Friday, October 16, 2020

IMF report vindicates India's approach to tackling pandemic

Was the government right in enforcing a stringent lockdown in response to the pandemic? Or was there overkill on its part ?

The questions have been hotly debated over the past several months. A common criticism is that, in trying to kill the pandemic, the  government ended  up killing the economy. We flattened the wrong curve, as Rajiv Bajaj said. meaning we flattened the GDP curve, not the pandemic curve. Prioritising lives over livelihoods was the wrong thing to do.

Well, this is not a debate that will end soon. But it's interesting to see the observations and conclusions contained in Chapter 2 of the IMF's latest World Economic Outlook. Let me highlight the important ones:

i. The more stringent the lockdown, the greater the impact on the economy

By looking at the effect on  GDP of the stringency of lockdown in a sample of economies (which does not include India), the report concludes:

...more stringent lockdowns are associated with lower consumption, investment, industrial production, retail sales, purchasing managers’ indices for the manufacturing and service sectors, and higher unemployment rates.4 These correlations persist with and without controlling for the strength of each country’s epidemic based on the total number of confirmed COVID-19 cases scaled by population. 

 ii. Easing the lockdown may not necessarily lead to a sharp revival in economic activity.

As long as the fear of getting infection persists, people will observe voluntary lockdown even if the government lifts its own.

However, lockdowns are not the only contributing factor to the decline in mobility. During a pandemic, people also voluntarily reduce exposure to one another as infections increase and they fear becoming sick.....Both lockdowns and voluntary social distancing had a large impact on mobility, playing a roughly sim-ilar role in emerging markets. The contribution of voluntary social distancing was smaller in low-income countries and larger in advanced economies.

Just think of the large number of proprietary establishments. Are the owners going to be in a hurry to re-open when cases are rising? Most unlikely. It's not clear, therefore, that an early lifting of the lockdown would have let to a spurt in economic activity in India.

iii. The more stringent the lockdown, the greater the chance of reducing the rate of spread of the infection.

Lockdowns engender sizable short-term economic costs, but they are also an investment in public health to protect susceptible populations from the highly transmissible virus.... Countries that imposed lockdowns faster experienced better epidemiological outcomes. The differences are even more striking if countries are divided with respect to the number of COVID-19 cases at the time of lockdowns.... Countries that adopted lockdowns when COVID-19 cases were still low witnessed considerably fewer infec-tions during the first three months of the epidemic compared with countries that introduced lockdowns when cases were already high.

Based on the above, the IMF comes to the following conclusion:

The observation that lockdowns can reduce infections but involve short-term economic costs is often used to argue that lockdowns involve a trade-off between saving lives and protecting livelihoods. This narrative should be reconsidered in light of the earlier findings showing that rising infections can also have severe detrimental effects on economic activity. By bringing infections under control, lockdowns may thus pave the way to a faster economic recovery as people feel more comfortable about resuming normal activities.

It's hard to argue that what India did was anything different from what has been outlined above. You could argue that despite having a stringent lockdown, we did not experience a quick reduction in the incidence of cases. It may be that the norms for social distancing, wearning of masks etc were not taken seriously, so we did not experience the expected benefits. But it's also true that we have no means of knowing the counter-factual: what the incidence of cases might have been sans a lockdown.

My guess is that the mass movement of migrant labour may have resulted in sub-optimal outcomes in India. Maybe we failed in providing the support that would have kept migrants where they were. Maybe the fear psychosis over the spread of the virus and the contention that migrants were hugely at risk resulted in a panic reaction.

We were also in the difficult position of not having the healthcare infrastructure in place, so we could not afford an explosion in cases at the very start. Six million cases over six months can be handled; not so, six million cases in the first couple of months.

While on the subject, the recurrence of cases in Europe points to the hazards of relaxing restrictions too soon, even in places where social awareness and discipline is said to be higher than in our country. Germany, France, the UK,  the Netherlands and others are re-imposing restrictions in varying degrees.

Health systems around the continent are switching to crisis mode as hospital wards begin to fill up with Covid-19 patients. Fears are growing that medical facilities could soon be inundated and that the swelling volume of new cases could overwhelm track-and-trace teams tasked with interrupting the virus’ chains of transmission.

....Virus cases started to tick upwards after European governments eased lockdowns over the summer to kickstart economies that had been hit hard by the restrictions. But public health experts say Europeans let down their guard, holidaying abroad in large numbers, ignoring social-distancing rules and gathering in groups to eat, drink and socialise.

In the week to October 11, Europe registered its highest weekly number of Covid-19 infections since the pandemic began, with almost 700,000 new cases, according to WHO statistics.

No comments: