Abhishek Reddy M
As Russia announces its Covid-19 vaccine named Sputnik V, registered as the world’s first coronavirus vaccine, several leading groups of scientists and pharma companies across the world can be expected to soon follow in the same direction. While such vaccine related announcements alter the perceptions of safety and are expected to affect economic behaviours of individuals, such behavioural changes might vary based on economic profile of a person.
Despite the spike in Covid-19 cases in India after its almost four month lockdown, there is still a lack of widespread adherence to preventive measures such as social-distancing and wearing masks. The Nomura India Business Resumption Index (NIBRI) hints at a phase of economic recovery, owing to an increase in economic activity post-lockdown. At this juncture, the announcement of a vaccine for coronavirus could have a varied effect on people’s behaviour based on their income levels.
There are now more than 23 lakh Covid cases in India, despite the mandatory nationwide lockdown that halted human movement and activity for nearly four months. In such cases, it is natural to think that preventive measures might not do enough in preventing the infection and that one is bound to get infected. This fatalistic (fate-driven) thinking will increase the instances of risk-taking behaviour. A similar observation was made in a study conducted in the city of New York in 2010 where fatalistic thinking was linked to increased HIV risk behaviours.
As a result of fatalistic thinking (augmented by lower death rate), we are seeing more people neglect recommended safety practices. There is also a rise in the economic activity as indicated by the flattening of demand for power, improvement in workplace mobility and fall in the unemployment rate which is partly a result of such fatalistic and risk-taking behaviour, because people are now more willing to return to work, to go out and purchase and consume goods and services despite the fact that pandemic has not ended. One inference that can be drawn from this behaviour is that people will only continue following preventive measures if they truly believe it can save them from getting infected. If not, they would rather leave the occurrence of such events to fate (fatalism), and indulge in risk-taking behaviour. Therefore, the certainty of a vaccine will counter fatalistic behaviours, and vice versa. However, with Covid-19, a vaccine announcement might not be enough to counter fatalistic behaviours of people especially from the low-income strata.
Before getting into India’s context, it’s worth looking at available data on how spending recovery is happening among households from different income strata in the US and generalize it. From April to July the spending has rebounded especially among low-income households but spending of high income households is considerably lower and appears to be connected to perceived health risks. One possible reason for such behaviours is how these groups weigh different risks.
For a low-income household which needs the economy running, to survive, risk-driven approach based on fatalistic thinking would seem less risky as compared to the high-income households. Because for the low-income households who would have less savings, earning money on a day-to-day basis is required to survive and they would align more towards taking risk sooner, driven by fatalistic thinking. This is evident as we see migrant labourers already returning to the cities for work. However, as the income level goes up the fatalistic behaviour reduces. Because, for a household with ample savings it would seem more risky to venture out as they can manage household with their savings.
Based on this, we have a scale of income levels & risk-taking behaviours with low-income people who are prone to high level of fatalism induced risk-taking behaviours at one extreme and high-income who are not prone to fatalism induced risk-taking behaviours at the other. As we move from low-income level to high-income level, the number of risks people take falls.
When a vaccine is announced, the impact on economic behaviours of people varies depending on where they are placed on the scale. A vaccine brings with it the certainty that a disease can be prevented. As stated earlier, certainty counters fate-driven risky behaviour. However, we can’t expect much to change in those closer to the extremes. The high risk-takers and low risk-takers feel they are better off being so because of weights they have assigned to risks. The others, who have started taking some risks like travelling, going to a shopping mall, attending a marriage, staying at a hotel, dining in a restaurant, going to a salon, etc. due to fatalistic beliefs, will start cutting back on their investments in these activities.
This happens because, a certainty that they can overcome the threat of infection if they protect themselves for few more months makes investments in non-essential goods and services seem riskier. As per a survey by Bain & Company, consumer demand for food ordering-in, toys, beauty products, etc. has gone up in May. In the context of a vaccine being available even one Covid case in a shopping mall or e-shopping will impact the sentiments of people and push them to being more cautious till the time they feel immune from the disease. Subsequently, we can expect to see shrinking markets, or a reduction in pace of economic recovery, till vaccination is complete among a large number of people.
While a coronavirus vaccine will certainly better lives, livelihoods and the economy, we can still expect a shift back to risk-averse behaviour and reduced economic activity in the immediate period after the availability of a vaccine. The quantum of shift will depend on the percentage of people at different income levels. As the number of people who are able to access the vaccine increases over time, we can expect to see corresponding increase in market activity once again.
Abhishek Reddy M, Assistant Manager, Dr. Reddy’s Foundation
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