Economic Survey 2020-21: Vol 1 Ch 1: Saving Lives and Livelihoods Amidst a Once-in-a-Century Crisis

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Introduction
  • The world has endured a year of unexpected onslaught by the novel COVID-19 virus SARS-CoV-2 – first identified in Wuhan city of China in December 2019.
  • The virus has posed an unprecedented challenge for policymaking, globally and nationally. 
  • The pattern and trends in the spread of the virus across major countries showed that confirmed cases spread exponentially once community transmission began. 
  • The only strategy that seemed viable for containment of the pandemic was active surveillance, early detection, isolation and case management, contact tracing, and prevention of onward spread by practicing social distancing and safety precautions.
  • Various non-pharmaceutical interventions (NPIs) – such as lockdowns, closure of schools and non-essential business, travel restrictions – were, therefore, adopted by countries across the globe.
  • The global health crisis prompted by COVID-19, in addition to an enormous human toll, has engendered the largest economic shock the world economy has witnessed in the last century.
  • The pandemic and associated lockdown measures led to a de facto shutdown of a significant portion of the global economy, thereby triggering a global recession this year
  • The world economy is estimated to contract in 2020 by 4.3%, as per World Bank, and 3.5 %, as per IMF. 

Flattening the curve

  • In epidemiology, the idea of slowing a virus’ spread so that fewer people need to seek treatment at any given time is known as “flattening the curve.”
  • It explains why so many countries are implementing “social distancing” guidelines — including a “lockdown” order that affects 1.3 billion people in India, even though COVID-19 outbreaks in various places might not yet seem severe.
  • What is the curve?
  • The “curve” researchers are talking about refers to the projected number of people who will contract COVID-19 over a period of time.
  • To be clear, this is not a hard prediction of how many people will definitely be infected, but a theoretical number that’s used to model the virus’ spread. Here’s what one looks like:
  • The curve takes on different shapes, depending on the virus’s infection rate.
  • It could be a steep curve, in which the virus spreads exponentially (that is, case counts keep doubling at a consistent rate), and the total number of cases skyrockets to its peak within a few weeks.
  • Infection curves with a steep rise also have a steep fall; after the virus infects pretty much everyone who can be infected, case numbers begin to drop exponentially, too.
  • The faster the infection curve rises, the quicker the local health care system gets overloaded beyond its capacity to treat people.
  • As we’re seeing in Maharashtra or Ahmedabad, more and more new patients may be forced to go without ICU beds, and more and more hospitals may run out of the basic supplies they need to respond to the outbreak.
  • A flatter curve, on the other hand, assumes the same number of people ultimately get infected, but over a longer period of time.
  • A slower infection rate means a less stressed health care system, fewer hospital visits on any given day, and fewer sick people being turned away.

 

Research-driven policy response amidst unprecedented uncertainty

Efficacy of Lockdowns in a Pandemic: Learnings from Spanish Flu

Two fundamental strategies to combat an epidemic are possible:

  • Mitigation, which focuses on slowing the epidemic spread by reducing R0, and
  • Suppression, which aims to reverse epidemic growth by reducing R0.
    • The R number is a key factor in gauging the coronavirus pandemic.
    • It refers to the 'effective reproduction number' of COVID-19.
  • The research focused on the Spanish Flu, guided India’s policy response.
  • In sum, the learnings were as follows:
    • The pandemic curve needs to be ‘flattened’ to spread the pandemic over time and enable more people to receive proper health treatment, thereby lowering the fatality rate ultimately.
    • Given the network structures that affect the transmission of the pandemic, the higher population can lead to the faster spread of the pandemic.
    • Denser areas are more vulnerable to the faster spread of the virus and this effect is especially strong at the onset of the pandemic.
    • Early lockdowns delay the time taken to reach the peak, reduces the magnitude of the peak, and thereby decreases the total mortality burden by providing valuable time to ramp up the health and testing infrastructure.
    • Implementing lockdowns earlier in the pandemic and using them more intensely – while costly in the short-run – led to a much sharper economic recovery and reduced mortality as well.
    • When faced with enormous uncertainty, policies must be designed with the objective of minimizing large losses by selecting the policy that would be optimal under the worst-case scenario.

Spanish flu

  • Spanish flu, from 1918 to 1920.
  • It infected 500 million people around the world, including people on remote Pacific islands and in the Arctic, and resulted in the deaths of 50 to 100 million people.
  • Most influenza outbreaks disproportionately kill the very young and the very old, with a higher survival rate for those in between, but the Spanish flu had an unusually high mortality rate for young adults.
  • Spanish flu killed more people than World War I did and it killed more people in 25 weeks than AIDS did in its first 25 years.
  • Mass troop movements and close quarters during World War I caused it to spread and mutate faster; the susceptibility of soldiers to Spanish flu might have been increased due to stress, malnourishment and chemical attacks.
  • Improved transportation systems made it easier for soldiers, sailors, and civilian travellers to spread the disease

 

India's humane policy response: SHORT-TERM PAIN, LONGTERM GAIN
  • In the absence of a potent cure, preventive vaccine; the interplay of network structures in densely populated areas, and a high CFR, India weighed the costs and opportunities strategically.
  • The limits of scientific understanding of the disease, lack of good data on the mode of spread and potency of the virus made it difficult to model the likely impact of different policy options in a reliable and timely way.
  • Given that India is the second-largest populated country in the world with a high density, the transmission potential of COVID-19 was high.
  • The pace of the spread of the virus through contact, probable transmission from asymptomatic cases, the disproportionately higher mortality seen among individuals of the age more than 60 years, and the escalation of the pressure on the health infrastructure of many developed countries were alarming and increased the potential threat to ‘lives’.
  • In the absence of both a vaccine and a treatment, failing to impose restrictions on the free movement of individuals during the pandemic would have exposed the population to a contagious threat, thereby leading to deaths in enormous numbers.
  • However, the economic impact of the lockdowns and closure of economic activity would have adversely impacted the ‘livelihoods’ of people. COVID-19, therefore, posited complex and multi-faceted health and socio-economic trade-offs for policymakers – whether to save ‘lives’ or ‘livelihoods’. 
  • Evidence showed that the timing of the intervention was crucial as population density plays a crucial role in aggravating spread at the onset of a pandemic and that speed and duration of lockdowns help in keeping mortality in control. 
    • India was amongst the first of the countries that imposed a national lockdown when there were only 500 confirmed cases.
    • The stringent lockdown in India from 25th March to 31st May was necessitated by the need to break the chain of the spread of the pandemic. This was based on the humane principle that while GDP growth will come back, human lives once lost cannot be brought back. 
  • The lockdown provided the necessary time to put in place the fundamentals of the '5 T' strategy – Test, Track, Trace, Treat, Technology.
  • India was successful in flattening the pandemic curve, pushing the peak to September. India managed to save millions of ‘lives’ and outperform pessimistic expectations in terms of cases and deaths.
  • It is the only country other than Argentina that has not experienced a second wave.
  • It has among the lowest fatality rates despite having the second-largest number of confirmed cases.
  • The recovery rate has been almost 96%.
  • India, therefore, seems to have managed the health aspect of COVID-19 well. 

Far-Sighted Policy Response For Economic Recovery
  • Indian policymakers, backed by evidence, recognized that the lockdown would adversely impact economic activity and disrupt livelihoods.
  • The fiscal policy response of the Government of India to the pandemic was, accordingly, strategized with a step-by-step approach.
  • During the first two-quarters of FY:2020-21, the Government ensured that funds for essential activities were available despite a sharp contraction in revenue receipts.
  • The initial approach was to provide a cushion for the poor and section of society and to the business sector (especially the MSMEs) to tide over the distress caused by disruption of economic activity.
  • The Pradhan Mantri Garib Kalyan Yojana (PMGKY) for ensuring food security through the public distribution system, direct benefit transfers to widows, pensioners, and women, additional funds for MGNREGS, and debt moratoria and liquidity support for businesses.
  • With the easing of movement and health-related restrictions in the third quarter, the government transited in a calibrated fashion to support investment and consumption demand through Atmanirbhar 2.0 and 3.0.

Pradhan Mantri Garib Kalyan Yojana (PMGKY)

  • The ₹1.7 Lakh Crore relief package named PMGKY was announced by the Union government to alleviate the distress caused by the COVID-19 pandemic.
  • The Key features of PMGKY are:
    • Healthcare Workers: Insurance cover of ₹50 lakh
    • Foodgrains to Poor: 80 crore poor people under the National Food Security Act will receive five extra kg of wheat or rice and 1 kg of pulses
    • MGNREGA workers (13.63 crores): Wage increased from ₹182/day to ₹202/day
    • Jan Dhan Women Account holders (20.4 crores): DBT of ₹500/ month for the next three months
    • Senior Citizens, disabled & Poor widows (3 crores): Ex-gratia of ₹1000 (through existing pension schemes)
    • Farmers (8.7 crores): Front loading of ₹2000 to them under existing PM Kisan Yojana
    • Ujjwala Beneficiaries (8.3 crores): Free cylinders for the next three months
    • Wage-earners: Those earning below ₹15000/month in firms having less than 100 workers will receive 24% of their monthly wages into their PF accounts for next three months
    • Construction workers: Centre has directed States to use Construction worker’s welfare funds to give relief to 3.5 crore registered workers.

 

Structural Reforms
  • The Indian policymakers also recognized that the ‘supply’ shock induced by the lockdown would disrupt the productive capacity of the economy.
  • India initiated a slew of multi-sectoral supply-side structural reforms to lend flexibility and resilience to supply chains as a part of the Atmanirbhar Bharat Mission.
  • India is the only country to have undertaken structural reforms on the supply-side at the initial stages of the pandemic.
  • This far-sighted policy response will generate productivity gains in the medium to long term.
  • Major structural reforms launched by the Government – in agriculture markets, labor laws, and the definition of MSMEs – provide unparalleled opportunity to grow and prosper now and thereby contribute to job creation in the primary and secondary sectors.
  • The historic labour reforms – discussed for three decades after the conditionality in the 1991 loan from IMF but never implemented thus far will benefit MSMEs to increase employment, enhance labour productivity, and thereby wages in MSMEs.
  • The reforms in the agricultural sector were more overdue than even the labor reforms.
  • At the same time, production-linked incentive (PLI) schemes have been implemented in ten key specific sectors to make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make India an integral part of the global supply chain.

Production-linked incentive (PLI) schemes 

 

Major Structural Reforms Undertaken as a Part of Atmanirbhar Bharat Package

Looking forward
  • The V-shaped economic recovery while avoiding the second wave of infections makes India a sui generis case in this unique, synchronized global recession.
  • Despite the hard-hitting economic shock created by the global pandemic, India is witnessing a V-shaped recovery with a stable macroeconomic situation aided by a stable currency, comfortable current account, burgeoning forex reserves, and encouraging signs in the manufacturing sector output.
  • India is reaping the “lockdown dividend” from the brave, preventive measures adopted at the onset of the pandemic, which was based on the humane principle advocated eloquently in the Mahabharata that “Saving a life that is in jeopardy is the origin of dharma.
  • The policy maturity and the alacrity displayed to not “waste a crisis” has helped the country to save both ‘lives’ and ‘livelihoods’ in its own unique way and has shifted the focus away from the short-term pain created by the crisis to the potential for long-term gains engendered by the policy response.



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