Untested Covid control

“Countries would be assessed on State capacity,” said a New York-based investor who specialises in trading on macroeconomic trends. This was in early April: We were discussing the prospects for developed and developing economies amidst the growing pandemic. By State capacity he meant the general government’s (union, state and municipal) ability to control the virus, as well as manage the economic cost that came with it. What he feared was that in emerging markets, such as Brazil, India and Indonesia, the size of the State is too small to first enforce the lockdown, then manage the calibrated opening up, and in the interim manage the surge in demand for health care, as well as contain medium-term economic damage.

This size is generally measured in terms of government spending as a proportion of the country’s gross domestic product (GDP). This may be too abstract, so let us see what this means in reality. While lockdown enforcement is mostly about self-discipline of the citizenry, it also requires police personnel to enforce the rule for the few who lack that discipline. But India has less than 1.5 police  personnel  per thousand people, compared to well over two in the US and Japan, and three in Germany. Once adjusted for gaps in equipment and infrastructure (like smartphones, updated databases, protective gear and vehicles), the disparity grows. Worse, the police, being at the front lines, have seen higher infection rates than the average population, depleting their forces further.

It is not surprising, therefore, that cement volumes in some regions fell only by 60 per cent in April (they were down 86 per cent nationwide), whereas construction was disallowed for two-thirds of the month, followed by a slow resumption. Some rural construction, which accounts for a large part of cement demand, may have continued even during the first and the harshest lockdown, as there aren’t enough resources in the police to monitor all villages. 

A second example of limited State capacity is in health care: In India much of it continues to be self-financed by people; governments account for just over a third of hospital beds, and a fourth of doctors. This capacity can quickly get overwhelmed by a pandemic, and as wards as well as hospitals get categorised as Covid-19-dedicated, mortality due to other ailments is at risk of rising. 

This inability to handle the case load is what appears to have driven several administrators to dilute attempts to limit infections, and instead focus only on providing medical care to those that most need it (some studies indicate that only 5 per cent of the coronavirus infections need medical attention; the rest are either asymptomatic or recover fully after a fever). Growth in testing continues to lag the growth in cases. In nearly every field, it is the practitioner that, when faced with resource constraints, chooses a path that a theoretician would criticise as sub-optimal or dangerous. 

Illustration by Binay Sinha

By opening up the economy even as total cases are still growing by 5 per cent every day, the State, prudently realising its own limitations, is now relying on society to enforce the behavioural changes required to limit the spread of coronavirus. For example, states receiving millions of migrant workers are letting their villages enforce the needed quarantine, and in the cities, housing societies or RWAs (Residents’ Welfare Associations) are now forming rules. 

While this may be a more pragmatic approach, its efficacy in controlling the spread has yet to be tested, and will be assessed over the next few months. Further, while a State-enforced lockdown and recovery, as seen in China and Australia, among other such countries, is more like the flipping of a switch, the recovery from it is likely to be much more gradual in India.

When would the risks from the chosen path diverging from the prescribed one be visible? Even as resource constraints force one to ignore infections as a useful metric given the larger numbers of asymptomatic cases, deaths due to the disease cannot be wished away. Currently, at 200 to 250 per day, virus-related deaths are less than 1 per cent of all-cause mortality in India (while numbers during the year vary by season, on average India sees 27,000 deaths every day). However, as deaths are growing at 4.5 per cent a day, they could rise to 3,000-4,000/day by end-July—a level that would be hard to ignore. In some cities that may happen sooner: Virus-related deaths are already 22 per cent of average all-cause deaths in Mumbai, and 13 per cent each in Delhi and Ahmedabad. The disease burden is currently concentrated in the 20 largest districts, which account for 70 per cent of all cases. The worst-affected, Mumbai, has nearly 2,500 infections per million population. Outside the top 20 districts, this ratio is just 38. While 38 appears small compared to 2,500, at 5 per cent daily growth, that is just three months apart: Such a growth rate cannot be ruled out as 25 to 30 million migrants have moved out of the larger cities.

It is possible that the overall spread may not worsen as cities get decongested, even if temporarily (Mumbai may have lost nearly 10 per cent of its population) and social distancing is easier to observe in villages (not just because of more space, but also greater social responsibility as families know each other for generations). At this stage, though, this would be a hope rather than an expectation.

As the lockdown was costly too, for both overall health and the economy, it has been lifted. By regulation, we estimate that the first lockdown, which ran for three weeks till April 14, had restricted two-thirds of GDP. The second, which ended on May 3, was half that in intensity; the third, ending on May 17, shut 18 per cent, and the fourth, which ended on May 31, curtailed 9 per cent of GDP. Lockdown 5 is also being called Unlock 1, as it only restricts containment areas, and elsewhere, only 5 per cent of GDP is restricted. Once education opens up, which is expected to be in phases starting in July, nearly everything would be permitted.

When assessing the impact on GDP, one must overlay on this any further restrictions that state governments impose, and rising numbers of containment zones as the disease spreads, weak global and local demand, global supply chain disruptions, and some short-term labour-supply issues. We believe the economy may revive to 80 per cent to 85 per cent of normal levels fairly rapidly. Thereafter, however, the improvement may be slow. Moreover, given the real and growing risk of deaths reaching socially unacceptable levels, the improvement may also not be in a straight line.

The writer is co-head of Asia Pacific Strategy and India Strategist for Credit Suisse


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