It is early to speculate what the world will look like when we emerge from the COVID-19 tunnel. As yet, we cannot see the light at the end of the tunnel. We do not know whether a suitable vaccine will be found that will allow us to work and live alongside COVID with little fear — as we do now with influenza — or if no reliable vaccine will be discovered for some years and we will be in the shadow of COVID-19, practising social distancing, conducting frequent tests to make sure we do not have the virus while continuing with our lives and livelihood.
The jury is out on the mysterious ways of COVID-19 and also on the right economic response to it. We know from the history of world wars and pandemics that such catastrophes can turn the trajectories of nations upside down, converting winners into losers, and vice-versa. Yet, despite the uncertainty, it is important to think about future scenarios and try to do the best we can to make sure that the world economy and its constituent nations do well, and people do not suffer unnecessarily. We are beginning to see the early contours of how national economies are doing and we can make some deductions based on these. This, if ever, is the time for people to put aside their differences and work together to confront the challenge faced by humanity.
One critical problem is striking the right balance between curbing the spread of the virus and keeping the economy functioning. We cannot have the poor, the labourers and the migrants bear the brunt of the effort to contain the spread of the virus, and nor do we want to weaken the foundations of the economy so much that we emerge from the pandemic onto an economic wasteland. The choice between lives and economy is also a choice between lives and lives.
India’s effort to curb the spread of the virus has received appreciation — not just the state of Kerala, which has got accolades from around the world, but the country as a whole. The incidence of COVID-19 remains low in India. Of every 10 million people, there are as yet five lives lost in India. This is vastly lower, not just compared to Belgium, which tops the list with 5,180 fatalities for every 10 million people, but many other nations, such as the United States with 1,370 fatalities, Spain with 4,550, Italy with 4,080 and the UK with 2,550 fatalities.
To be fair, the low fatality, per 10 million population, is not specific to just India. We have comparably low figures currently in almost all African and South Asian nations. Thus, it is seven for Bangladesh, three for Sri Lanka, nine for Pakistan, two for Tanzania, one for Nigeria, and 0.3 for Ethiopia. No one fully understands these huge differences between Europe and North America, on the one hand, and Africa and South Asia, on the other. This cannot be because these nations are more isolated. Bangladeshis are among the most globally scattered people and Ethiopia has huge interactions with China, but the fatality rates are low in both countries. Why is this so?
The short answer is we do not know. But, nevertheless, we have to take all reasonable precautions to keep the virus contained. It is important to realise that the risk cannot be cut to zero — nothing in life is a zero-risk activity. To defeat the virus, the aim has to be to keep the “reproduction number”, or R-0, down to less than one — R-0 refers to the number of people, on average, who get infected by each infected person. When R-0 reaches less than one in any given region, such as is the case in Kerala, we know that the incidence of the disease is winding down in that region.
The economic policy challenge is about how to come out of the lockdown. This has to be done carefully, but quickly. A study by researchers at the University of Oxford, of the stringency of lockdowns in 73 countries, places India right on top. For a short while, this is worth it, and also impressive for a populous nation like India. But the top rank on the stringency index is not something any country will want to occupy for long. That will have a devastating effect on the poor and damage the nation’s long-run economic prospects.
There are studies showing that India’s unemployment rate is now at 24 per cent, an all-time high. March also saw the biggest outflow of capital from the nation ever recorded in one month — roughly $15 billion left the nation. This also happens to be the largest capital outflow from any emerging economy in March. Clearly global players are reacting to the fact that the economy is not functioning. This has weakened the Indian rupee, which is now at an all-time low. Some of these problems are inevitable in this dystopian world; we can deal with these problems for a short while. But if these trends persist, India would end up ceding space to other nations in global trade, exports and business, and the suffering will be huge on the working classes.
Once this phase of the lockdown ends on May 3, we will have to start opening businesses, allowing the private sector, especially the informal enterprises and small firms, to operate. There will have to be rules of behaviour in place, such as social distancing, masks, hand-washing, but we have to begin to facilitate poor labourers to reach their place of work, and our farms and factories to function. Also, we have to encourage the rules of behaviour to continue by “participation” and not by bureaucratic “permission”. India has a long history of the “permit raj”, where all businesses were beholden to the bureaucracy for what they did. This had a tendency to strangle all but a few big firms and had held up the nation’s economic growth for long. We have to guard against the risk of sliding back to these old habits — lapsing into these habits can bring an end to India’s growth story.
India, and for that matter, all emerging nations, stand at a crossroads. Important missteps, at this unexpected turning point of the world, will not be like the normal mistakes we make and correct. Missteps now can change the course of the nation’s trajectory for decades to come.
This article was first published in the print by the title ” An unexpected turning point” on April 24. The writer is C Marks Professor at Cornell University and former Chief Economist and Senior Vice President, World Bank
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines