“India should be able to absorb the Covid-19 shock within a year”

Dr. Arup Mitra, Professor of Economics, South Asian University, opines that the closure of several units including those in business and trade implies income and employment loss both. On an optimistic note though, he feels tthat the medium run effects of this crisis are not going to be deleterious for the economy.

TPCI: What impact would the halt of production in the wake of Coronavirus outbreak in India have on its economy? Which are the key sectors that are most likely to be hit due to this?

Dr. Arup Mitra (AM): In an economy which is led by the service sector, the effects can be huge. The closure of several units including those in business and trade implies income and employment loss both. A large percentage of the workers engaged particularly in the informal services sector cannot be compensated in any manner because many of them are in own account enterprises or working as hired workers within the small and marginal enterprises. Further, the decline in the income of low income households will result in demand deceleration, which will affect the informal economy significantly.

The decline in trade and business (both domestic and international) will affect the manufacturing and services GDP significantly. Given the prevailing  business subcontracting practices and the interlinkages operating within the formal and informal economies, the whole economy will witness a steady decline in GDP. The exceptions could be agriculture and domestic trade in agricultural goods.

TPCI: What is your view on the efforts being taken by the Indian government to minimise the impact of Covid-19 on the economy? What more can be done in this regard?

AM: The government has been very much vigilant and preventive steps have been initiated right from the beginning. Given the size of the economy and the kind of congestion that Indian urban spaces have, any contagious disease can take the severest form within a limited time span. Our hygiene and civic sense are well-below any reasonable standard. Quarantine or self-quarantine are impossible in many parts of the society, where housing poverty is severe and even in many above-poverty-line-households, the per capita space is pitiably low. In such situations, the government’s decision on lock down is the only effective measure. Economic losses can be recovered, but the loss in life is irreparable. Moe importantly, we must remember that the economic losses without close-down would be enormously large and unimaginable in comparison to the losses that we are envisaging in the light of the lock down.

Even when the situation comes under control, it will be desirable to gradually relax the restrictions rather than removing them instantaneously. Foreign travels (both entry and exit) will have to be strictly restricted. Goods which involve physical contact must be withdrawn from trade: it does not matter even if the value chain is broken or India’s share in the global value chain remains miniscule.

The private sector will have to be roped in for enhancing the healthcare support. However, close monitoring is required, else, it can result in a huge commercial activity. It will be better if the private sector shares its resources (both human and non-human) with the public sector in this hour of emergency.

TPCI: The pandemic is expected to hit those at the bottom of the pyramid the hardest. What measures do you suggest to contain the impact for them?

AM: Those at the lower echelons will be hit badly. The government might think of using vacant houses for quarantine.  For this, the private builders and the government will have to work together. The corporate sector will have to come forward to contribute generously in this hour of exigency.

TPCI:  What can we learn from countries like South Korea, who have been better at managing this crisis?

AM: South Korea’s success depended on swift action, widespread testing and contact tracing, and critical support from citizens, though it has cautioned that the successes may not be permanent. These are definitely good lessons for us. Yesterday I watched a video in which the Chief Minister of Odisha urged that households must take an oath to protect themselves. Frequent interactions of the political leaders with the citizens are a must. Every member of the state assembly must work for his/her constituency. The private sector must receive strict directives to work closely with the public sector when it comes to health care support.

TPCI: What is your take on the relief measures announced by the Finance Minister to help people sail smoothly through this crisis? What effect will it have on the economy?

AM: Relief measures are a must.  People dependent on earnings from irregular jobs are the worst sufferers. Due to lockdown, their source of income has come to a halt. And unfortunately, their savings are negligible to smoothen their consumption. Without government measures, they will simply die of hunger even if they are spared by the virus.

Such exigencies can be met through deficit financing, which will have adverse effects on the economy. But this is inevitable. The economy has matured over the years. It should be able to absorb the shocks within a year or so. Therefore, the medium run effects are not going to be deleterious.

Dr. Arup Mitra is the Professor of Economics, South Asian University. Before joining SAU Dr Arup Mitra worked as Professor of Economics at the Institute of Economic Growth (IEG), Delhi. He was also the Director General of NILERD (formerly IAMR), GOI. His research interest includes development economics, urban issues, labour and welfare, corruption, industrial growth and productivity, services sector, and gender inequality. He completed his B.A. (Hons.) from Ravenshaw College, M. A., M. Phil. and Ph D from Delhi School of Economics and post-doctorate from Northwestern University (USA). He has also been a consultant to a number of international organizations and worked as a senior researcher at ILO, Geneva. He held the Indian Economy Chair at Sciences Po. Paris in 2010. He has also been a visiting scholar at Institute of Developing Economies, Japan and visiting professor at Nagoya University, Japan. He was awarded by the Indian Econometric Society Mahalanobis memorial Gold Medal for his outstanding contribution to quantitative economics. He has been a member of several expert committees. His book on Inclusive Growth, Employment and Wellbeing published by Springer has received Professor S. R. Sen best book award, 2019.  His work is cited in the Handbook of Regional and Urban Economics, 1999. He has also been an author in Encyclopedia of Life Support Systems, (UNESCO) and Encyclopedia of Sustainability, (Berkshire Publishing).

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