In today's newsletter we talk about all possible scenarios that might play out whilst we emerge from the lockdown and their economic consequences.
The Story
As 14th April draws near, the anticipation in the air is palpable. Everybody wants to get out of their shack and go do something productive outside. But even as D-Day approaches, we are still no closer to beating the virus. The number of COVID-19 cases in our country is now hovering at about 6000, and we are still seeing new cases each day.
And this has led many people to wonder: will the Government lift this lockdown come April 14th? And more importantly, should they?
This question gets more complicated when you factor in what an extended lockdown will do to the economy. So to try and figure out the economic repercussions, let’s look at three possible scenarios.
Scenario 1: The lockdown continues
Letting the lockdown continue as it is would cause unspeakable damage to our already fragile economy. This much is indisputable. According to rating agency Acuité Ratings, the Indian economy will have to forego $4.5 billion in income every day the lockdown persists. That’s around $100 billion for the 21 day period.
And this number is significant because if all things had remained equal, this income would have accrued to the aggregate population one way or another. Meaning collectively, as a nation, we are now poorer by $ 100 Billion.
And it’s not just present-day income that’s taking a hit. All future cash flows will also have to be revised downwards. We’ve already spoken about how policy uncertainty can affect business decisions. Meaning, all investment plans will now be pushed deep into the backburner and that does not bode well for our recovery.
Also, since harvest season is now upon us, there's concern about a shortage of labour. If there aren’t enough people to work the farmlands, it could potentially trigger another food crisis, with supplies taking a hit and possibly even stoking inflation. In the meantime, unemployment has already risen by more than 20%. So any extension will only add to the burden here.
However, this analysis does not feature the human cost. If the lockdown persists, we will have a better chance of containing the spread of the infection. We will also likely save more lives in the process. And so despite the grave economic consequences, you could make a very realistic case for persisting with the lockdown one way or another.
Scenario 2: The lockdown is lifted completely
In the event that we start moving towards normalcy almost immediately after 21 days, the economy will likely see a sharp recovery. Granted, many institutions (and people) may still prefer to work from home and perhaps ease themselves into the workforce bit by bit. But it’ll still give us the best chance to undo the economic damage that we’ve conceded so far.
Unfortunately, as we’ve already mentioned we are still seeing new cases crop up every day. Testing is still inadequate. And if people go back to work in crowded trains and buses, sweat together in gyms, and start hugging it out in the open, we could see the 2nd wave of infections sweep across the country. Only this time it’s probably going to be more deadly.
The point is, if we act in haste whilst emerging from the lockdown we will nullify whatever benefit we’ve accrued over the past 3 weeks. And as such, a complete relaxation could actually set us back indefinitely (in economic terms), if infection rates start picking up once again. Which brings us to…
Option 3: The lockdown is lifted, but not completely
We’re probably going to see some version of this scenario play out post-April 14th. A couple of days ago, Prime Minister Narendra Modi told opposition leaders and other parliamentary parties that the lockdown will not be lifted in one go.
So it’s quite possible that the Government may choose to employ a ‘suppress and lift’ policy, wherein restrictions on movement and business activity is applied on a case by case basis, on and off for an extended duration in a bid to keep the infection under control.
This will also allow us to open up the economy and start plotting the long and arduous journey towards recovery. It’ll give businesses a ton of confidence to start thinking about making investments and hiring more people. Meaning we could start undoing some of the economic damage whilst simultaneously containing the spread of the virus.
But the government will have to be proactive here. They will have to identify districts where there have been few or no cases and ease restrictions here first. Of course, these districts will still have to be closely monitored, and testing measures will have to be ramped up to make sure there’s no relapse. Vulnerable groups like the sick and elderly will have to be protected and it’s not going to be an easy task.
But what choice do we have? Right?
If we don’t get our act together right now, there will be consequences. So hopefully, the government is brave and we can emerge from this lockdown in one piece.
Until then…
Share this Finshot on WhatsApp, Twitter, and LinkedIn.
