns were implemented such a haphazard manner that it caused panic among the citizens. Moreover, the lockdowns reflected an utter disregard towards people from underprivileged sections of the society. This was obvious during the migrant labor crisis.

On the economic front, the government failed to put anything of matter on the table. The stimulus packages fell short of what they set out to achieve. Economic indicators such as unemployment and inflation soared. It is true that the economy did start to get normal once the restrictions were eased, but it was precisely for that reason and not on account of some government policy. Therefore, it can be said that the Indian government failed to strike a balance between lockdowns and the Indian economy during the pandemic.

WHAT COULD HAVE BEEN DONE?

The Government should have tried to strike a balance between health cost and economic cost of the pandemic. The lockdown could have been planned in a better way with the help of both medical and economic experts. The Government should have utilized the lockdown to ramp up medical infrastructure; and should have focused on developing supply chains and logistics.

The economic consequences, though could not have been eradicated, but could have been mitigated. There should not have been a blanket restriction on all economic activities, but the areas which were more vulnerable to spread of infection such as construction activities, public transport, restaurants etc. should have been restricted; whereas, sectors where safety protocols could have been followed should not have been restricted.

Moreover, the government could have mitigated the effect of lockdown on underprivileged section of the society by providing direct cash benefits and subsidies. The government could have also provided safety nets like job guarantee and unemployment benefits to counter inflation and loss of income.

[i] Alasdair Sandford, Coronavirus: Half of humanity now on lockdown as 90 countries call for confinement, EuroNews (April 3, 2020), https://www.euronews.com/2020/04/02/coronavirus-in-europe-spain-s-death-toll-hits-10-000-after-record-950-new-deaths-in-24-hou [ii] Francesco Grigoli & Damiano Sandri, COVID’s Impact in Real Time: Finding Balance Amid the Crisis, IMFBlog (Oct. 8, 2020), https://blogs.imf.org/2020/10/08/covids-impact-in-real-time-finding-balance-amid-the-crisis/ [iii] Sultan A. Meo et al, Impact of lockdown on COVID-19 prevalence and mortality during 2020 pandemic: observational analysis of 27 countries, 25 Eur J Med Res, 56 (2020), https://doi.org/10.1186/s40001-020-00456-9 [iv] Jacob Koshy, Without lockdown, India would have seen over 8 lakh cases by April 15, says Health Ministry, The Hindu (Apr. 11, 2020), https://www.thehindu.com/news/national/coronavirus-without-lockdown-india-would-have-seen-over-8-lakh-cases-by-april-15-says-health-ministry/article31319364.ece [v] Outbreak under control; India could have 1 lakh cases without lockdown, says govt, Business Today (Apr. 24, 2020), https://www.businesstoday.in/current/economy-politics/coronavirus-in-india-outbreak-under-control-india-could-have-1-lakh-cases-without-lockdown-says-govt/story/401954.html [vi] Rukmini S, Covid-19 lockdown, successful or not? There are 5 ways to answer this question, ThePrint (May 6, 2020), https://theprint.in/opinion/covid-19-lockdown-successful-or-not-there-are-5-ways-to-answer-this-question/415049/ [vii] Murad Banaji, What effects has the lockdown had on the evolution of Covid-19 in India?, Scroll (May 27, 2020), https://scroll.in/article/962992/what-effects-has-the-lockdown-had-on-the-evolution-of-covid-19-in-india [viii] Covid-19 lockdown estimated to cost India $4.5 billion a day: Acuité Ratings, The Hindu BusinessLine (Apr. 2, 2020), https://www.thehindubusinessline.com/economy/covid-19-lockdown-estimated-to-cost-india-45-billion-a-day-acuit-ratings/article31235264.ece [ix] Yogima S. Sharma, Unemployment rate falls to pre-lockdown level: CMIE, The Economic Times (June 24, 2020), https://economictimes.indiatimes.com/news/economy/indicators/unemployment-rate-falls-to-pre-lockdown-level-cmie/articleshow/76528571.cms [x] Mahesh Vyas, How has India’s lockdown impacted unemployment rates and income levels?, Scroll (Apr. 22, 2020), https://scroll.in/article/959756/podcast-how-has-indias-lockdown-impacted-unemployment-rates-and-income-levels [xi] COVID-19: Examining the Impact of Lockdown in India after One Year, EPW Engage (Mar. 21, 2021), https://www.epw.in/engage/article/covid-19-examining-impact-lockdown-india-after-one [xii] Id.