The immediate challenge posed by the outbreak of the Novel Coronavirus was to save human lives as the virus was extremely dangerous with no known cures available. Given the limited window the Government of India had to ramp up testing and treatment facilities and finding cures through drugs, vaccines and alternate medicine, the Government of India focused on suppressing the spread of the virus by employing a twofold strategy; One, the mandatory lockdown of private and public firms, shops and business establishments, state and central government departments, educational institutions like schools, colleges and universities and air, rail and road transport and Two, by quarantining those already affected by the virus so as to restrict their movement freely among the general public. Data and anecdotal evidence suggest that this strategy has paid dividends as the country appears to have reasonably succeeded in preventing the proliferation of infected persons.
Apart from the threat to human lives, the COVID-19 poses grave challenges to livelihoods too. In other words, apart from causing huge human suffering, the novel coronavirus has immense potential to cause economic suffering too. The mandatory closure of economic activity and restriction on travel and movement of people would impose a heavy cost on all the three sectors of the economy; namely primary sector(principally farming), secondary sector( principally manufacturing) and the tertiary sector(major services) as probably barring health sector, all other areas of economic activity such as agricultural inputs and agricultural chemicals, manufacturing sector, oil and gas, automobiles, all forms of infrastructure, real estate and construction and services such as all forms of transportation and travel, both retail and wholesale trade, tourism, telecom, information technology, hotels and restaurants, insurance and banking and of course, the media too as its advertisement revenues will fall when the corporate sector sales revenue and profits fall. Nonetheless, the degree or quantum of losses would vary across the aforementioned areas of economic activity with some losing heavily and a few others faring slightly less worse off than others.
As was expected, the outbreak of the pandemic affected major stock markets of the world including India as in globalised world capital markets are closely intertwined and hence financial contagion is more. While share markets do signal future expectations about profits and hence would have an impact on future investment, however, a fall in stock markets does not directly affect ‘real output’. Besides, I am not too worried about the paper losses in the stock market as in a country like ours only a minuscule population holds shares in listed corporate firms of the stock market.
However, what is more, worrisome and scary are some of the other durable and important economic effects of the pandemic in India.
A significant economic fallout has been the impact of the ‘lockdown’ on employment, income and production. Closure of firms in the industrial and service sector would curtail production or what economists call ‘aggregate supply’ and hence this would directly hurt GDP or economic growth of India. There would also be an indirect effect of lockdown on production or GDP as lockdown would lead to layoffs of workers which would, in turn, reduce their incomes and which in turn would decrease their consumption which would lead to a decrease in what economists call ‘ aggregate demand’ through the operation of the Keynesian multiplier and this would, in turn, pull down GDP growth. In other words, the lockdown is a double whammy; it would reduce GDP or economic growth from both sides of ‘aggregate supply’ and ‘aggregate demand’.
An immediate effect of the pandemic has been on the workforce of firms. The current ‘work from home’ may be suitable in certain ‘services’ such as the legal services, teaching, taxation and finance but most services like transportation, tourism, trade, retail, repairs and maintenance need a physical presence. Even ‘my own’ sector, namely, the media requires physical movement or travel by reporters and TV crews to gather news. Besides, the ‘at work’ social distancing norms and worker safety issues are leading to stress at the workplace. Apart from the ‘services’ sector, the ‘manufacturing’ and ‘agriculture’ sector require the constant presence and active contribution by workers ‘on-site’. All the aforesaid developments affect the output, efficiency and productivity of the worker adversely and in turn, hinders economic growth.
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