What are the consequences of the Covida 19 pandemic for India? The Reserve Bank of India expects the Indian economy to contract this financial year. However, the final publication of gross domestic product (GDP) data for the quarter ending in March may require a full analysis. In a series of three articles on data journalism, the second part of which follows, HT strives to do just that. The first part, published on 6. On 1 June A9 the economic situation before the pandemic was discussed. The second part will focus on the immediate impact of the crisis and its macroeconomic consequences. The third part states that existing policy responses may not go far enough.
The 11th. On 3 March, the World Health Organisation declared the Covida 19 pandemic a pandemic. Since the 25th. In March, India announced a general blockade. It was one of the toughest in the world. In the database compiled by Oxford University, countries are ranked according to severity index. The stronger the lock, the higher the stiffness index value. The data shows that of the five countries with the highest GDP (United States, China, Japan, Germany and India), only India reached a peak of 100 points in almost a month. Of course, the restrictions were relaxed last month and the country is now coming out of the blockade. (see figure 1)
As expected, economic activity was hit hard. The only high-frequency indicators available in the period after the blocking are the Purchasing Managers Indices (PMIs). In April, the production and services indices fell to their lowest values of 27.4 and 5.4 respectively. In May, they rose to 30.8 and 12.6, but they continue to indicate a massive drop in economic activity. PMI indices mean expansion when they are over 50. GDP data for the quarter ending June 2020 will only be available in August. Blocking restrictions may also hamper data collection. For example, the National Bureau of Statistics (NSI) was unable to collect inflation data properly in April.
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Despite these statistical difficulties, some general principles can be formulated. One of the most visible economic consequences of the embargo is the massive return of workers to the villages. The actual estimates of renowned scientists vary from 5 million Noman Majeed of the International Labour Organization to 30 million Chinmai Tumbeh of the Indian Institute of Management in Ahmedabad.
According to the available data, this number is expected to be well above 5 million. For example, the Government of Uttar Pradesh alone plans to increase the number of daily jobs by 3 million in March under Mahatma Gandhi’s National Rural Employment Guarantee Programme.
The humanitarian aspect of reverse migration has captured everyone’s imagination. But the economic impact is just as important. Migrants play an important role in the Indian economy.
An example of a unique multi-generational research project in an Indian village can help us understand this. Palanpur, in the Moradabad region of Uttar Pradesh, has been studied by many economists since 1974-75. In their 2018 book on Palanpour Studies, as economists call them, Himanshu, Peter Lanzhou and Nicholas Stern mention six such studies between 1957 and 58 and until 2015.
In the years 1957-58, less than 40% of employment was outside the village. This figure rose to 84% in 1974-75 and 76% in 1983-84. As a result, it has decreased and by 2015 it was about 60%. The share of income from non-vegetable production increased steadily during this period. It was 22 percent in 1957-58 and rose to 60 percent in 2008-09, the last period for which data is available. In 2008-09, 60% of the non-agricultural works outside the village were at least 50 km away.
Return migration also means a loss of income for migrant workers. This can be very important for the poorest countries. In a 2018 World Bank report, Gaurav Nayyar and Kyung Yang Kim noted that remittances accounted for 35 percent of Bihar’s gross domestic product (GDP) and had a positive impact on household consumption. Any serious disruption of these remittances, probably caused by the blockade, could lead to a huge income shock in poor countries.
Indian workers were in need even before the pandemic. According to the LFS 2017-18, unemployment was 6.1%, the highest rate in four decades. The real wages of the rural population fell steadily between September 2019 and January 2020, the last period for which data are available. (see Chart 2)
The sudden exodus of migrants returning from the cities to their villages will further reduce wages. This will further reduce income and thus demand. Weak demand can create additional obstacles to economic recovery, even in cities. According to the Consumer Expenditure Survey (CPI) 2011-12, rural areas account for a significant proportion of total consumer spending in India. Per capita consumption in cities has almost doubled, but with a much larger share of the population, the share of rural areas in total consumption is higher. It is expected that rural India will have lost part of its demographic lead between 2011-12 and 2020. However, the share of the rural population in consumption is unlikely to be low.
It is clear that this is not the only economic failure caused by the pandemic. Economic activities that cannot cope with physical distance will have to wait for the Renaissance. However, the resolution of this problem will depend to a large extent on the medical progress made in the course of Covida-19. There is little room for political interference in this respect.
(The series is based on the author’s work as a visiting scientist at the Centre for Advanced Studies of India, University of Pennsylvania. It is currently being prepared as a working document).