As governments around the world are fraught with increasing cases of the novel coronavirus and are racing against time to develop a vaccine, they all seem to be neglecting a social recession that may be at large, a result of the imposition of social distancing policies. A social-distancing policy may improve social welfare but can increase the likelihood of loneliness in the region.
In his essay, Eli P. Fenichel from the Yale School of Forestry and Environmental Sciences notes, “The social planner’s problem, which is isomorphic to the case where all individuals consider the effects of their behavioural decisions on all other individuals – the case of a complete market for the state of public health, provides a benchmark for the maximum value that the system can deliver once the public health commons problem is resolved. Individuals are assumed to be identical prior to the introduction of the disease. Therefore, I take the ex ante net present utility to be the social welfare function. This is consistent with the prior literature that has analyzed the economics of epidemics in a dynamic setting, and is consistent with the notion that economic decisions are based on ex-ante calculations.”
Therefore, policymakers must take into consideration the possibilities of loneliness and isolation skyrocketing with the implementation of social distancing measures. This is a social problem whose presence seems to be strengthening by the day, especially in the developed nations of the world.
One of the biggest problems that contribute to the furtherance of this virus is the inability of the Indian economic, executive and legislative systems to cope with it. The virus seems to be multiplying at a pace at which the Indian economy is not. Had we dealt with the virus more effectively since its inception, there would be no reason to extend the lockdown for such a long time and it would have provided for a smoother economic transitioning.
During the early stages of the pandemic, there was consensus among economists that strict lockdown policies will cause a disruption in the supply chain, thus causing a recession in the global economy. This made them consider possibilities of a V-shaped recovery from the recession, where the economy suffers a sharp economic decline but quickly recovers. Such a powerful recovery is facilitated by significant shifts in economic activity spurred by re-adjustment of consumer demand and business investment spending.
However, economists are now giving up on the idea of a V-shaped recovery due to the rapid multiplication of the virus and suggest that both, the period of recession and recovery will take longer than what was anticipated. The International Monetary Fund (IMF) has predicted a global economic recession for the year 2020 and an anticipated recovery in the year 2021 depending on the capacity of the global economy and member nations to contain both, the spread and the economic impact, of the virus and policies that help prevent businesses from slipping into bankruptcy, i.e., preventing the existing liquidity problem from transforming into a solvency problem. Given the pace at which the virus is spreading, its containment has not been easy and public health systems are already over-utilised.
The lockdown effect
A lockdown is a state of restricted access or isolation instituted as a security measure. Implementation of a lockdown against the threat of a pandemic can help save lives but it implies a huge shutdown in production of goods and especially services such as cinema, restaurants, theatres, et cetera. This produces disruptions in the supply chain that can have adverse effects on the aggregate demand. This supply shock quickly escalates into huge losses of income and revenue for businesses and manufacturing units, which we have seen were forced to shut down.
This inevitably produces a negative demand-side shock or a sharp reduction in demand. The initial fear over the predicted supply-side shock among economists has now transformed into demand-side shock and research has shown that the effect of deficit in demand is likely to be greater than the supply-side shock. But mitigating disruptions in the market forces of demand and supply can be achieved via proper economic planning or what I would like to call preparing a COVID budget. The present economy and the most recent budget prepared are not capable to mitigate the socio-economic crisis. The economy is now more concerned with lives than livelihoods, which of course is understandable, but saving lives is possible only when the economy can handle it financially, that is, generating ample livelihood opportunities even at the time of lockdown. But planning such an economy is a huge administrative challenge.
Understanding the lockdown
Lockdowns help in the suppression of the spread of the disease, as opposed to containment which specifically isolates individuals and groups who are vulnerable to it. However, such measures and social distancing practices are not tools that can eradicate the virus. They can only help flatten the curve so as to have better capacity for severely ill patients.
A lockdown also essentially implies that a bulk of the population cannot develop the immunity to fight the virus. So, eventually when the lockdown is partially lifted, more individuals will be exposed and will begin developing resistance to the virus, by contracting it. In this case, 80% of the population may develop resistance while 20% might not be able to do so.
Approximately, 5% might require intense care and hospitalization, out of which 1% of the cases may die. So, we must have the capacity to cure the 4% and the hospital facilities for those who require intensive care. But at the same time, everyone must be exposed at some point or another to develop resistance so that our system is no longer vulnerable to the virus. So, partial removal of lockdowns should reduce the number of people who require hospitalization while simultaneously ramping up the intense care infrastructure like ICU’s, ventilators, masks, et cetera. A series of lockdowns must be imposed to facilitate this process.
India and the COVID saga
So, how is India faring in this novel race and what does our future look like? Are we better off or worse? Well, there is sufficient evidence to prove both.
India is still a developing country. This drastically limits the resources that are available in the country in terms of natural resources and infrastructure. Our governments have also clearly failed in strengthening the healthcare system in the wake of such an infectious disease. This has slowed down the process of cementing the Indian healthcare system in place for achieving universal and free access to quality healthcare by a substantial amount. With a population of over a billion, it is evident that the public healthcare system will be in no position to manage such a huge crisis all alone. Hence, at first sight, the odds may not seem to be in our favour.
But, on the other hand, several economists believe that the coronavirus and the post-coronavirus economy (hopefully, if there is one) will create an investment-friendly atmosphere in India, boosting India’s share of Foreign Direct Investment, thus contributing to significant economic growth.
Furthermore, political repercussions of the secrecy on behalf of the Chinese Government in delaying the acknowledgement of a global health crisis during the wake of the coronavirus has had far-reaching consequences on investments made in China, and will continue to do so. Investors and Multi-National Corporations (MNCs) are re-thinking if China is indeed the right place to invest given the rigid political system and international tensions between the Chinese Government and the rest of the world. Furthermore, the Chinese economy is heavily dependent on exports and obviously, the virus will decelerate exports of goods and services (as major importers of Chinese products such as Europe have shut down) and this could have an adverse effect on Chinese economic growth. In contrast, the Indian economy is not so dependent on exports. Nevertheless, it will impact our economy by producing a deficit in the balance of payments, but a decline to the extent of the Chinese economic deceleration will not be witnessed.
India’s way ahead – Out of survival, and into growth!
It is evident that China seems to be out of the game and investors are now looking towards India as their target for investment. With favourable government policies, an abundance of cheap labour and a plethora of resources, India has more than enough potential to take over the global economy. Due to either one or both of the above-mentioned factors, several economists believe that the coronavirus could benefit the Indian economy if the Indian Government succeeds in reducing the cases, ramps up health infrastructure and tackles the demand and supply-side disruptions amidst partial lockdown to redeem industries.
As optimistic as it may seem, this outcome is possible if and only if the aforementioned situations are tackled effectively. The next decade of growth for India would perhaps be the most crucial years in terms of growth and development in India’s seventy-three years of independence and if they are, it would establish the institutional, economic and political framework for India’s path to becoming an economic superpower.
It is evident that the world is ready for India to achieve its true potential, but is India?