A blueprint for economic recovery Analysis-Analysis

Ischemic coronavirus ischemic disease (Covid-19) is an unprecedented humanitarian crisis. Six weeks of national blockade gave India time to make a concerted effort to balance the curve. Attention is now focused on opening up the economy while keeping the virus under control.

Over the past six weeks, India’s economy has been operating at around half capacity, with more than 140 million non-agricultural workers (262 million in total). These are costs that India cannot always bear. As the risk of contagion is likely to persist and increase once the ban is lifted, the economy needs to be managed together with Covid-19, possibly for a long period of time.

In this situation, effective management of blockades and restarts will be crucial for Indian administrators, along with opportunities for healthcare and infection surveillance.

For the future, an appropriate approach for India would be based on three considerations.

Firstly, the production, labour and distribution chains in India are closely interlinked and this should be taken into account when lifting the locks. Take, for example, the electronics manufacturing sector. This requires resources from a wide variety of areas such as metalworking, plastics casting and paper processing; closing one of these areas may limit production.

Second, economic activity is concentrated in India, with 130 districts classified as red zones by the Ministry of Health and Family Welfare accounting for 40 per cent of India’s GDP; the 352 districts in the green zone with the highest permitted activity account for less than a quarter.

Third, states may choose to keep red zones closed outside restricted areas to minimise the risk of contamination, even if the Ministry of the Interior (MIA) has authorised their reopening. Two such examples are Mumbai and Puna, which account for 6% of India’s GDP. Moreover, different interpretations of public policy by local government officials may lead to confusion on this issue. In an expected dynamic environment, this policy can often change, which requires a flexible capacity for its implementation in the field.

We used employment data from more than 700 districts in 19 sectors to analyse economic activity and the status of employees. If the 27 most urbanised areas of the red zone, which also have relatively high infection rates, are included, India has only 80% of economic activity and 67 million non-agricultural workers are still inactive. In states such as Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal, Gujarat and Delhi there will be more than four million non-agriculturalists (see chart attached). This will affect the lives and livelihoods of 195 million people and will cost more than $12 billion a quarter in government assistance.

 

Therefore, India needs to create a granular, dynamic and locally implemented blocking and restart control mechanism. Such capacity could consider a range of actions that go beyond the basic measures needed to address the health situation (e.g. capacity building in critical care, disease surveillance and prevention).

One should clearly move from a list of permitted activities to an unauthorised or negative list, which would be easier to understand and carry out. This avoids the risk of banning critical intermediate industries due to divergent interpretations.

Secondly, the strengthening of the principle that only containment areas and not whole areas should be blocked according to the MHA guidelines. Administrators, especially at the district level, focus on what is reported daily – disease statistics. Carrying out a 360 degree evaluation to monitor the effects of health on people’s lives and livelihoods will enable more informed decision-making.

Third, ensuring safe and controlled movement of workers between urban and rural areas and within cities.

Fourth: Increase implementation capacity at district level through more than 700 qualified and trained officials working with district judges in each district to help implement local work plans and individual blockade plans; supported by cross-functional competence centres in each state. That happens with every election in India.

Fifth – strengthening coordination and communication. Close coordination between the different branches of government – central departments, Länder, local authorities and regulators – and with industry and trade is important. A Covid 19 forum could be set up with high-level government and central government representatives, with weekly meetings for frequent interaction and cross-functional knowledge sharing. This could facilitate clearer communication with stakeholders at all levels.

Sixth: Look ahead and anticipate unforeseen circumstances, because the future is uncertain and the situation will continue to evolve. Contingency plans should be developed at all levels of management on the basis of possible disease scenarios.

The Indian economy will probably have to operate alongside Kovid-19 for a long period of time. Effective management of the suspensions and restarts will be a crucial opportunity for Indian administrators in this respect.

Rajat Gupta is a senior partner in McKinsey’s office in Mumbai, where Anu Madgavkar works. Hanish Yadav, Associate Partner in the Delhi office, contributed to the work on.

Pronounced opinions are personal