The concurrent grave public health emergency and sharp economic downturn need to be fought by flattening the curve (of disease and downturn contagion) and staying ahead of the curve (on responses to deal with these).
The crisis that has followed in the wake of the coronavirus pandemic is quite unique for policymakers, whether in India or any other country. It is a twin crisis—a grave public health emergency, and a sharp economic downturn. In that way, it is different from the Global Financial Crisis of 2008, which had only the economic dimension. What complicates matters is that in the short run, a firm response to one (the health emergency) leads to a deterioration of the other (economic well-being). There are, however, two common principles for policymakers to follow while dealing with the unprecedented twin fallouts—flatten the curve, and stay ahead of the curve.
Epidemiologists have gathered enough evidence from the ten worst-affected countries to show that once Covid-19 takes root, it increases at an exponential, not linear, path. There is only one way to stop the spread of the virus: Social distancing. This flattens the exponential curve. But, it can be implemented early or late; countries can be ahead of the curve, or behind it. The evidence shows that countries that have taken firm, decisive actions early in the outbreak—travel bans from epicentres, aggressive testing, contact tracing, quarantines, self-isolation, etc—have a flatter curve than those which did not take these measures early in the outbreak. South Korea and Singapore are the best examples of this. The economic and human costs for countries ahead of the curve are less than those for countries that take later stage measures.
China and Italy, and now several other European countries, have had to resort to large-scale lockdowns once the outbreak slipped out of control and fatalities rose to unacceptably high levels, much higher than in Singapore or South Korea. The lockdowns, and mass social distancing will eventually flatten the curve, but by then, individuals, businesses, and governments will have paid a much higher economic price than they would have had they stayed ahead of curve.
So far, India is doing very well. On the public health emergency, the government’s rapid actions at the early stages have kept India ahead of the curve. First, India began to monitor travellers from China earlier than most countries, imposed restrictions on travellers from the worst-affected countries, conducted temperature screenings at airports early on, and more recently, has completely banned travel from the worst-affected countries. But, that was not all. The government made a concerted attempt to safely evacuate Indians from some of the epicentres of the virus, like Wuhan in China, and Iran. It made sure that there were adequate arrangements for screening and quarantining. What this ensured was that Indian nationals stranded in hot-zones did not have to find roundabout ways to return home, which would then have resulted in them escaping proper screening. In fact, a majority of the cases that did enter India came through Italy, the US, and the Middle East—places from where there weren’t organised evacuations early on.
The government machinery has also done a phenomenal job of contact tracing, and making sure that all those exposed to positive cases are monitored for the right duration. The banning of large gatherings, and closing of crowded spaces like cinema halls is also good strategy. What has been most impressive is the mass information campaigns of the central and state governments (even reaching all caller-tunes of major telephone networks) to ensure last-mile delivery. That has meant that the whole population is ahead of the curve in terms of knowledge on what practices to follow. It is a pity that a handful of people running away from authorities has made more news than the large number of people adhering to government guidelines. The private sector is playing its part by letting employees work from home. The National Restaurant Association of India has volunteered to close restaurants for two weeks. While testing is still limited, there are signs that all of these actions may be flattening the curve already.
Of course, all of these measures will have an economic impact. Some industries, like airlines, and hotels and hospitality, will be badly hit. Corporates may face difficulties because of a slump in demand, and problems with liquidity because of panic in the markets. Daily wage workers will not be paid for staying at home. The government and RBI’s response seems to be to wait and watch. Perhaps, the health emergency will blow away quickly. It may, it may not. Again, it is better to be ahead of the curve than to chase it. Now is the time for a sharp interest rate cut and RBI interventions to infuse liquidity into bond markets. Business should not be allowed to go under because of a black swan shock. That is a price too high. Similarly, the finance ministry should announce a fiscal package with cash transfers to the vulnerable, and easing of indirect taxes and cesses. That will flatten the curve of whatever downturn that does take place.
The writer is Chief economist, Vedanta. Views are personal