Sushma Ramachandran

Senior Financial Journalist

The Covid-19 pandemic has led to a contraction of economic activity. The virus continues to rage in developed nations like the US, though industrial work has resumed in many areas. It remains a halting revival as the needs of health and safety clash with the need to restart trade and commerce so that millions of people do not lose their livelihoods. It has been a similarly tentative resumption of business as usual in this country. The new normal was evident on August 15 as the annual celebration of freedom from colonial rule was held in the absence of crowds, while those attending wore masks and were seated as per social distancing norms.

On the bright side, development of a vaccine is going on at a frantic pace in many countries, including India. It is becoming increasingly clear that getting back to pre-pandemic activity hinges either on a vaccine or targeted medication for this virus. But according to the World Health Organisation, this may take up to a year, though more optimistic estimates are that it would be available in early 2021. Russia may have already launched a vaccine but there are doubts whether it has gone through the rigorous third phase trials.

In the absence of any vaccine being available immediately, returning to normalcy as far as economic and business activity is concerned will continue to be a slow process. The impact of the virus on the economy has been tracked by the government, media reports say, in a study that shows revival in states that had less Covid cases in June. For instance, e-way bills which are an indicator of goods transport were lower in states like Maharashtra, Tamil Nadu, Delhi and Haryana which had recorded relatively higher cases during the month. Similarly, electricity consumption was higher in states like Karnataka and Andhra Pradesh where the virus was not so rampant then.

As for the green shoots of recovery that were visible about a month ago, some have plateaued as the virus moved into regions that were relatively untouched till recently. GST collections, for instance, rose in June but then slipped again in July.

The findings of a global investment agency, Nomura, are also revealing. Its business resumption index for India shows that economic recovery is picking up gradually but remains 33 per cent lower than the pre-pandemic levels at the beginning of August. It describes the recovery in July as uneven and largely reflecting pent-up demand with rural areas showing better performance. It also expresses concern over the prospect of a second wave of Covid affecting the southern and eastern states which could again lead to lockdowns.

As for the extent of contraction, varying estimates are being given for the April-June period, with Barclays expecting 25.5 per cent, HDFC Bank putting it at 21 per cent and India Ratings at 13.6 per cent while former chief statistician Pronab Sen pegs it at about 20 per cent.

For the medium and long terms, brighter predictions are being made by investment agencies but the immediate prospects for a rapid or V-shaped recovery look somewhat uncertain. The point to be noted here is that unless the spread of the disease can be contained, it will be difficult to step up industrial operations to the extent needed to revive the economy. It has literally been a stop-and-go process at many places. Unions have expressed concerns about rising infections in some units though only one or two per cent of the workforce may be affected. Similarly, the kneejerk reactions of some states in imposing lockdowns is delaying the return to normal activity. Some are imposed without apparently consulting medical experts as a weekend lockdown is not of much help in controlling the spread of the virus.

The main aim of a lockdown is to give enough time to build up healthcare infrastructure to meet the needs of a pandemic. The problem is, many states are now finding that the utter neglect of the healthcare sector in the past has led to a situation in which it has become virtually impossible to upgrade facilities sufficiently to deal with the crisis. My experience of visiting a friend in the ICU of a Bihar-based government hospital several years ago was an eye-opener as rats were roaming around the room. The hygiene conditions were appalling, to say the least.

The reason for this dismal state of affairs is simply that the country has neglected healthcare over the last seven decades. India’s expenditure on health was a mere 1.8 per cent of the GDP in 2017-18. It has now risen to 3.6 per cent, but this is way lower than China with five per cent, the US with 16.9 per cent and Japan with 10.9 per cent.

The disinterest in building up healthcare services has resulted in the present lack of preparedness for the current pandemic. Big cities like Mumbai, Delhi and Chennai are able to cope because of the concentration of hospitals in these metros, but smaller towns as well as rural areas are in a predicament. Apart from Covid, the creaking health system now has to face the onslaught of seasonal diseases like malaria, dengue and chikungunya.

The current crisis should be a wake-up call for policy-makers. The growth of the economy is inextricably linked to the improvement of human resource indicators like health and education. The latter has also suffered greatly during the pandemic, but the need of the hour is to focus on health. It is not enough to build huge hospitals in big cities. The penetration of health services needs to be extended right down to the last village in the country.

To do so, the army of poorly paid health workers in rural areas needs to be given vastly greater financial and infrastructural support. Unless the health of the masses is given the highest priority, it will not be possible to push the engines of economic growth either in the immediate future or in the long run.