The early lockdown derailed the economy instead of containing the spread

Summary

India has imposed four phases of lockdowns to contain the spread of coronavirus (Covid-19) starting from March 25, 2020. The rise in the number of cases caught pace once India decided to reopen the economy after 78 days of nationwide lockdown. With over 1.1 million Covid-19 cases as of July 19, 2020, India now caters to the third-highest infections worldwide after U.S and Brazil. The lockdown has impacted the economy on multiple fronts. We take a closer look at readings of key economic indicators in the last few months to gauge the lockdown's economic impact.

Early lockdown

The early onset of Coronavirus infection in India occurred in the beginning of March 2020. As the cases went beyond 600, the Indian government imposed the first nation-wide lockdown on March 25, 2020. Though the pandemic continued to rage (190,000 infections and 5,300 deaths after 70 days of lockdown), India started to reopen the economy as it began to decimate its growth curve. With over 1.1 million cases as of July 19, 2020, India now caters to the third-highest infections across the globe after U.S and Brazil.

Given the current scenario of rising daily confirmed cases, India’s early imposition of lockdown seems to have not given the desired results. In addition, India appears to be bleeding on its economic front as well.

India's Covid-19, the silver lining

While India’s Covid-19 cases continue to rise, the country's recovery rate shows promise and currently stands at 62.7% as of July 19, 2020. India has one of the lowest cases counts per million population and mortality rate in the world. It stands at 838 cases per million population and 2.5%, respectively.

Jolt to India's producer side of the Economy

The current period is one of the most challenging periods for the Indian Economy. The output in eight core industries witnessed the first contraction of 6.5% YoY in March 2020. It degraded further, touching an all-time low of -37% YoY in April as we saw a complete nationwide lockdown during the entire period of the month. As the restrictions partially eased, the eight-core output saw a slight improvement as it contracted at a slower pace. India’s industrial production witnessed a similar fate.

With economic activity resuming after the nation eased curbs, India’s latest reading for Manufacturing PMI points to recovery which increased to 47.2 in June 2020 from 30.8 in the previous month.

In terms of bank lending, the overall growth in non-food credit has been plummeting since November 2018. In the current scenario, while the economy faces strong headwinds from the rising number of Covid-19 cases, banks have inevitably been more cautious in lending on fear over a rise in non-performing assets. The total non-food credit growth fell to a more than two-year low of 6.8% YoY in May 2020.

Ease of living

Ever since the government imposed restrictions on people's movement, small and medium scale industries have had to lay off its workers, leading to a massive exodus of migrants from their working location to their natives. This has led to a rise in the unemployment rate as reflected in CMIE’s job data, which stood at 23.5% in April compared to 8.7% in March.

Adding to this burden, the retail prices rose to a three-month high of 7.4% in April and it continues to be above the RBI’s tolerance band of 6% in June 2020. Even core inflation (excluding prices of fuel and food) jumped to 5.5% YoY in June compared to 4% seen in March.

External sector- the glimmer of hope

Amongst other things, the silver lining also comes in India’s external sector. The country's forex reserve touched an all-time high at USD 506.8 billion in June. These reserves were boosted by a rare current account surplus in the Jan-Mar 2020. This will provide India a cushion against market volatility during these uncertain times.

Did early lockdown serve the purpose?

India was one of the earliest countries to impose restrictions on the movement to check coronavirus infections. Leaving alone the economic cost, it could not even contain the spread efficiently. As soon as India began reopening, the new infections and deaths caught pace, which shows that the 78-day long lockdown didn’t contain the spread, rather postponed it. Given the crippling impact of the lockdown on businesses and workers, even if it requires further restrictions in India, the economic conditions will barely support the idea.

On a positive note, not everything is so gloomy. India has one of the highest recovery rates in the world at 62.7%. It also has one of the lowest infection count per million population and mortality rate in the world.

Article written by-

Rijutha Raj and Amit Parhi (Guest columnist)