March 16, 2021


INDIA: Spike in infections raises economic concerns

BY Aditi Phadnis

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( 4 mins)

Prime Minister Narendra Modi has called for an urgent meeting of chief ministers of all states on 17 March to address the sudden increase of Covid-19 cases across the country. The number of new cases has risen dramatically in Maharashtra, Punjab, Karnataka, Gujarat, and Tamil Nadu. These states account for 78.41% of the total cases. Maharashtra has reported the highest daily new cases at 16620 (accounting for 63.21% of the daily new cases), followed by Kerala (1792) and Punjab (1492). Maharashtra, Kerala, and Punjab cumulatively account for 77% of India’s total active cases.

There are several reasons for this. Kerala and Tamil Nadu are in the middle of local elections. Although the Election Commission of India (ECI) has laid down stringent norms for meetings, rallies, and campaigning, including social distancing norms and restrictions on the number of people permitted at meeting venues, it is impossible for local governments to enforce these strictly.

Besides, as economic activity resumes and public transport is restored, the tendency to let the guard down against the infection is evident. Mumbai, Maharashtra’s capital, where the biggest chunk of new infections has been reported, has commuters packed tightly in local suburban trains as they travel to their place of work. The period February to mid-April is also considered auspicious for weddings. These are typically large gatherings, and here too, crowd management is difficult. The overall sense among Indians is that the country has managed to turf out the virus, leading to dangerous complacency levels in the general populace.

There are other problems to consider. As the country prepares to evaluate a year of the virus, several support schemes for small and medium businesses launched when the pandemic first hit come to an end on 1 April. If these are continued, the government has to be prepared to take a financial hit. But ending them could mean jeopardizing the financial health of small business which continues to struggle. Social sectors like education, especially school education, are funded both privately and by the state. Schools have been closed for a year, and re-opening is not immediately on the cards. The sector needs urgent financing. So far, there is no evidence of any stimulus for the sector beyond routine allocations in the federal budget (2021-22) unveiled in February.

Given the pervasive impact of Covid-19 on all aspects of the economy, the latest spike in cases comes as bad news. As the election campaign in five states gathers steam (results will be out on 2 May), the numbers can only rise. On the other hand, some sectors of the economy have shown not just resilience but growth. For instance, the number of lives covered by the health insurance business (excluding personal accident and travel business) between April and September 2020 has grown 69.8% over the corresponding period the previous year.

India’s vaccination protection program has fallen behind, which is another cause for concern. Initially, when the vaccination process was limited to frontline workers – health professionals, paramilitary and military personnel, and police – vaccine hesitancy was one reason. But in the second phase (inoculating those above 60 and above 45 with co-morbidities), the capacity of health institutions to administer the vaccine poses a problem. So far, 230mn have been tested, and around 33mn have been vaccinated. Although fatalities from side-effects have been very low, the reports of blood clots possibly caused by some vaccines are raising concerns in India – which has not barred any vaccines so far.

The general expectation is that while short localized lockdowns may still have to be ordered, medium-term tailwinds because of easy financial conditions, front-loaded fiscal activism, strong global growth and India’s place in the world as a pivot of vaccines, should support real GDP growth of 13.5% y-o-y in FY22.

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