Published in the Research Journal of Mumbai University June 2020
ECONOMIC AND SOCIAL IMPACT OF COVID-19
Sharad Kumar
Durgadevi Saraf
Institute of Management Studies (DSIMS) Mumbai
Email: sharad.kumar@dsims.org.in
R. Kannan
Monitoring and
Research, Hinduja Group, Mumbai
Email: kannan.hgl@hindujagroup.com
INTRODUCTION
Covid-19 is an unprecedented pandemic not
witnessed in the recent past. For the first time in our lives, the pandemic has
affected almost every country in the world and impacted the economic activities
of every sector in the world. It came as a big shock as the Black Swan event which
could be called as unknown unknown. No one in the world could have anticipated
or predicted the onset of the pandemic of this magnitude and severity and the global
impact it would have on everyone’s lives. It has not only impacted the economic
activities of different nations but also has shaken the medical, social,
geo-political balance and the entire human psyche. It has created so much
uncertainty that no viable solutions to deal with this unprecedented event is
in sight. The countries with the best of their medical and disaster management
systems could not cope with the enormity of this calamity.
Governments across the world are finding
it difficult to manage this crisis. Since there is no proven solution available
to manage this crisis, it has created lot of uncertainty in all spheres of
life. More than the crisis, the uncertainty on how to solve this crisis and the
prediction of when it would subside makes life difficult and creates fear,
pessimism, anxiety and distress all around. Short-term and temporary solutions
like national and state level lockdowns have brought the economic activity to bare
minimum levels and have kept most of the population indoors except the
essential services. Those who are in essential services are extensively exposed
to a high risk of getting infected. The most vulnerable Covid-19 warriors are
medical and paramedical workers, police personnel, Safai Karamcharis, bankers, providers
of essential commodities, delivery personnel etc., who are putting their best
efforts to fight the pandemic, and in the process a significant number of them have
been infected and have lost their lives. More than 1000 police personnel have
been infected and many of them have lost their lives. A large number of
paramedics have also been infected and some of them have lost their lives.
DIMMENSION OF THE PANDEMIC
The pandemic had its
origin sometime in November/December 2019 from Wuhan city of China but in a
period of 3-4 months it has spread to 210 countries of the world hardly leaving
out any known country. China itself has been able to manage and control its
spread but countries like United States, Spain, France, Italy, UK, Russia and
other part of Western Europe now have the highest cases in the world. As of 11th
June 2020, there have been over 73.6 lakhs cases of Covid-19 with 4.16 lakhs
deaths worldwide, and over 20 lakhs cases found in the USA alone. The
number of deaths worldwide have been reported to be 4.16 lakhs out of which
over 1.15 lakhs have been reported from USA alone, New York being the
epicentre. New York State now has more Covid-19 cases than any
single country worldwide.
As many as 45 countries around the world have enforced
the country wide lockdowns to try to slow the spread of the disease. Such
measures and restrictions have varied from country to country and usually
involve closing schools, cancelling public events, closing borders, and
encouraging people to work from home. The death rate as a percentage of
identified cases in various countries as on 14th May 2020 are shown
in the following graph
Fig. 1. “Covid-19 death rates per country”, graph, Business
Insider, February 26, 2020
It may be observed that the death rate in
some of the advanced European countries like
France, UK, Italy, Sweden and Spain are very high in spite of their advanced
medical systems and infrastructure. Many of them ran out of medical equipment
and staff to handle the problem of such a large dimension. On the other hand, a
country like Russia handled the situation quite well and its death rate has
been less than 1% in spite of very large number of cases. The death rate in
India has also been lower compared to most of the countries though it varies
from state to state.
The graph below depicts another important data related
to death per lakh population. It may be observed that most of the countries
like France, UK, Italy, Sweden and Spain which had higher percentage of death of
detected cases are also having higher proportion of deaths per lakh of
population. The number of deaths per lakh of population has been almost negligible
for China and India having very large populations. China is the country where
the pandemic started and it managed to controlled quite early whereas the cases
in India started quite late and in small numbers giving sufficient time for
preparation and potential for learning from the experiences of other countries.
India could resort to complete lockdown in 3 phases with gradual opening of
businesses activities, which are readying to open up further in the 4th
phase from 18th May 2020. It is believed that the lifestyles and the
immunity systems of people in the different countries are the important factors
impacting the death rates.
Fig. 2. “Covid-19 death rates per 100,000 residents”, graph, Business
Insider, February 26, 2020
As on 11th June 2020 the number of detected
corona cases in India are 2,97,535 with total deaths of 8,498 (2.86%) and 1,47,195 (49.47%) recovered cases.
The death rate in India is significantly lower than world average and recovery
rate is higher.
IMPACT ON WORLD ECONOMY
After the onset of the pandemic and what
followed in its wake, the IMF revised its forecast for the global economy to
negative 3 per cent, a reduction of more than 6 per cent within a few months.
This will be the most optimistic scenario.
Realising the likely impact on the economies, governments across
the world were fast in their response, and they announced big rescue/revival
measures and they created large budgets for managing this crisis. There is a
large economic stimulus through fiscal and monetary policies, measures, and
prescriptions.
The crisis
has affected the daily wage workers, those who are working in SMEs and this has
affected the lower strata of the society in a big way all over the world. Many
of the daily workers and those who are working in SMEs have lost their jobs and
they do not have savings or any alternate income. Those who are in the middle-income
and high-income group were not affected like those from the weaker sections. Some
of the countries have social security schemes and guarantee some minimum income
on account of unemployment but these social security measures are not available
in a large number of countries.
In many
industries, activities have come to a halt across the world, with a high rate
of job loss. The job losses in US have been estimated to the tune of 20 million
(2 crore). The Indians working abroad have also suffered heavily and lost their
jobs due to low economic activity, particularly the productions in factories. Many
of the Indians working in Middle East want to come back to India. The
government of India has arranged a few flights to bring them back home.
The crisis has brought down the income of the governments, and
of the rich, middle class and the poor everywhere. In this scenario, none of
the segments of society have the strength and confidence to keep the economic
activity at desirable levels. Considering the poor finances of the government,
the alternatives to manage this crisis are limited. Realising this fact, many
governments have adopted the concept of Modern Monetary theory, that is
printing money in large numbers to stimulate the Economic Growth.
IMPACT ON DOMESTIC ECONOMY
What started as a health crisis has
transformed into an economic crisis. At this juncture, the economic development
of India was at the lowest in last 10 years and businesses were struggling to
survive, the job creations were far lower than expected resulting in an
unprecedented unemployment situation in the country. The growth outlook as
projected by official agencies as well as the international organisations was
quite grim and GDP growth for 2020-21 was predicted between 1.8 to 0 percent by
IMF and credit agencies like MOODY. The fear of the onset of recession has put
lot of pressure on the government. IMF
has subsequently brought down the growth outlook further after their initial
projections. As the number of days of lock down increase, the experts are
further downgrading the growth forecasts.
This has given a big shock to the
government and the businesses, and they are clueless to handle the economic
crises of this magnitude with already depleted financial resources caused by
lower revenue collections, lack of demand, and lower industrial output as
reflected through official data. The supply side stimuli by way of
significantly lowering the corporate tax in 2019-20 and rationalizing the
personal income tax to have more liquidity in the hands of consumers and the tax
in the 2020-21 budget could not stimulate the consumer demand.
The economic impact of this crisis has
adversely affected most of the workers in unorganized sector including the
daily wage earners. The number count of working force employed in the
unorganized sector is not known to the central as well as the state government
agencies. There is no such authentic data available with any of the agencies.
The data available with the labour ministry is scanty, outdated and unreliable
and faces lot of criticism for its quality and coverage. As per the data, based
on surveys conducted, it is estimated that around 85% of workforce is engaged
in unorganized sector for their livelihood. Apart from informal sector in India,
SME sector also has a large requirement of skilled, semi-skilled and unskilled
manpower.
The
government finances due to the crisis have been impacted badly because of poor
tax collections, both direct and indirect. Measures like impounding the
incremental dearness allowance to government employees and the pensioners for 2
years could meet the requirements very marginally on expenditure side. Most of
the state governments are facing financial distress and are struggling to pay
the salary of their employees and looking towards central government for extra funds
due to additional expenditures on account of pandemic and related expenses.
They also urge to release their GST portion which is yet to be received. With
generation of additional money in the form of loans from the central bank in
order to help the people and businesses and to meet their huge expenditure
requirements including the tremendous expenses on health care for dealing with Covid-19 patients including the cost of creating infrastructure of huge
volume, purchase of medical equipment and testing cost, etc. the requirements
of additional money by the governments will be unimaginable. With some estimate
provided by the health ministry, the average cost of handling a hospitalised,
infected corona patient works out to Rs.1.24 lakhs including expenditure during
the period of quarantine. These circumstances will compel both central as well
as the state governments to open up the economic activities gradually by
following protocols and precautions under the lockdown 4.0, to reduce the
revenue loss to some extent. It is believed that this pandemic is likely to
continue for a few more months and so the people and the businesses should
learn to survive and coexist with the pandemic.
The latest
data on tax collection released by the Central Board of Direct Taxes shows that
Maharashtra, Delhi and Karnataka alone contribute 61% to India’s total revenue
from direct taxes. If we include Tamil Nadu and Gujarat to the list, the share
of the top five states rises to 72 percent of total revenue collections of
direct taxes. Maharashtra is the leading
state in India, contributing the maximum to GDP, taxes, manufacturing and financial
services. Most of the leading companies and business groups have their
corporate head offices in Maharashtra. The Regulators RBI and SEBI are based in
Maharashtra and also major banking and insurance activities are carried out
from Mumbai. There are a lot of migrant labour involved in handling essential
services and activities like supply of milk, vegetables, transporting goods,
etc in Maharashtra. Their migration out of the state due to the has affected
Maharashtra’s economy in a big way. The state revenue collection is coming down
significantly. Similarly, due to lockdown in Delhi and Karnataka, the
government finances at national level have been badly impacted, the economic
activities of these 3 states contributing a lion’s share to the government’s
exchequer. These three states were compelled to open liquor shops and increase
the price of liquor, petrol and diesel to recoup some of the tax revenues. In
Maharashtra due to the difficulty in enforcing social distancing the decision to
open the liquor shops was withdrawn in a day.
The central
as well as state governments have to revise the budget for the financial year 2020-2021
and increase the budget for health management. It has to identify new and innovative
ways to mobilise financial resources to manage the economy as well as bring
back the economic growth rate. The central governments as well as the state
governments are working very closely to manage this crisis. The working groups
from the centre are coordinating with the working groups in the states to work
at strategic level to manage the crisis. The focus is on ensuring the
protection of the people hand in hand with the revival of business activities
in a phased manner under the present conditions of uncertainties. Governments are
also working very closely with the private sector and NGOs to ensure the
production and supply of the required medical equipment and medicines. The
government is planning to buy more than 2.2 crores of personal protective equipment
(PPEs) and already more than 110 companies in India have started manufacturing
these equipment. India also exported the required drugs to other countries in
the world and the pharma companies have scaled up their productions of required
medicines. The pharma companies are also in the process of inventing medicines
and have increased their R&D budget to expedite the process. They have also
initiated activities to find the vaccine for preventing the virus. It will
require lot of efforts, high budget and series of clinical trials.
RECENT INITIATIVES BY THE CENTRAL GOVERNMENT AND RESERVE BANK OF
INDIA
On 12th May 2020, the Prime Minister announced an
economic package of Rs. 20 lakh crores for different depressed sectors and
different groups of weaker sections who have suffered a lot due to their job
and financial losses. The PM also emphasised to go for local productions and
products. The sentiments against China should provide India with a big
opportunity. Many of the countries will look at India as an alternate
destination for business relations and product needs. The Finance Minister announced financial
measures in this regard in her series of announcements. The Finance Minister announced Rs 3 lakh
crore Emergency Working Capital Facility for businesses including MSMEs, Rs
20,000 crore Subordinate Debt for Stressed MSMEs, Rs 50,000 crore equity
infusion through MSME Funds, New Definition of MSME and other Measures for MSME;
she announced also that no global tenders for government tenders of up to Rs
200 crore is now required. She spoke of extending the Employees Provident Fund
Support for business and organised workers for another 3 months with salaries for
the months of June, July and August 2020, of reducing EPF Contribution for
Employers and Employees for 3 months from 12% to 10% for all establishments
covered by EPFO, raising Rs. 30,000 crore Special Liquidity Scheme for
NBFC/HFC/MFIs, Rs. 45,000 crore Partial credit guarantee Scheme 2.0 for
Liabilities of NBFCs/MFIs, Rs 90,000 crore Liquidity Injection for DISCOMs, providing
Relief to contractors by extension of up to six months for completion of
contractual obligations, including EPC and concession agreements. Relief has
also been extended to Real Estate Projects the registration and completion date
for all registered projects having been extended up to six months. Tax relief has
been given to businesses as pending income tax refunds to charitable trusts and
non-corporate businesses and professions to be issued immediately. Rates of
‘Tax Deduction at Source’ and ‘Tax Collected at Source’ have been reduced by
25% for the remaining period of FY 20-21 and due dates for various tax related
compliances have been extended.
A number of economic packages and loan schemes have been
announced for farmers and small businesses for their welfare and revival.
Besides, economic packages have largely been devoted to policy and structural
reforms in key sectors including power, coal, defence and aircraft with the aim
of enhancing domestic production capacities aiming at self-reliance.
With the intent of mitigating the negative effect of Covid-19, revive growth, and above all preserve financial stability, the
Reserve Bank of India announced a slew of measures to ease flow of credit into
the economy. In the process, the RBI relaxed the asset classification norms,
and allowed more funds for states – the limits of which has been increased
under Ways and Means Advances for states to avail short term funds up to 60 per
cent of the existing limit.
As the businesses have been hit hard by the pandemic and the
lockdown, RBI also announced a moratorium on loan payments for three months.
This applies to home loans, car loans, personal loans, and credit card dues. It
also applies to all term loans and working capital loans across all types of
lenders, banks, microfinance institutions, and non-banking finance companies.
SOCIAL IMPACT AND CHANGES IN LIFESTYLES
The country wide lockdown resulted in
factories not operating for more than 2 months across the country, rendering
the employees in the informal and SME Sectors unemployed, thus creating social
problems. There are instances of employees, including managerial personnel, losing
their jobs in corporates because of halting of economic activities and the present
economic situation. Though the respective governments appealed to the employers
to pay wages to temporarily laid off workers and not to fire them, the appeal
was mostly ignored based on their inability to make payments as a result of the
overall financial condition and the lack of cash flows. As a result, the lower
strata of workers mostly from unorganized sectors and daily wagers have lost
their hopes and have started moving to their native places under very inhuman
and difficult conditions, ignoring the appeals and warnings of the government
agencies. The state governments were not in a position to handle a situation of
such magnitude. To ensure their survival,
governments have announced monthly free rations, cash transfers etc., but the
measures are found insufficient compared to the problems faced. There have been
some bureaucratic hustles and procedural issues which could not prevent the
migrant workers from moving to their hometowns. If this economic crisis continues, this
will lead to societal crisis. Already those who are at home and working from
home are finding it difficult to adjust to this new working style and many have
undergone mental distress and are trying to overcome it.
One of the challenges posed by this
crisis is that of deciding between protecting the Lives and the Livelihoods of
people. The lockdown has led to loss of jobs on a grand scale and the ILO has
predicted that all over the world more than 1.5 billion working in the informal
sector are likely to lose their jobs. Governments are finding it difficult to
strike a balance between saving lives and livelihoods. With the pandemic not
receding, the governments were forced to partially open the economy to
production and manufacturing and the sale of high taxed items like liquor. Loss
of production and Substantial reduction in Economic Activity is affecting everyone
in the society. The governments will witness a sharp fall in tax revenues and
the expenditure shooting past their budgets by a wide margin, totally upsetting
and widely exceeding the Fiscal Deficit targets laid for the budget 2020-21.
The government has no other option but to resort to large scale borrowings
particularly from the Reserve Bank of India to meet the crises and save the
distressed people as well as the businesses, particularly the sectors which
were already bleeding before the crisis and have now been impacted further like
hospitality, hotels and restaurants, airlines, tourism, etc.
The pandemic has rendered a significant
proportion of workforce unemployed due to the lowering of economic activities.
In India, due to the complete lockdown for more than 2 months in 4 phases the
unemployment scenario which was already bad has been very adversely impacted.
As per the CMIE data on unemployment, India’s unemployment rate sharply
increased from 8.75 in March 2020 to 23.52 in April 2020 which has further
increased to 24.6% by 24th May 2020 as estimated by CMIE using 30-day
moving average method. As regards the urban unemployment, it has reached to an
alarming proportion of 26.1% as on 24th May 2020 which was 9.41% at
the end of March 2020 and spiked to 24.92% at the end of April 2020, solely due
to the stoppage of most of the economic activities. Similarly, the rural
unemployment has sharply increased from 8.44% from March end to 22.89% at the
end of April 2020 which has further increased to 23.9% as on 24th
May 2020, though the economic activities were not as much impacted in rural
areas as in the urban areas. With the sharp increase in the outlay for MGNRERA
from the budgeted Rs 60,000 crore to Rs 1,00,000 crore in the recent
announcement of economic package to deal with Covid-19, the rural unemployment situation
should ease out to some extent. It should also be able to provide some
employment avenues to returning migrant workers.
One of the
global concerns in the recent past was pollution. After the onset of the crisis
and the big fall in demand for energy consumption in many parts of the world,
pollution levels were down and, in many places, within the prescribed levels.
Transportation and manufacturing are the biggest polluters in the industry. The
crisis has taught that it would be possible to live in a pollution-free world.
But this may not be sustainable in future.
Once the
crisis gets over, the world is likely to witness a new
normal in all parts of life. People in general will become health conscious and
will have a budget for health. Social distancing may become the norm. The use of digital technologies for business
and work will increase. The travel for work will come down. Many of the
industries will be forced to change their business models. Airlines will not be
allowed to fill all the seats to maintain social distancing norms. People will
avoid tourism. The large congregations for festivals and social celebrations will
be the things of the past. The lifestyles will change drastically. Immediately
after the crisis, the consumption of discretionary products will witness a fall
in demand.
DEVELOPING PSYCHOLOGICAL
IMMUNITY TO FIGHT COVID 19
A strong immune
system always helps a person in fighting any dreaded disease. It has been
clearly established that the people who have good immune system are able to
fight the coronavirus more successfully than the people who have weak immune
system. Therefore, the death rates widely vary from country to country mainly
due to varying lifestyle impacting the immune systems. In some of the countries
like Italy, France and some of the other European countries, the death rate is
as high as 12 to 14% of the infected cases whereas some of the country’s it is just
2 to 3%. In India, it is around 3% which is considered quite low compared to
the world average and it is believed that the immunity of people contributed
significantly in keeping low mortality rate in India.
The
immunity can be broadly divided into two categories: physical and psychological.
The physical immunity can also be classified into two: genetic (heredity) and
acquired. The genetic immunity is innate in nature and cannot be altered
whereas the acquired immunity can be enhanced through physical exercise, meditation, yoga,
diet, herbal and other medicines.
The Psychological Immune System (PIS), which is influenced by the positive
mental and emotional states and outlook like positive thinking, optimism,
resilience, self-confidence and self-belief, help people to fight a disease and
come out from a dreaded situation. The subject area of positive psychology is
gaining the popularity because it focuses on the well-being of the people
rather than focussing on the negative behavioural aspects displayed by the
people mostly covered in the traditional psychology. The psychological immune
system is widely used in sports psychology to develop and enhance psychological
immunity and making the sportsmen mentally and emotionally tough to deal with
failures and helps to bounce back.
Attila Olah (2005) first developed a tool to measure psychological immunity called
Psychological Immune System Inventory (PISI). Through its sub-scales, Olah
conceptualised and covered the attributes for measurement viz. Positive
Thinking, Sense of Control, Sense of Coherence, Sense of Self-growth, Change
and Challenge Orientation, Social Monitoring Capacity and Goal Orientation; Creative
Self-concept, Problem Solving Capacity, Self-Efficacy, Social Mobilising
Capacity, and Social Creating Capacity, Synchronicity, Impulse Control,
Emotional Control, and Irritability Control. Thus, Psychological Immune System
appears to be based on the assumption that persons with flourishing mindset
have a better capability to fight the diseases than those who have languishing
mindset. Besides, the above 16 parameters conceptualised by Olah, some
parameters like resilience, courage and ego-strength may be added to develop
psychological immune system further.
Parents and
schools can play a vital role in developing this immune system from childhood. Positive
parenting and positive schooling may prove to be very effective in this
direction. Teachers and school administrators also need to be skilled in
positive schooling. Most of the schools have some sessions on physical training
to develop physical immunity. Developing the psychological immunity should also
be the part of school curriculum. The attributes
which have been discussed above are very much necessary for enhancing
psychological immune system to fight the ailments.
CONCLUSION
To sum up,
the dimension of the problem due to the pandemic is very large, difficult to
manage and unprecedented. The biggest challenge before the government and
planners is to save both lives and livelihood. The future of Covid-19 is
totally uncertain and we may be required to live with this pandemic and cannot
afford to keep economic activities shut for long. The biggest priority of the
government, businesses and industries is to recreate the lost jobs and to put
economic activities on track. It may however be difficult to convince the
migrant labours to come back to support the productive activities unless the
things become normal. They cannot easily forget the hardship and trauma they
faced due to loss of their livelihood.
It will
change human life drastically the world over and will witness a new normal in
all parts of life. People in general will become health conscious and will
follow more discipline to avoid any risks. People have to develop physical as
well as psychological immunity to fight with such pandemics.
Each
country is facing similar economic and social problems due to the unprecedented
impact of this deadly pandemic. Every country needs to cooperate with each
other to fight the problem collectively. The immediate need is to invent the
vaccine at the earliest and share the productive capabilities to produce the
vaccine in a large scale to eradicate this deadly virus.
REFERENCES
Oláh,
Attila. 2005. Anxiety, Coping, and Flow: Empirical Studies in Interactional
Perspective. Budapest: TrefortKiadó.
Oláh,
Atilla. 2009. “Psychological immunity: A new concept of coping and resilience.”
Proceedings from Coping & Resilience International Conference. October
2009.
CMIE. May 2020. “Unemployment Rate in
India, Data Presented in the Statistical Profiles” Accessed on 24 May, 2020
https://unemploymentinindia.cmie.com/
Rawat, Mahesh.
2019. “As India aims for $5 trillion economy, direct tax data show wealth concentrated in 3 states.” Indian
Today, 23 October, 2019
https://www.indiatoday.in/news-analysis/story/as-india-aims-for-5trillion-economy-direct-tax-data-show-wealth-concentrated-in-3-states-1610818-2019-10-23
Business Insider. 2020. “What to
know about the coronavirus outbreak in 8 charts.” 26 February, 2020.
The webinar conducted by Dr
N.K. Saksena, an eminent Psychologist on Psychological Immunity on 10th
May 2020 has inspired the authors to include it as a measure to fight the
pandemic.
