During the last few weeks, a large chunk of literature has come up on various aspects of the COVID-19 crisis and its impact on the economy(ies). But the direct and indirect effects are so diverse and uncertain that it is next to impossible to arrive at an appropriate estimate. Moreover, the spread (and its effect) has not come to an end. Hardly any country is left untouched by this tiny creature and all have been dancing around almost cluelessly.
Since the outbreak of this disease in January 2020 in China, it gradually became a global threat and stalled global economic activities. Most of the activities are now been confined within the domestic sphere, which includes essential activities like health care, short-term provision of food, and others. Relief work is being organised by government agencies and Non Governmental Organisations (NGO). Lockdown is being viewed as the best life-saving measure. People have been observing lockdown and keeping social distance for seven weeks now.
In principle, the lockdown strategy has been adopted to save life, first by social distancing (in the absence of any concrete medical remedy so far) and second, follow the livelihood options after the spread of disease starts moving along the almost horizontal portion of the logistic growth function.
Here, I talked about the logistic expansion of the cumulative disease COVID-19 (Y) as a logical one where initially it is expected to grow fast at accelerated speed, depending on several known and unknown factors (X), and after covering the most vulnerable sections to lesser ones, it is expected to slow down while reaching the strong immune groups. It may be expressed as the following equation and figure:
Now the aim of various measures to control the possible factor X is to shift the point X0 (after which its speed of incidence comes down) as far to the left as possible so that stabilisation occurs at the earliest possible time with least casualty, human loss and morbidity. Without such measures, the point X0 is expected to occur at much later time. Though that does not guarantee that there will be greater loss of life and property, there is a high tendency towards such fatal outcomes as per existing explanations.
Lockdown measures have been adopted by almost all the affected countries towards that direction for the understanding of possible transfer of COVID-19 virus through human-to-human contact in the absence of any convincing medical solution. The significant measures include the stopping of major industries, agricultural and related activities, which in the later stages were relaxed by various states, alongside the limited opening of government offices and semi-essential services. There seem to have been no relaxations on transport, business activities and educational institutions.
A longer lockdown period, however, will have a cumulative impact on livelihood, income, and employment. Many above the poverty line people will fall below it. It has already forced informal sector migrant workers (many with family members) to embark on long and arduous journeys to reach their villages by any means. These have been reflected in mass movements on roads and highways that not only cause death of many, but also increased the chances of carrying the disease to villages. The net impact of such large-scale movements is yet to be ascertained. The government was ultimately forced to change its policy and arrange some transport for those migrant workers. But the lack of proper preparedness has raised eyebrows.
There is an apprehension of changing international order after the global pandemic is over, with the emergence of a more cooperative global society as what happened after the Second World War. The fact that China is recovering first, will have significant economic implications in the global market. Countries like China may use this situation in their favour through reorganisation and expansion of trade in medical and other items, which would be in demand in the countries still fighting against the virus and the countries trying to recover from the economic crisis.
It may also have an adverse effect on China. China would suffer from the flight of foreign capital due to its alleged responsibility in triggering the COVID-19 pandemic. A possible decision by western companies (especially American) to relocate into more comfortable zones, like India, cannot be ruled out. This would aid employment and income generation, along with expansion of market in neighbouring countries. Available reports state that initially, there was serious decline in economic growth in China. Amongst the worst hit economies during past few months, India has a small edge over the others.
The recovery and emergence of a post-pandemic world order is still an uncertainty, as most economies have gone into a shell, reeling under choked mobility of human and material resources, international trade, tourism, transport and even education.
India’s Overall Macro Position
The standstill situation is expected to put severe pressure on India’s fiscal management position due to the drastic fall in General Sales Tax (GST) and other tax collections and import duties, as against a sudden increase in government expenditure on various relief measures and healthcare provisions.
There is, however, some relief that has come in the form of drastic fall in global crude oil prices – from over 80 USD per barrel a couple of months back to below 25 USD per barrel in recent times, and all-time low of below zero USD on 21 April in American markets. This could be gainfully utilised by the government by raising the excise duty significantly to raise revenue despite the fall in consumption of petroleum products.
Petrol-diesel excise duty was hiked by Rs 3 per litre on 14 March (The Economic Times, 14-03-2020) and again by Rs 8 through an amendment of law on March 23, 2020. The price of petrol was further increased by Rs 5 per litre on 21 April despite the drastic fall in global crude oil price. The general public could not receive even a minimum amount of benefit of the fall.
At this juncture, government also directed its monetary policy to push up the economic activities through the Reserve Bank of India’s (RBI) decision to pump in more money into banks to enhance lending capability, relax the time period for declaring bad loans as non-performing assets (NPAs) and reduce interest rates to encourage entrepreneurial activities, with a special thrust on the Micro, Small and Medium Enterprises (MSMEs).
However, the lockdown, transportation halt, sudden (compelled) desertion of large scale labourers and blockage in immediately non-reachable locations, limited scope of marketing due broken supply chains at various stages of production activities have raised doubts over the establishment of business chains and linkages of such industrial activities. Despite local-level relaxations in some states, due to panic among ordinary labourers, businessmen and small industrialists, people are not coming out to participate in their respective activities unless they are forced to do so for personal reasons, while also obeying the lock down rule to avoid possible health hazard.
At this moment, the morale of entrepreneurs is not as high as the market, which resembles the ‘Liquidity Trap’ of Keynesian macroeconomic phenomenon, where lowering of interest rates fails to expand entrepreneurial activities or create expansionary impact on employment and income.
The Agrarian Sector
This lockdown has caused hurdles for all sections of the population. But the agricultural and informal daily wage earner classes are the worst affected. This is despite some relaxation given in the second phase of the lockdown after 20 April to agricultural activities, much like essential services.
As per guidelines issued by the union Ministry of Home Affairs (MHA), activities exempted from the lockdown include agricultural works (sowing and harvesting operations), activities of agencies engaged in the procurement of agricultural products at minimum support prices (MSPs), agri-markets notified by various state governments, inter- and intra-state movement of harvesting and sowing related machines and manufacturing, packaging units of fertilisers, pesticides and seeds. However, those operations would be undertaken with advisable social distancing, which is practically impossible for poor farmers who operate manually in cooperation with each other and not always with mechanical devices.
Another problem of that sometimes arises in the implementation is miscommunication of circulars to local authorities and police personnel, besides misinterpretation due to mixing up of circulars on limitation of physical and vehicular movement and social distancing. As a result, smooth movement of essential food and agricultural items has been affected. There is a deficiency in the understanding of the ground-level situation and implementation of the guidelines.
Relaxation of farming and agricultural operations from complete lockdown came from the fact that it is practically impossible for the farming class to maintain social distancing norms while standing amidst matured crops in the field – potato, mustard, wheat, other winter crops and fruit crops, like grapes, watermelon and others. When the first lockdown period came, farmers were halfway through harvesting their potatoes and stoppage of activities meant taking high risk of a single rain shower spoiling the potato.
As India trails off on the third lockdown phase, the time for harvesting summer rice, mango, and litchi, and preparing seed beds for summer paddy in the Northeastern region has come. While harvesting of such crop continued, it is apparent that in some places, like West Bengal, farmers had to face critical challenges of labour shortage, transportation of the produce to markets, and in some cases, stocking the harvest in cold storages. There have been reports of crops getting spoiled due to lack of transport. Local level bodies, panchayats and NGOs can act as facilitators for smooth functioning of farmers, vendors and farm harvest transporters.
If farmers cannot run their regular harvesting procedures, then not only would their earnings be severely affected and they would inch towards impoverishment, but the supply to agro-processing mills would also be hampered. Then, sustainable supply of final food products merely from the old reserves would be in question and the market pressure would cause food inflation in the near future.
Another, localised issue of misdistribution is observed – at the places of harvest, perishable crops fetch much lower prices to the farmers for the limitation of transportation to the city locations, while people in cities are compelled to pay more for similar items of daily needs.
Complete lockdown on principle of “Jaan Hai toh Jahan Hai” (Only if you live, do you have the world ahead of you) might yield short-term benefits in controlling the virus’ rate of transmission and mortality rate. But it is not yet certain if starvation deaths due to lost agricultural activities and farm income would be lesser than the lives saved due to complete isolation of work or the income loss. Supply of temporary reliefs in the form of grains, money and other materials would not sustain for long without appropriate livelihood activities.
Further on 15 May, following announcement of a Rs 20 lakh crore financial package by the Prime Minister two days earlier, the union Minister of Minister announced a slew of measures on allocation of fund for the revival of agricultural sector. But the measures are primarily on infrastructure development, which will take reasonable time to build up and function. The micro-food schemes on cluster basis are also given emphasis to benefit about two lakh micro-food enterprises.
Amendment to the Essential Commodities Act is proposed to enable better price realisation for farmers with deregulation of stock limit of food stuffs like edible oils, oilseeds, pulses, onions and potato. Stock limits are to be imposed only under exceptional circumstances like famine or surge in prices. A central law is to be formulated to provide adequate choices to sell produce at attractive prices. A framework for barrier-free inter-state trade and e-trading of agriculture produce will be installed. A facilitative legal framework is to be created to enable farmers for engaging with processors, aggregators, large retailers, and exporters in a fair and transparent manner. Risk mitigation for farmers, assured returns and quality standardisation are to form integral part of this framework.
The question, however, remains as to how farmers will get better price unless the international market is open for such products, as many agricultural items are exported and internal demand is not enough for those items, especially fruit and garden crops. For basic food items, there will always be an apprehension of few companies hoarding those goods at lower prices at the time of harvest and sell them at higher prices to large marginal farmers for consumption. When government procurement at assured prices cannot redress the distress sale by many poor farmers, can this move reduce the hardship of marketing dominated by a few buyers? How much of e-trading facilities can the farmers avail with poor knowledge and e-marketing linkages in village areas? All of it is still a far cry.
Similar is the case for farmers availing legal facilities, in light of dismal legal infrastructure and personnel. It will also involve monetary and time cost on the part of the poor farmers, who hardly have any power to stand in front of the business community. Further, for the relocation of informal workers, works of agricultural farmers of Punjab, apple growers of Kashmir and others have reached such dramatic levels that their return and rejoining time remain unclear. The severed market linkages will take a long time to be restored. Only some assistance through soft loans and advice to open local-level agro-related firms will not be enough. The emergence of newer defaulters or misuse of loans in light of persistent demand-supply mismatch cannot be ruled out either.
Though it is very difficult to provide an appropriate length of lockdown and isolation period, a partial approach of opening merely agriculture would not be enough without maintaining the related sectoral chains.
Informal sector workers
The announcement of the Union Minister of Finance on 26 March of a relief package worth Rs. 1.7 lakh crore was aimed at providing some temporary relief to those who have been worst affected by the lockdown – the unorganised sector. However, there has been economic slowdown since last few years, particularly after the demonetisation policy, which was originally aimed at sealing corruption, black economy, terror funding, and fake currencies, but ultimately failed to sustain economic growth or check surge in the unemployment rate. Now with the lockdown, the joblessness rate reached a 45-years peak in the month of March 2020, according to a Centre for Monitoring Indian Economy (CMIE) report.
According to CMIE, the unemployment rate stands at 8.7% in March 2020, which is way higher than government unemployment estimates of 6.1% in 2017-18. The CMIE report shows a significant fall in jobs and simultaneous increase in unemployment rate since September 2016. The number of unemployed people has also gone up from 32 million to 38 million during the same period. A further lockdown in the wake of the pandemic appeared as adding salt to injury to the unorganised sector workers who constitute over 85 percent of the total industrial employment in India, according to the NITI Aayog. In the last week of March, the unemployment rate soared to 23.8%.
Under the “Pradhan Mantri Garib Kalyan Yojana” for the workers, especially daily wage workers, and urban and rural poor, a decision was taken to provide, free of cost, an additional ration tranche of 5 kg rice or wheat per person for three months; 1 kg free pulses per household for three months; free LPG gas cylinders for Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries for three months; Rs 2000 to 8.7 crore farmers under Pradhan Mantri Kisan Yojana (PMKY) in ten days; increase in Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage rate from Rs 182 to Rs 202; Rs 500 per month to 20 crore female Jan Dhan account holders for next three months; ex-gratia of Rs 1000 to poor senior citizens, widows and disabled; Rs 20 lakh collateral-free loans to women self-help groups; contribute to the Employees’ Provident Funds (EPFs) of companies with less than a hundred workers; non-refundable advances of 75% or 3-month wages from Provident Fund (PF) accounts; and states to use Rs 31 crore for construction workers welfare fund.
The above measures are in the right direction in the sense that they can reduce the pain of the informal workers and other poorer sections in the immediate short-term period. However, given the magnitude of the crisis, which is unprecedented, there is a need for significant increase in the financial help given to the poor. Not only that, a part of these measures is already under regular budget provisions and per capita government expenditure in India is much lower as compared to expenditures of major COVID-19 affected countries. Although the caseload in India, so far, is much lower in comparison to European countries or the United States, the expenditure on COVID-19 related healthcare; the preparedness demand and the requirement of millions of overnight unemployed informal sector workers is enormous.
While Nobel-winning economists, Esther Duflo and Abhijit Banerjee (2020), have expressed positive views on direct government transfers under social welfare schemes, question remains as to how daily requirements will be met with just money in hand without production activities and any rise in inflation. At any cost, production must go on, despite some amount of risk of people’s contact and chance of viral transmissions, without which, starvation deaths would occur once the Public Distribution System (PDS) stops providing free rations.
Need to scale up intervention
Unlike the salaried class, farmers and daily wage workers in informal sectors are the worst affected due to the COVID-19 lockdown. Many of them have lost their jobs and thus, their only source of earning. Farmers’ space of activities and marketing scope have become constrained, despite the government’s decision to allow farm activities, procure farmers’ produce at MSP, open Mandis (farmer markets), and initiate MGNREGA activities in the second phase of lockdown.
There is always some doubt on how far would a partial approach in an interlinked system without market chains would infuse confidence in the economy. There is uncertainty over the possible impoverishment and starvation after the lockdown period is over and government-provided free supply of ration is withdrawn (which, even at present, has not been reaching all the vulnerable sections of the population).
Thus, a concerted approach by policy makers to scale up the overall economic response to the COVID-19 crisis and reduce the shock on agricultural and informal workers so as to pave way for livelihood recovery is the need of the hour.
Views expressed are the author’s own.
Utpal Kumar De is a Professor of Economics at the North-Eastern Hill University, Shillong.
Featured image (representational): A rice farmer in Punjab, India | Neil Palmer (CIAT), Flickr