As the only lower-middle-income country in the world’s 20 largest economies, India is facing one of the greatest challenges in the era of the pandemic economy.
By August 2nd, almost 1.75 million COVID-19 cases have been confirmed in India, trailing only behind the US and Brazil, and the daily new cases in India is approaching 60,000, second only to the US. Considering its low testing rate at 1.4%, well below 17.9% in the US and 6.2% in Brazil, the actually infected population may be as high as 30 million, according to renowned biostatistician Brahmar Mukherjee in the University of Michigan.
India’s lockdown was the largest worldwide in terms of coverage and length, starting from March 23rd when there were fewer than 500 confirmed cases and only 10 confirmed deaths. The Oxford COVID-19 Government Response Tracker (OxCGRT) gave India a score of 100 for its highest level of policy stringency, and the World Health Organization (WHO) praised India's response to the pandemic as “comprehensive and robust”. Yet in practice, the lockdown at best delayed, and was far from sufficient to the stem, the spread of the coronavirus, as documented India’s pandemic economy curve (Figure 1).
The economic activity level, derived from population mobility data, had started to decline almost two weeks before the four-phase lockdown and sharply dropped by 25 percent within a week afterward. The unemployment rate plummeted to a historical high of 23% in April and May. Social distancing was only a privilege of the middle class in a country with hundreds of millions of urban poor, many of which living in slums and doing informal jobs, and soon many families were confronted with a hard choice between health risk and livelihood threats.
While the phase 3 lockdown was still ongoing, economic activities had started to rebound. This trend continued into June when the Unlock phase 1 kicked off, and the unemployment rate climbed back to 11%, near the pre-COVID normal level. In June, cargo transportation returned to levels close to the pre-blockade level, and the Goods and Service Tax (GST) increased by nearly 50% from the previous month but still lower than the same period in 2019. PMI also recovered from 27.4 in April and 30.8 in May to 47.2 in June, a sharp increase though significantly below 55.3 in January.
However, the temporary economic recovery was not accompanied by rapid epidemic control. Despite the implementation and expansion of the mandatory contact tracing app, Aarogya Setu, which means "bridge to health" in Sanskrit, the doubling days of caseload were still hovering between 10-20 during the later lockdown phases and the unlock 1.0 in June. The following unlock 2.0 in July was characterized by a declining economic activity level and worsening epidemic situation.
India performed rather well during the global financial crisis in 2008-09 and its GDP grew by 3.1 percent, well above the global average. Since then, India has enjoyed almost a decade of fast economic growth (>7% on average between 2009 and 2019). However, the COVID-19 pandemic struck India when was growing at its slowest pace (4.2 percent in 2019-20) since the GFC. Recently Fitch International lowered India’s rating outlook from “stable” to “negative” and assigned the country’s long-term foreign-currency issuer rating to “BBB-”, the lowest level in its investment grade. Fitch explained the reasons for downgrading its rating outlook – weak pandemic economic growth prospects, heavy public debt burden, and high geopolitical risks.
Despite the difficulty in implementing effective non-pharmaceutical interventions to curtail epidemic growth, India’s efforts in developing life-saving drugs and vaccines are among the most advanced in the developing world. According to the WHO, there are more than 30 candidates of COVID-19 vaccine in development in India, at least two of which have been in full clinical trials. Serum Institute of India, the world’s largest vaccine maker, has just been granted approvals to conduct late-stage human trials in India for the Oxford Covid-19 vaccine candidate, one of the most advanced candidates in the ongoing global vaccine competition, and plans to produce mover than a billion doses for India and the rest of the world.
Luohan Academy Academic Committee member Erik Brynjolfsson, a professor at Standford, paraphrased Ben Benjamin Franklin's words, "that those who would sacrifice health and lives for a temporary economic boost would end up getting neither." Like many other populous emerging and developing economies, effective vaccines are likely a pivotal or even the only, pillar for a robust pandemic recovery in India. And the Indian pharmaceutical industry’s high production capacity with relatively low cost may also play an important role in reducing the COVID-19 pandemic risk in the developing world.
Senior Economist at Luohan Academy
Wei Liu is currently a senior economist/ecologist at the Luohan Academy and conducts research and communication of the human future in a more digitalized world. I've previously held positions in Europe and the US, for which I have led research projects in multiple Asian, African, and European countries and supervised 20+ Ph.D. students from top universities across all continents.