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COVID-19 or Economy? There’s a need to evaluate and adapt policies simultaneously

Inflexibility delays epidemic control, thwarts restarting of economy

June 19, 2020 / 10:11 AM IST
(Representative Image: AP/Manish Swarup)

(Representative Image: AP/Manish Swarup)

Reopening the economy without flattening the infection growth curve brings some policy pointers to the fore. Contemporaneous evaluation of such emerging issues helps fine tune policies for better control of the COVID-19 outbreak and a steadier reopening.

As the goals are to lower infection rates and accelerate normality, the sooner it’s internalised that vigilance on the outbreak is critical for restarting the economy, the faster will be their achievement. Juggling the two with least human and economic sacrifice is a critical challenge. Slippages on either could be costly.

The first is the obvious pressure upon public health institutions, medical personnel and support staff, and administrative capacities, on which a prolonged and increasing overload is taking its toll with near-collapse in some parts. The ‘test, track and trace’ triad, which is critical to localise infections, prevent recurrence is a direct casualty. The second is that real-time information and data are getting scarcer, incomplete, and increasingly available with more gaps and longer lags; reports of significant undercounting abound.

There’s little to show existing information or data is mined, interpreted and evaluated for deeper insights and guide to next steps or strategise better. Flying blind can mean blunders and their repetition. It creates doubts in the public’s minds about the virus’ spread, adds to the growing sense of a worsening situation with none in control, which is the third issue. Examples are the self-arming responses such as acquisition of oxygen monitors, cylinders, and other such, to overcome paucity of hospital access, or avoid this due to poor care and facilities.

None of these are conducive to reopening, for which morale and confidence restoration is vital. That this is missing is visible in the empty markets, traders favouring re-closure due to few customers, manufacturers’ wait for demand signs and due to supply gaps from an uneven, uncertain dispersion of the COVID-19 spread, and more. Next, the simultaneous observance of surpluses and deficits in segments, e.g. high growth of deposits with weak credit, accumulation at factories and farms with retail scarcities, and so on. These blunt and block the restarting of economic interactions, distort prices and delay the recovery process. Then again, the sovereign-backed credit guarantee support programme is struggling to encourage borrowers, or the banks to lend.


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This snapshot points to the need to revaluate epidemic management and economic policies. The two are not indistinct because it is the virus that ties down the economy. Morale and confidence are not going to return until the COVID-19 threat is removed.

The first reorientation required is a significant increase in the current health expenditure. Both central and state governments need to step up current spending to strengthen health facilities and services; recruit and skill more medical and support personnel, including increased pay if need be; provide free masks, soaps and sanitisers, with setting-up stations at frequented public spaces; and bolster testing at lower costs; even make these free for low-income groups.

The last two are sorely needed for a country like India, which is hamstrung by difficulties of maintaining distance because of a sizeable, low-income and dense population. For this, current and capital resources need urgent redirection towards public health. Barely a percent of aggregate output in normal times, an increase in health capex will yield real human and economic benefits, some now but more in the medium-term; other capex, such as for road building, etc. can be redirected, and increased in the next stage. There’s convergence here with the economic recovery objective so better to dove-tail epidemic and economic policies at this point.

Along with material provisions, the public needs constant reassurance that government is atop the virus, and in control. Widespread, explicit and daily communication on infection safeguards is needed. Detailed information on the evolving situation and where key parameters are headed is also necessary to dispel doubt and misinformation, increase confidence.

Finally, the intense demand depression needs redress for business operations to resume, recommence and/or raise production. The government must acknowledge the bulk of income losses that have devolved upon the informal, daily-earners, many of which are engaged in low-paid and self-provided services that are associated with high contagion risk.

Income support associated with COVID-19 shock impact needs reappraisal for increase over that given so far. Without this, the decline in disposable incomes will aggravate because COVID-19 has a long course to run. Any aggravation in the fall of consumption demand will only slow down the economic recovery; in turn, an extended period of income decline can morph into a permanent fall in consumption.

There’s little merit in reserving fiscal space for cyclical spending at a later stage when the holdback of consumption — inflicted as well as self-imposed from pandemic fears — itself gets pushed forward in a prolonged recovery. Restoring disposable incomes now more strongly has to be current fiscal policy focus.

Now that a more complex, alternate path of managing the COVID-19 outbreak while restoring economic processes has been chosen, policies need constant evaluation against outcomes in the short-term. This must be matched by readiness to reorient and adapt accordingly. Without alertness and nimble-footed changes if need be, a simultaneous control of the virus outbreak and return to economic normality may be very difficult, and costly.

Renu Kohli is a New Delhi-based macroeconomist. Views are personal.
Renu Kohli
first published: Jun 19, 2020 09:31 am

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