Home / News / India /  The economy must be managed along with covid-19 for a prolonged period

Covid-19 is an unprecedented humanitarian challenge. Six weeks of national lockdown have given India the time to make a concerted effort to flatten the curve. Now, attention is shifting to reopening the economy while containing the virus.

In the six weeks so far, India’s economy has functioned at about half of its full activity level, with over 140 million non-farm workers inactive (of a total of 262 million). This is, perhaps, a cost that India cannot incur repeatedly. Since the infection risk is likely to persist and could increase when the lockdown is lifted, the economy will need to be managed alongside covid-19, possibly for a prolonged period.

In this situation, effective management of lockdowns and restarts will be a critical capability for Indian administrators, along with healthcare and infection tracking capacity. Looking ahead, three considerations may inform a suitable approach for India.

Shrinking activity
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Shrinking activity

First, India’s manufacturing, labour and distribution chains are tightly intertwined, and this will need to be taken into account when lifting lockdowns. Take the electronics manufacturing sector, for example. It needs inputs from sectors as diverse as metal working, plastic moulding and paper processing; disallowing any of these could limit production. Second, India’s economic activity is concentrated—130 districts that are classified by the ministry of health and family welfare as red zones comprise 40% of India’s gross domestic product (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 locked down beyond containment zones in order to minimise the risk of infection spreading, even though the ministry of home affairs has allowed them to re-open. Mumbai and Pune, which represent 6% of India’s GDP, are two such examples. Furthermore, varying interpretations of government guidelines by local frontline administrators could confound the issue. In the dynamic environment anticipated, such guidelines may change frequently, needing an agile implementation capability on the ground.

We used district-level data on employment for 700-plus districts across 19 sectors to analyse economic activity and worker situation. If 27 of the most urbanised red zone districts, which also have relatively high infection rates, are under lockdown, only 80% of India’s economic activity occurs, and 67 million non-farm workers remain inactive.

States such as Maharashtra, Tamil Nadu, Uttar Pradesh, West Bengal, Gujarat and Delhi, will each have over four million non-farm workers inactive. This would affect the lives and livelihoods of 195 million people and cost more than $12 billion per quarter in government support.

So, India needs to build a granular, locally implemented lockdown and restart management capability. Such a capability would consider several measures beyond the essential ones needed for managing the health situation (like critical care capacity creation, disease tracking and spread prevention). Clearly moving from a list of permissible activities to a “not-permitted" or “negative" list, which would be easier to implement.

This would avoid the risk of critical intermediate industries being disallowed because of a difference in interpretation. Reinforcing the principle of locking down only containment zones, not whole districts, in line with MHA guidelines.

Administrators, particularly at the district level, are focused on the daily disease statistics. Providing a 360-degree view that tracks health impact across both lives and livelihoods will enable more informed decision-making. Operationalising safe movement of labour between urban and rural areas, as well as within cities. Increasing implementation capacity at the district-level through 700-plus capable and trained officers deputed to work with district magistrates in each district to help execute locally tailored back-to-work and tailored lockdown plans; supported by cross-functional centres of excellence in each state. This happens in every Indian poll.

Tight coordination among various arms of the government—central departments, states, local administration and regulators—and with stakeholders from industry and commerce is important. A senior-level state-cum-central government covid-19 forum that meets weekly could be created to interact frequently, sharing cross-functional learnings. This could help deliver clearer communication to stakeholders at all levels. Looking ahead and contingency planning since the future is uncertain and the situation will continue to evolve. It would be wise to develop contingency plans at all governmental levels based on possible scenarios of disease evolution.

Rajat Gupta is a senior partner in McKinsey’s Mumbai office, where Anu Madgavkar is a partner

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