Why India’s rural economy should win after the lockdown is lifted

AAs India eases the lockdown this week, there are fears that nothing has been gained in the past painful weeks and the novel coronavirus may start to spread again. Looking at the booze queues in urban India it may be tempting to think so, but the fears may be exaggerated on the scale of the economy as a whole.

The behavior of governments, individuals and businesses will reshape the Indian economy, and safer businesses and places will thrive more. If supported by the right policy framework, agriculture and rural industry could be one of India’s greatest strengths.

Epidemiological models have predicted more cases and deaths in many countries than have actually been observed. In the absence of a vaccine, what explains this? Economists explain the phenomenon by changes in behavior – of governments and people – that correspond to the old intuition of economic analysis that agents respond to incentives.

John Cochrane, for example, present a behavioral ‘SIR model’, in which the speed at which people move from ‘susceptible’ to ‘infectious’ to ‘recovered’ is shaped by their behavior.

So far, there are two changes globally that have affected the spread of the virus. The first is policy change – the lockdowns imposed by many governments – while the second is behavioral changes in individuals – wearing masks, washing hands, physical distancing, etc.


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Changing government behavior

Governments around the world reacted to the fear – of high death tolls, overcrowded hospitals and the accusation that the government was doing nothing – in a short time. British Prime Minister Boris Johnson and US President Donald Trump have moved from their earlier light-handed stance to heavy-handed government intervention.

All over the world, tax packages have been announced, medical preparedness has been strengthened, penalties have been applied for those who go out. The number of deaths and cases has been contained.

But soon it became clear everywhere that no matter how much the government provided, the economy was going to be devastated. Governments again reacted, this time to news of declining production, layoffs, closure of operations, unemployment, hunger, deaths from other diseases and human unrest due to confinement.

Most countries began easing population-wide lockdowns this week, though there is still no vaccine or herd immunity. The new mantra is learning to live with the virus.

Having seen the impact of the lockdown on the economy and, just as importantly, tax revenue, governments are much less likely to announce a second round of full national lockdowns. The strategy going forward will depend much more on test, trace, isolate and treat. Instead of isolation for all, the focus will likely be on isolating individuals, families, workplaces, buildings, and tight containment clusters. Governments will continue to ban super-broadcasters like major congregations for religion, sports, politics, weddings, etc.


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Individual behavior change

Individual behavior will also change to avoid getting sick. Since the confinement, the national and international media, official or social, speak almost only of the coronavirus. This is without a doubt the biggest awareness campaign in the history of mankind.

By now, most people are aware of the risks of getting sick and the habits that reduce the risk of contracting the virus. Additionally, when social norms such as not spitting in public, wearing masks, testing if at risk, protecting comorbids and the elderly, etc. are applied, the risk of spread decreases. Transparency, truth and trust will be essential for containment.

In dense urban populations, physical distancing is undoubtedly difficult. In the 30% of households in India that have at least one person over the age of 60, according to the 2011 census, distancing is difficult. Yet unlike normal human behavior of sitting close together, sharing food and drink, if every person helps contain the virus, even in small amounts, the spread slows.


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The opportunity for rural India

In addition to changing personal and social behaviors, the economy could change. Going forward, if there is no universal access to a Covid-19 vaccine for another 18-24 months, companies in safer sectors and locations should do well, while those at high risk may not even restart their activities.

While liquidity is one of the biggest hurdles to resuming business today, we can see that even if credit is available, the possibility of another lockdown, disrupted supply chains, labor labor shortages, higher costs and unstable demand, may discourage many businesses from restarting operations in dense urban clusters.

By contrast, the least risk of the virus spreading, and therefore another lockdown, is in rural India, where it is understandably easier to have physical distancing and outdoor work. This can shift the focus from urban to rural markets, both for demand and for production.

Animal husbandry, fishing, dairy, vegetable, fruit and food processing are more labor intensive and high return. After several decades of neglect in research and development, lack of market access, intermittent export policies and market distortions, the current adversity may be a timely opportunity for this sector.

It would need the support of an appropriate policy framework and reforms in pricing policy, taxation, market access, credit and rural infrastructure, such as warehouses and cold stores. The next two years or so of how we learn to live with coronavirus can rethink the economy towards safer and more sustainable production and consumption, with agriculture and the rural economy as its strength rather than its weakness.


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