A plan to restart the economy | Analysis – analysis
Coronavirus disease (Covid-19) is an unprecedented humanitarian crisis. Six weeks of national closure have given India time to make a concerted effort to flatten the curve. Attention is now shifting to reopening the economy while containing the virus.
In the six weeks so far, India’s economy has functioned at approximately half of its total activity level, with more than 140 million inactive non-farm workers (out of 262 million). This is a cost that India cannot repeatedly incur. Since the risk of infection is likely to persist and may increase when the blockade is lifted, the economy will need to be managed in conjunction with Covid-19, possibly over an extended period.
In this situation, effective lock and restart management will be a critical capability for Indian administrators, along with the ability to track infections and healthcare.
Looking ahead, three considerations can inform a suitable approach for India.
First, India’s manufacturing, labor and distribution chains are closely intertwined and this will need to be considered when lifting the locks. Take the electronics manufacturing sector, for example. It requires inputs from sectors as diverse as metallurgy, plastic molding and paper processing; not allowing any of these could limit production.
Second, India’s economic activity is concentrated: 130 districts classified by the Ministry of Health and Family Welfare as falling in the red zone represent 40% of India’s GDP; The 352 green zone districts, where most activity is allowed, account for less than a quarter.
Third, states may choose to keep red-zone districts closed beyond containment zones to minimize the risk of the spread of infection, even though the Ministry of Internal Affairs (MHA) has allowed them to reopen. Mumbai and Pune, which account for 6% of India’s GDP, are two examples. Furthermore, the various interpretations of government guidelines by front-line local administrators could confuse the problem. In the anticipated dynamic environment, such patterns can change frequently, requiring agile on-the-ground deployment capabilities.
We use district-level employment data for more than 700 districts in 19 sectors to analyze economic activity and the situation of workers. If 27 of the most urbanized red zone districts that also have relatively high infection rates are under closure, only 80% of India’s economic activity occurs and 67 million non-farm workers remain inactive. States like Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal, Gujarat and Delhi will each have more than four million inactive non-farm workers (see accompanying chart). This will affect the lives and livelihoods of 195 million people and will cost more than $ 12 billion per quarter in government support.
Therefore, India needs to build a granular, dynamic, locally implemented restart and lock management capability. Such capacity would consider several measures beyond those essential to manage the health situation (for example, building critical care capacity, monitoring diseases and preventing spread).
One, to move clearly from a list of allowed activities to a “not allowed” or “negative” list, which would be easier to understand and implement. This will avoid the risk that critical intermediate industries will be rejected due to a difference in interpretation.
Two, reinforcing the principle of blocking only containment zones, not entire districts, in accordance with MHA guidelines. Administrators, particularly at the district level, focus on what is reported daily: disease statistics. Providing a 360-degree vision that tracks the health impact on both lives and livelihoods will enable more informed decision making.
Three, operationalize the safe and controlled movement of labor between urban and rural areas, as well as within cities.
Four, increase district-level implementation capacity through more than 700 trained and empowered officers appointed to work with district magistrates in each district to help execute locally tailored closure and job closure plans; backed by cross-functional centers of excellence in every state. This happens in all Indian elections.
Five, strengthening coordination and communication. Close coordination between various branches of government (central departments, states, local government and regulators) and with industry and trade stakeholders is important. A high-level central and state government Covid-19 forum could be created that meets weekly to interact frequently, sharing cross-functional learning. This could help deliver clearer communication to stakeholders at all levels.
Six, looking to the future and contingency planning as the future is uncertain and the situation will continue to evolve. It will be advisable to develop contingency plans at all levels of government based on possible scenarios for the evolution of the disease.
India’s economy is likely to have to run alongside Covid-19 for a long period. Effective management of locks and restarts will be a critical capability for Indian administrators in this context.
Rajat Gupta is a senior partner in McKinsey’s Mumbai office, where Anu Madgavkar is a partner. Hanish Yadav, associate partner in the Delhi office, contributed to the piece.
The opinions expressed are personal.