For The Economy, Lockdown Is Worse Than War

A view from India on the prospects of major upheaval in the short-term and the possibility of a lasting economic depression.

Locked down in Kolkata.
Arun Kumar


NEW DELHI — It has now been over two months since China admitted that an epidemic had broken out in Wuhan city in Hubei province. As countries begin announcing lockdowns to limit the spread of the virus, economic activity is grinding to a halt in large parts of the world economy. Not only are there supply shocks leading to reduced production, but there is also a decline in income as people are not able to work and have reduced purchases to a bare minimum. China, the largest car market in the world, has reported an 80% drop in sales.

It is not just business sentiment that is declining – as reflected in the collapse of global financial markets – but also in consumer confidence, resulting in reduced demand. The two feed into each other. Most analysts have been arguing that the world economy, which was already slowing down before the crisis had hit in January, is headed into a recession. China, India and so on were slowing down officially while Japan and German economies were close to zero or negative rates of growth in January 2020. The US was the only major economy that was still robust, but now large parts of the country are in lockdown and there has been a decline in production and demand.

Since we do not know enough about the disease as yet, no time frame can be given as yet. We neither have a cure against it nor a vaccine and, according to experts, developing these may take more than a year. Initially, the disease was thought to affect infants and the elderly, but now it is clear that though not many children are getting infected, the young are vulnerable. It was thought that warmer weather would stop the virus, but its spread in tropical climates suggests that one cannot depend on that either.

The situation in countries facing a lockdown is worse than during a war. During a war, production of armaments rises but now, production is collapsing as people are not able to move around or go to work. Only some can still work from home and that too at reduced efficiency. During a war, demand is high. But now, it is collapsing, since incomes are falling with retrenchment and layoffs and salary cuts. People are only buying the bare essentials and even hoarding them. Huge swaths of the economy are not working as the drastic fall in demand for energy shows. This is corroborated by pictures from space, which show a considerable reduction in pollution levels.

In a pessimistic scenario, if the pandemic persists for more than two months and there is slow recovery after that, the world would have entered a depression. So, on top of a health crisis, there would be an economic crisis.

In a recession, many businesses would fail and especially those that are highly leveraged or those that have small amounts of working capital. Many banks and financial entities would also collapse. Failure of some will lead to a failure of many others, since they are all interlinked, as we learnt during the global financial crisis 2007-08. In a depression, there would be widespread business failure and even after the pandemic dissipates, the situation may not recover any time soon.

A depression will result in widespread social breakdown.

A depression will result in widespread social breakdown, since work is unlikely to be available for long periods and many will not have income to buy the basic necessities. Homelessness and hunger would grow. Many children would be out of schools. Incomes of elderly people dependent on pensions and interest incomes on financial assets would collapse. Many could be bankrupt due to medical expenses.

Several governments did not take early action to prevent the spread of the disease. Now, they are declaring an emergency and setting up a task force to tackle the impact of the pandemic in their countries. They are putting in place a slew of measures like, income support. Prime Minister Narendra Modi, in his address to the nation, announced the setting up of an economic task force, which must anticipate and act in advance to help India tackle the crisis. It needs to plan for the various scenarios that may unfold in the future.

In India, the first task is to prevent the general spread of the virus. The infected need to be identified quickly and isolated. Those who have contracted the disease need to be provided immediate and free medical assistance. More hospital facilities, even in hostels and stadiums, are needed. Production of essential medical supplies like, masks, protective gear and ventilators should be ramped up.

In economic terms, it is not like a usual business cycle so monetary policies can only be accommodative and fiscal policies can slow down the impact but not reverse the decline. An increase in fiscal deficit is going to occur but that should not be a worry. The arbitrary limits under the Fiscal Responsibility and Budget Management (FRBM) Act should be given a quiet burial.

People losing work in urban areas are migrating to their homes in rural areas and chances are that the disease would spread there as well. So, the creation of work in urban areas is important. But the Catch-22 is that to provide work, the lockdown would become unfeasible. Workers also typically live in congested localities and isolation is next to impossible, so health facilities will have to be provided for the isolation of a large number of people.

Simultaneously, business closures have to be effectively tackled so that laying off workers can be checked. In this context, the cottage and small sectors need special assistance. Reaching them will be a tough task for the government, but necessary. Because of loss of work and fall in demand, workers need to be supported through cash transfers. Further, given low levels of savings, workers will not have the purchasing power to buy essentials in bulk. They will need weekly supply of basic items through PDS. More shops to distribute essentials will have to be drafted from the private sector.

The army may be needed.

To prevent hoarding and malpractice by shop owners, the help of the army and police may be needed. There are enough stocks of basic grains to give provide them free of cost to the marginalised sections. Movement of milk, fruits and vegetables from the farms to the consumer will need to be ensured. Government machinery will have to be strengthened by shifting manpower from less essential tasks to ensure better distribution.

Banking and financial procedures need to be simplified. When people's mobility will be impaired, smooth functioning of the financial system is essential. So, all needless hurdles must be eliminated. For instance, working of bank accounts, fixed deposit accounts and especially the accounts of the poor need to be made easier.

Farmers will face a problem of demand, with their incomes adversely impacted and in need of greater support. Government procurement and distribution to consumers of various agricultural produces will have to be greatly increased.

In brief, the spread of COVID-19 sees India facing a situation worse than war. India should draw lessons from the experiences of other countries. Markets will not be able to deliver and massive government intervention will be needed all around and collective will is required to tackle the situation.

For the coming weeks, Worldcrunch will be delivering daily updates on the coronavirus global pandemic. Our network of multilingual journalists are busy finding out what's being reported locally — everywhere — to provide as clear a picture as possible of what it means for all of us at home, around the world. To receive the daily brief in your inbox, sign up here.

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Thousands of migrants in Del Rio, Texas, on the border between Mexico and the U.S.

Hannah Steinkopf-Frank, Bertrand Hauger and Anne-Sophie Goninet

👋 Сайн уу*

Welcome to Friday, where the new U.S.-UK-Australia security pact is under fire, Italy becomes the first country to make COVID-19 "green pass" mandatory for all workers, and Prince Philip's will is to be kept secret for 90 years. From Russia, we also look at the government censorship faced by brands that recently tried to promote multiculturalism and inclusiveness in their ads.

[*Sain uu - Mongolian]


• U.S. facing multiple waves of migrants, refugees: The temporary camp, located between Mexico's Ciudad Acuña and Del Rio in Texas, is housing some 10,000 people, largely from Haiti. With few resources, they are forced to wait in squalid conditions and scorching temperatures amidst a surge of migrants attempting to cross into the U.S. Meanwhile, thousands of recently evacuated Afghan refugees wait in limbo at U.S. military bases, both domestic and abroad.

• COVID update: Italy is now the first European country to require vaccination for all public and private sector workers from Oct. 15. The Netherlands will also implement a "corona pass" in the following weeks for restaurants, bars and cultural spaces. When he gives an opening speech at the United Nations General Assembly next week, unvaccinated Brazilian President Jair Bolsonaro will defy New York City authorities, who are requiring jabs for all leaders and diplomats.

• U.S. and UK face global backlash over Australian deal: The U.S. is attempting to diffuse the backlash over the new security pact signed with Australia and the UK, which excludes the European Union. The move has angered France, prompting diplomats to cancel a gala to celebrate ties between the country and the U.S.

• Russian elections: Half of the 450 seats in Duma are will be determined in today's parliamentary race. Despite persistent protests led by imprisoned opposition leader Alexey Navalny, many international monitors and Western governments fear rigged voting will result in President Vladimir Putin's United Russia party maintaining its large majority.

• Somali president halts prime minister's authority: The decision by President Mohamed Abdullahi Mohamed marks the latest escalation in tensions with Prime Minister Mohamed Hussein Roble concerning a murder investigation. The move comes as the Horn of Africa country has fallen into a political crisis driven by militant violence and clashes between clans.

• Astronauts return to Earth after China's longest space mission: Three astronauts spent 90 days at the Tianhe module and arrived safely in the Gobi desert in Inner Mongolia. The Shenzhou-12 mission is the first of crewed missions China has planned for 2021-2022 as it completes its first permanent space station.

• Prince Philip's will to be kept secret for 90 years: A British court has ruled that the will of Prince Philip, the late husband of Britain's Queen Elizabeth who passed away in April at 99 years old, will remain private for at least 90 years to preserve the monarch's "dignity and standing."


With a memorable front-page photo, Argentine daily La Voz reports on the open fight between the country's president Alberto Fernández and vice-president Cristina Kirchner which is paralyzing the government. Kirchner published a letter criticizing the president's administration after several ministers resigned and the government suffered a major defeat in last week's midterm primary election.



An Italian investigation uncovered a series of offers on encrypted "dark web" websites offering to sell fake EU COVID vaccine travel documents. Italy's financial police say its units have seized control of 10 channels on the messaging service Telegram linked to anonymous accounts that were offering the vaccine certificates for up to €150. "Through the internet and through these channels, you can sell things everywhere in the world," finance police officer Gianluca Berruti told Euronews.


In Russia, brands advertising diversity are under attack

Russian sushi delivery Yobidoyobi removed an advertisement with a Black man and apologized for offending the Russian nation, while a grocery chain was attacked for featuring an LGBTQ couple, reports Moscow-based daily Kommersant.

❌ "On behalf of the entire company, we want to apologize for offending the public with our photos..." reads a recent statement by Russian sushi delivery Yobidoyobi after publishing an advertisement that included a photograph of a Black man. Shortly after, the company's co-founder, Konstantin Zimen, said people on social media were accusing Yobidoyobi of promoting multiculturalism. Another recent case involved grocery store chain VkusVill, which released advertising material featuring a lesbian couple. The company soon began to receive threats and quickly apologized and removed the text and apologized.

🏳️🌈 For the real life family featured in the ad, they have taken refuge in Spain, after their emails and cell phone numbers were leaked. "We were happy to express ourselves as a family because LGBTQ people are often alone and abandoned by their families in Russia," Mila, one of the daughters in the ad, explained in a recent interview with El Pais.

🇷🇺 It is already common in Russia to talk about "spiritual bonds," a common designation for the spiritual foundations that unite modern Russian society, harkening back to the Old Empire as the last Orthodox frontier. The expression has been mocked as an internet meme and is widely used in public rhetoric. For opponents, this meme is a reason for irony and ridicule. Patriots take spiritual bonds very seriously: The government has decided to focus on strengthening these links and the mission has become more important than protecting basic human rights.Russian sushi delivery Yobidoyobi removed an advertisement with a Black man and apologized for offending the Russian nation, while a grocery chain was attacked for featuring an LGBTQ couple, reports Moscow-based daily Kommersant.

➡️


"Ask the rich countries: Where are Africa's vaccines?"

— During an online conference, Dr. Ayoade Olatunbosun-Alakija, of the African Vaccine Delivery Alliance, implored the international community to do more to inoculate people against COVID-19 in Africa and other developing regions. The World Health Organization estimates that only 3.6% of people living in Africa have been fully vaccinated. The continent is home to 17% of the world population, but only 2% of the nearly six billion shots administered so far have been given in Africa, according to the W.H.O.

✍️ Newsletter by Hannah Steinkopf-Frank, Bertrand Hauger and Anne-Sophie Goninet

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