The wisdom of even a phased reopening in select sectors such as malls, restaurants and markets selling non-essential goods and domestic train and air travel is being questioned as the number of COVID-19 cases and deaths continues to climb. According to the Johns Hopkins University’s dashboard, as of June 8, India was seventh on the list of countries with the most infections with 258,090 positive cases and 7,263 deaths.
But also compelling is the pile-up of economic misery the lockdown has wrought. In the latest quarter ended April 20, India’s GDP grew the slowest in 11 years at 3.1%, and is expected to contract by 6.8% in the current fiscal year.
The economic distress in India caused by the lockdown is dire. Nearly 84% of Indian households are seeing decreases in income since the lockdown began, according to a recent study by experts at the University of Pennsylvania, University of Chicago and the Mumbai-based Centre for Monitoring the Indian Economy (CMIE), titled “How Are Indian Households Coping Under the Covid-19 Lockdown? 8 Key Findings.”
The study found a “sharp and broad negative impact on household income” as the pandemic diminished their staying capacity. Nearly a third of all households will not be able to survive beyond a week without additional assistance, it stated. That harsh statistic finds corroboration in the unemployment rate, which had crossed 27% in early May, up nearly four-fold from levels in January-February, according to CMIE data. The jobless rate has since dropped to less than 24%.
The study’s authors are Marianne Bertrand, professor of economics at the University of Chicago Booth School of Business and faculty director of its Rustandy Center for Social Sector Innovation and UChicago’s Poverty Lab; Kaushik Krishnan, chief economist at the CMIE; and Heather Schofield, assistant professor of medical ethics and health policy at the Perelman School of Medicine and a Wharton professor of business economics and public policy.
How should India’s policy makers respond to the economic distress? “Direct and immediate transfers of food and cash are very high priority,” said Schofield. “These transfers should be broad based and reach most of the income distribution, as it is clear that nearly everyone but the wealthiest have seen their incomes fall and are in need of additional resources to survive.”
The study’s researchers built upon a CMIE survey of households by layering other data including those on per-capita household income, and classifying them by state and urban/rural status. CMIE had surveyed nearly 5,800 households across 27 Indian states in the last two weeks of April, asking them if the lockdown caused a fall in their income, and for how long they could cope without borrowing or getting any help in cash or kind.
“Direct and immediate transfers of food and cash are very high priority.”–Heather Schofield
Degrees of Distress
The fall in incomes affected people in the lower and middle segments of the income distribution most severely, the study found. Households in the lowest of the five income groups had average monthly per-capital earnings of less than Rs. 3,800 (about $50), while those at the high end made between Rs. 12,374 and upwards of Rs. 1 lakh ($167 to $1,370 and more).
Households in the middle-income groups are hurt disproportionately more perhaps because they are most likely to be dependent on sources of income that are hit due to the lockdown, the study’s authors stated. “The households in the highest quintile are more likely to have stable salaried jobs, with the ability to work from home and continue to earn a living,” they added. “Households in the lowest quintile may be more heavily concentrated in occupations that have continued despite the lockdown (e.g., agriculture, food vendors) or have benefited from targeted transfer programs.”
Rural households have seen disproportionately more distress than those in urban India during the lockdowns. Incomes have fallen at some 88% of rural households, compared to 75% at urban households, the study found. Higher-income households in urban India have shown more “resilience” than their rural counterparts. That is because working out of home is possible for many urban jobs, and therefore they are “relatively protected,” the authors noted.
The fall in incomes is also uneven geographically. The five worst-affected states are Tripura, Chhattisgarh, Bihar, Jharkhand, and Haryana. The five least-affected states are Telangana, Puducherry, Karnataka, Punjab, and Delhi.
The study’s authors noted that they are analyzing more data “to better understand the possible drivers of this geographic variation, including initial economic conditions in the state, agricultural production prior and during lockdown, severity of the implementation of the lockdown measures, and various measures of state capacity.” In fact, the capacity of a state and the degree of economic inequality among its residents will determine how successful it is in coping effectively with a pandemic, according to recent research by Wharton management professor Mauro Guillen.
Depleting Staying Capacity
The economic situation is precarious. “Given the low baseline wealth of many households, a very large share of Indian households state that they will be unable to continue — even over relatively short periods — without additional assistance,” according to the paper. Across India, 34% of households will not be able to survive for more than one week without additional assistance, the survey found.
Only 30% of households are able to survive one month or more without additional assistance. “Crucially, 14% of the sample is already out of funds and risks immediate and severe deprivation if they are unable to borrow or receive additional benefits,” the report warned. “Rapid distribution of in-kind or cash transfers is needed to prevent a sharp increase in malnutrition and severe deprivation. Such transfers will also likely promote a more robust recovery as the country is able to reopen.”
The need for additional resources is also affected by where the household is located. “The urban poor have the least time before their resources are depleted,” the study said. Nearly two-thirds of urban households that earn less than median income households will run out of resources in two weeks. Rural households in similar income groups have relatively more resilience, the study found, as 54% of them have sufficient resources for the same period of time.
The five states with households in most urgent need for funds — based upon two week survival — are Jharkhand, Bihar, Odisha, Tamil Nadu, and Kerala. Himachal Pradesh, Uttarakhand, Meghalaya, Haryana, and Telangana are among the most resilient over a two-week period. “The need for resources — such as sustained and broad base of transfers — is urgent as nearly all households will be unable to survive without transfers in the medium-run,” the study said.
Economic Stimulus, Direct Support
The Indian government has announced three rounds of stimulus programs totaling nearly Rs. 21 trillion ($266 billion). That includes a Rs. 7.2 trillion liquidity package the Reserve Bank of India had unveiled in February before the coronavirus, which it followed up with other measures to stem the pandemic-induced economic slowdown.
A KPMG note breaks down the details. However, the stimulus programs have largely been either credit guarantee programs or new fund creations to be shouldered by banks and financial institutions, as Reuters reports. “Estimates of the actual new fiscal commitment by Mr. Modi’s government range from a puny 0.7% of GDP to 1.3%, a far cry from the touted 10%,” The Economist noted. The International Monetary Fund ranked India 13th among G-20 nations in the size of the stimulus programs as a share of GDP.
“It will be important to be generous but also have some protections to make sure there isn’t too much leakage and diversion so that the benefits reach those who need them.”–Heather Schofield
The direct cash transfers in those packages provide little relief in individual hands, and are limited in their reach. They include Rs. 1,500 over three months to 204 million women with bank accounts; an upfront transfer of Rs. 1,000 ($14) in old-age, widow and disability pensions to 30 million recipients; and advance payment of this year’s first instalment ($27) of an income support program of Rs. 6,000 annually ($80) for small and marginal farmers that was announced in 2018. About 800 million households will also get free food grains for three months, while 83 million households will get free cooking gas over that period. But those benefits will not reach many poor urban households because they may not be able to satisfy documentation requirements, economist Indira Rajaraman wrote in the newspaper Mint.
“[The stimulus measures] are a good start, but the devil is in the details,” said Schofield. “One first order concern is how to actually get the transfers to those who need it. Administration of these benefits will be incredibly challenging. It will be important to be generous but also have some protections to make sure there isn’t too much leakage and diversion so that the benefits reach those who need them.”
Another huge barrier to efficient administration of benefits and stimulus funds is the high level of informality in the Indian economy, Schofield pointed out. About 85% of the labor force is informal. “This will make it much more challenging to target the aid since there aren’t strong records or distribution systems in the informal economy,” she said.
Schofield called for support to small and mid-sized firms, along with spending to create demand for their products and services through direct cash transfers to individuals and households. Alongside, there is a need for substantial investments in public health (e.g., campaigns to improved adherence with wearing masks) so that people are able to reenter the economy more safely, she said.
Challenges Now and Beyond
Schofield saw the casualties of the lockdown extending beyond cash and food shortages, and urged policy action wherever possible. In the short term, she called for the government to focus on preventing malnutrition, and continuing to provide maternal and child health services, such as vaccinations.
“Domestic violence is a huge concern during the lockdown,” she continued. “There has been an alarming spike in domestic violence. These trends are likely to be exacerbated in a context with fewer resources and more crowding.”
In the medium term, the top challenge will be to revive the economy. “Growth was already slowing in India, and the lockdown will exacerbate that trend,” said Schofield. Continued government assistance in both cash and free or subsidized food grain will be important “to generate enough demand to prevent a full-blown recession,” she added. She also stressed the need for continued investments in public health infrastructure.
In the long run, the scars of the lockdown will be seen in deteriorating mental health, Schofield said. Low-income countries like India already have “very high levels of undiagnosed depression,” she noted. “A shock of this type will undoubtedly increase depression and anxiety. Imagine living in a one- or two-room home that is a few hundred square feet with four or five other people in 100-degree heat and faced by the worry of not being able to feed your children.” India does not have the requisite capacity in place to diagnose or treat mental health concerns, and should tap training programs such as those of the World Health Organization in this area, she added.
Another worry Schofield highlighted is the prospect of the pandemic exacerbating labor unrest that slowing economic growth had already triggered. With schools closed, “many kids will lose months of education and fall behind,” she said. What makes that worse is “the vast majority of students will not have had any home schooling or the like during this time.”
The State of Migrants
In addition to battling the pandemic and the worsening economy, India has in recent weeks struggled to manage an exodus of migrants from urban centers like Mumbai and Bangalore. Delays in making transportation arrangements for migrants returning to their hometowns in other states have resulted in avoidable misery. Many of them are daily wage workers who work in construction projects, retail shops or restaurants. The lockdown has meant they have no work, and they cannot afford to continue paying for rent and utilities in their urban shanties, or for food, health care or education for their children.
Since the lockdown began two months ago, tens of thousands of migrants have trekked hundreds of kilometers to their native villages in other states, with many dying along the way of exhaustion, hunger or disease. The government appeared to have been caught unawares by the sheer size of the migrant exodus, and belatedly began arranging buses and trains — branded Shramik Specials — to ferry them. Social distancing is impossible under such circumstances, especially when food and water are priorities.
“If the Shramik trains had been started two months earlier, during the first lockdown [phase], disease transmission would have been more effectively contained,” Rajaraman noted in the Mint column cited above. “Today, there are estimates that one in four Shramik passengers is testing Covid positive (I hope they are wrong),” she added. “Two months ago, it would have been close to zero. If only the process had begun in March.”
This article was first published in Knowledge@Wharton
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