Implications of Reopening India on its Economy & Workers
Six weeks of national lockdown have given India the time to make an effort to flatten the pandemic’s curve. Now attention is shifting to reopening the economy while containing the virus. In the past six weeks, India’s economy has functioned at 49 to 57 percent of its full activity
Implications of Lockdown to Consider
Looking ahead, three considerations may shape a suitable approach for India.
1.India’s intertwined supply chains need a sharply targeted lockdown approach
India’s manufacturing, labor, and distribution chains are intertwined across sectors and geographies, particularly in the wake of the Goods and Services Tax that has eased interstate trade and commerce. As a result, an economic activity allowed in one part of the country or economy could be constrained by supply-and-demand bottlenecks in other parts. Supply chains, demand centers, and labor corridors would need to be restored while the country ensures that lockdowns are sharply targeted in the locations and for the activities required to contain the virus.
2.Economic activity is concentrated in red-zone districts that are critical centers of production & consumption
The Indian Ministry of Health and Family Welfare (MoHFW) has classified districts into red, orange, and green zones, based on multiple criteria. The 130 districts classified as red-zone districts are some of the most urbanized and industrialized parts of the country. They account for some 41 percent of national economic activity, 38 percent of industrial output, 40 percent of nonfarm employment. Finding methods of keeping these red-zone districts operational and safe would be critical in keeping economic activity sustainable.
3.Significant on-the-ground implementation challenges need to be addressed
Under the most recent guidelines from the Indian Ministry of Home Affairs (MHA) on May 1, 2020, almost all activities have been permitted, including in red-zone districts, while specific containment zones within districts are required to stay locked down. State governments are naturally considering their healthcare-capacity levels; virus-screening, -tracing, and -containment resources; and ability to enforce safe work protocols on the ground. With these factors coming into play, many red-zone districts could continue to remain fully locked down in the near term, and some others could be locked down again.
Potential reopening implications for economic activity and workers
•Moderate opening – All except airlines, railways, malls, and recreation. 130 red zone districts under severe lockdown
In the moderate-opening case, we assume the recent reopening guidelines from MHA (to allow all districts, except for their containment zones, to operate most activities) are implemented in all but 130 red-zone districts. In those 130 districts, we assume urban areas allow only essential services and rural areas allow manufacturing and construction to resume. In this case, only 66 percent of national economic activity is operational, with around 107 million inactive nonfarm workers.
•In the broad-opening case – All except airlines, railways, malls, and recreation. 27 red zone districts under severe lockdown
We assume that MHA guidelines are implemented in all but 27 red-zone districts (the most urbanized ones that also have relatively high infection rates), which we assume remain locked down and permit only essential services in urban areas. In this case, around 80 percent of national economic activity is operational, and the number of inactive nonfarm workers is around 67 million.
India's manufacturing, labor, and distribution chains are intertwined across sectors and geographies, particularly in the wake of the Goods and Services Tax that has eased interstate trade and commerce
•In the extensive-opening case – All except airlines, railways, malls, and recreation. 0 red-zone districts under severe lockdown
We assume that all districts restart permitted activities outside their containment zones, with careful monitoring of health implications. Here, at least 96 percent of economic activity is operational, with 17 million inactive nonfarm workers. In both the moderate- and broad-opening cases, the lack of adequate work opportunities and a consequent increase in the vulnerable population are significant concerns. Populous states such as Maharashtra, Tamil Nadu, Uttar Pradesh, and West Bengal could each see around five million inactive nonfarm workers, even in the broad-opening case. That level of unemployment would pose a considerable burden of providing social safety nets
To enable the economy to reopen sustainably championing the health and safety of citizens, India needs to take into consideration several types of measures:
•Strengthening local health preparedness
•Moving from a list of permissible activities to a not-permitted or “negative” list. Short, sharp communication around what is not permitted would be easier to understand and implement than would a list of permissible activities
•Reinforcing the principle of locking down only the containment zones, not entire districts, in line with MHA guidelines
•Increasing implementation capacity at the district level. More than 700 capable and trained officers could be deputed to work with district magistrates in each district to execute locally tailored back-to-work plans
•Operationalizing safe passage along key labor corridors. Guidelines that restrict the interstate movement of people could be rapidly reviewed
•Strengthening coordination and communication. Tight coordination among various arms of the government—central departments, states, local administration, and regulators—and with stakeholders - from industry
•Looking ahead and planning for contingencies. The future remains uncertain, and India will
•Need to be ready for all sorts of eventualities