The Economics of Covid-19
BY: Mohamad Maqbool Lone
Blame it on the outbreak of COVID19 pandemic, countries around the globe have moved sternly to concentrate on the emerging issues related to health. The vulnerability and fragility of health was underrated not only in India but also in various developed countries. Talking about the health sector of different countries, an important observation is sprucing up that developmental expenditure on this sector is quiet low as compared to other expenditures.
For instance taking up the example of India, in the 2018 fiscal, the value of public health expenditure by states and union territories together amounted to around 1.58 trillion Indian rupees which is estimated to be around 1.28 percent of the country’s GDP. As against this, the United States’ budget estimates showed an outlay of over 17 percent of the GDP to public health expenditure in 2018.
India just spends a little over 1 percent of its GDP on public health despite an increase in total health expenditure since 2009. This is the grim picture of this crucial sector which has been shrugged off from the decades now.
The popular sentiment has raised to the cusp when the world is faced with the novel coronavirus which has cooped up the life of humanity as a whole. The life is paralysed with severe restrictions on the movement of people hitting every section of the society at large. Since this virus is still a guinea pig with no suitable antidote successfully experimented yet, the governments of different countries have announced lockdowns so that the further spread of this virus can be thwarted.
This new narrative of lockdown can be only a short term remedy which the government of time can rely upon. Now the question arises: is this lockdown sustainable? Or, for how long should this lockdown remain in India? Is this country in a position to deal with the effects produced by this lockdown?
While signing in for 21 days of lockdown is welcome step, however it has its dark side too which can be more gruesome. For instance, while closing down our important sectors like agriculture, manufacturing and services sectors, the fragile economy will be crippled further. The indigent agriculture and manufacturing sectors are already showing dismal performance, and may easily bring about a severe economic distress. The employment ratio which is already staggering will nosedive further with locking up employment intensive agriculture and service sectors. The migration of labourers to their homes may end up the availability of workforce in business establishments and big industries. Besides the peak wheat harvesting season can be caught up in fiasco due to non-availability of labourers.
These crises will trickle down further to other sectors of the economy. Our macroeconomic situation is bleak and all set to get worse if local or national lockdowns continue for some more time. The consumption demand — both public and private consumption — will hit worst. Services, which account for about 50 percent of consumption demand and has been the key growth-driver, will face destruction.
The lockdown will further lead to manufacturing output loss, and severely hit the exports and investments of the country. Not only this, there will be financial risk to companies. Thus there is high likelihood of a substantial revenue disruption, leading to potential liquidity challenges, which could eventually end into a solvency crisis for businesses. According to Fitch Ratings, India may post in 2020-21 a GDP growth of 2 percent, the slowest since the economy was liberalised 30 years back. The actual overall growth will depend on the duration of the epidemic.
Our economic losses can be covered if there is normalisation of economic activity and curbs are removed carefully. Also, timely and continuing government interventions (monetary, fiscal and administrative), if done effectively, will help cushion the hit. But what is fact that we were not ready to deal with this problem instantly. The health infrastructure is in miasma of depletion with lowest public spending to GDP ratio. We are yet to establish the world-class reputed hospitals catering with the diseases of severe nature. Our hospital-patient ratio is abysmally low, with doctor-patient ratio turning grim. There is manpower crisis in health sector which is hindering the deliverance of healthcare facilities to the common masses. At one end of the spectrum are well established structures delivering high-tech medicare to the well-heeled, mostly urban Indian. At the other end are the ramshackle outposts in the remote reaches trying desperately to live up to their identity as health subcenters, waiting to be transformed to shrines of health and wellness.
With the rapid pace of change currently being witnessed, this spectrum is likely to widen further, presenting even more complexity in the future. It is high time for us to recognize these and other challenges and prepare to meet them, remembering that the fight against ill health is the fight against all that is harmful to humanity. As we approach April 15, policymakers will have to carefully analyse a tough trade-off – continued lockdown at the cost of longer-term economic devastation, or a rational unlocking, allowing India to return to work.
- Author is faculty at the Statistical Training Institute Kashmir.