Vaccine Or No Vaccine, More Lockdowns Are Not The Solution

by Karan Bhasin - Sep 7, 2020 04:58 PM +05:30 IST
Vaccine Or No Vaccine, More Lockdowns Are Not The Solution 
With nothing to sell, almost all shops in Imphal remain shut. (Rajkumar Mixn)
Snapshot
  • Some States are still imposing lockdowns on arbitrary dates.

    This is immeasurably damaging to not just the State's economy and people, but also to economies of other States that are inextricably linked together.

There has been a growing debate amongst many over the economic implications in which the pandemic is being dealt with.

There is some consensus, with most advocating for the need to address the public health emergency before kickstarting economic activity.

That is, normalisation of economic activity will only be possible once we have addressed the pandemic.

There is, however, a problem here, as at present, nobody knows the likely progression of the pandemic.

This means that there is heightened uncertainty that businesses and policymakers face.

It makes it, therefore, an important challenge for governments, multilateral institutions, and central bankers to figure out a way to kickstart economic activity without long-term economic impact on their respective economies.

This makes it, therefore, important to ask the critical question of whether we are ready to let the uncertainty prevail and put the economy under a state of lockdown, or should we instead recognise our limitations and work with whatever we have at present.

This debate is important because it is taking place across the world where every country struggles to simultaneously combat the public health and economic crises.

Here is what we know so far; social distancing works, masks have been effective and that lockdowns beyond a point have had no impact, except for buying us time to prepare the healthcare infrastructure and obtain data on the efficacy of different treatment strategies.

This makes it important to recognise that the entire discussion around the economic and healthcare emergency assumes both to be in conflict.

In reality, we will have to address both of them going forward rather than sacrificing one for another.

This becomes more important as states start initiating fresh lockdowns which will further hurt businesses and increase uncertainty in the economy.

The approach of lockdown followed by opening up of the economy and then subsequently, another lockdown is far more damaging as it has the potential for causing bankruptcies and pushing firms into shutting their operations, which will definitely leave a scar on India’s long-term growth potential over the coming few years.

To illustrate this, consider a small firm that is in retail of clothing.

The firm faces rent, salaries of employees, electricity fixed charges and other costs which have remained largely the same even during the lockdown (some firms have negotiated lower salaries).

This, at a time when the firm was shut and it had no revenue coming in due to the lockdown.

Even if the firm was open for a few weeks, risk aversion of customers was unlikely to result in the pre-Covid levels of demand.

This, followed by a subsequent lockdown, can make several small businesses reconsider whether they would like to operate their firm going forward.

This will be especially true for those in the hospitality and tourism industry, where we can witness several firms exiting either temporarily or permanently over the coming few months.

There is another important problem related to supply chains. India’s domestic supply chains run across states and therefore, lockdowns in one part of the state could disrupt the entire supply chain, thereby delaying its restoration.

Unless supply chains are restored, we can witness shortages across different items as a regular feature across the country.

It is fundamentally important to recognise that lockdowns beyond a point cannot be a solution as they come with excessively high costs and do little to contain the spread of the pandemic.

What is instead needed is a cohesive strategy for aggressive testing, containment and contact tracing across states.

This needs to be supported by strict adherence to social distancing norms along with regulations mandating masks in public places.

State governments must be careful and should avoid inducing fresh uncertainty for businesses at a time where the world is witnessing one of the worst economic disruption experienced since the great depression.

Lockdowns cannot be normalised to become a way of life till the time a vaccine is developed as the economic costs of this are far too huge for a growing economy like India.

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