Reviving the economy: one step forward, two steps back

Some European nations, and even those in the East, have been remarkably successful in flattening the corona curve, and have clawed their way back to some degree of economic normalcy.

Published: 19th July 2020 08:07 AM  |   Last Updated: 19th July 2020 08:07 AM   |  A+A-

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Some European nations, and even those in the East, have been remarkably successful in flattening the corona curve, and have clawed their way back to some degree of economic normalcy. Domestic and international flights have been resumed and so has limited levels of tourism. On the other hand, the US and India seem to be united in breaking all records in their inability to control the pandemic.Both have been anxious to open up the economy, and in the process, they have either triggered new hotspots, or those areas that showed flattening of caseloads, have regressed once again. This new wave of frightening levels of Covid-19 infections now threaten to cancel the first baby steps of economic revival.

The earlier relatively unaffected US states of California, Texas, Florida and Arizona, which opened up, are now showing a huge spike in Covid-19 cases with ICUs and hospitals running out of beds. On Thursday, 77,000 new cases were reported, the highest daily jump so far. In India, as we approach another weekend, the health ministry has reminded us that we have joined the unflattering company of the US and Brazil of surpassing the one-million milestone of confirmed infections; and with a record 34,956 new cases in the last 24 hours on Friday morning.


As Mumbai gains some control over the galloping pandemic, and has reduced deaths to less than 100 a day, the virus has gripped the outer Mumbai Metropolitan Region (MMR). As Maharashtra began opening up from June 3 for ‘Mission Begin Again’ and people started travelling to work, a huge spike of fresh cases was noticed in distant suburbs like Panvel and Kalyan-Dombivili. Now, all the nine municipal corporations, excluding Mumbai, are in lockdown mode again for the past week.

Pune, which saw the start of the pandemic in India, is again back with a spike reporting nearly 25,000 cases till last weekend. A 10-day lockdown has been imposed and the municipal commissioner Shekhar Gaikwad, who favoured opening up, has been sacked. Bengaluru too, till recently was a study of exemplary handling of the infection; and then the city began opening up and the spike started with over 2,000 fresh cases being reported every day. Now it’s in lockdown again.

These fresh rounds of lockdown have got the political class in Delhi worried. It is estimated that, despite all talk of ‘opening up’, as much as one-third of the population is back in lockdown shelving all plans for revival.For instance, rating agency ICRA, which had earlier estimated GDP contraction for FY2021 at five per cent, has revised its forecast to a 9.5 per contraction based on the “spate of localised lockdowns in some states and cities, arresting the nascent recovery.” The Nomura India Business Resumption Index, a weekly rating of power demand, labour participation, etc, fell to 66.8 for the week ended July 12 from 70.5 in the earlier week. The index shows the difficulty being faced by companies to restart, leading to slowing of power demand.


Economists and bankers have also been warning of a huge financial crisis exploding threatening any recovery process. Former Reserve Bank (RBI) Governor, Raghuram Rajan, at a recent conclave emphasised that the pandemic had so deeply damaged the economy that it cannot be thought of as a normal recession.

“Households are going to be deeply starved with very low reserves. It is hard to imagine that many of them will start consuming after the initial bout of pent up consumption,” he said.

The main impact is going to be on micro, small and medium enterprises (MSMEs), the foundation of the economy. “With the pandemic, a significant portion will not survive.” The former RBI chief, speaking at an event of the National Council of Applied Economic Research (NCAER), predicted banks were heading into an unprecedented rise in bad debts, and that their non-performing assets (NPAs) are 
going to be at unmanageable levels in six months from now.

The conclave also saw a presentation by Prachi Mishra, chief India economist at Goldman Sachs, who argued that the fiscal support claimed by the government to be 10 per cent of the country’s GDP or Rs 20 lakh crore, was hugely overestimated. The math showed it was actually 1.8 per cent of GDP or Rs 3.6 lakh crore, lower than not only advanced economies, but many emerging market economies as well.There’s no quick fix to business units going bankrupt and folding up, but what the central and state governments can do is not to impose lockdowns indiscriminately and widely. Clusters of Covid infections can be detected, and those areas isolated. Localised action is needed rather than mass lockdown to serve the economy better. We have to balance containment of the virus with opening the economy if millions are not to be driven to starvation.


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