Opening Covid-free areas may have limited economic impact
As the government prepares for the second phase of the lockdown, it has announced that states will lift restrictions on individual districts and cities based on their protection from, and exposure to Covid-19.
As the government prepares for the second phase of the lockdown, it has announced that states will lift restrictions on individual districts and cities based on their protection from, and exposure to Covid-19. This will help restart economic activities and provide some relief to livelihoods.
To understand the economic impact of such a move, we looked at coronavirus disease and credit data (an indicator of economic activity) at the district level. There are 327 districts with no confirmed Covid-19 cases in India. That is 45% of all 717 districts in the country. However, these districts accounted for only 7% of the total credit in the third quarter of 2019, according to the latest data available from the Reserve Bank of India (RBI).
This essentially means that even if the restrictions are lifted in districts free of the coronavirus, the economic impact will be limited. This is not only because of their low level of economic activity, but also because they are often tightly interconnected with other districts -- for resources, inputs and markets -- that are under lockdown.
We classified the districts into four categories. The first is districts with no cases -- green. These will most likely see some economic activity post-April 2020.
Next up are districts with five or fewer cases with the number of cases increasing at a very low rate of less than 20% over a week - yellow.
The third, orange, are districts where the number of cases is growing at a rate of more than 20% and less than 100%. A 100% growth rate is when districts are doubling their cases every week.
The last category, red, are districts where the number of cases has breached 100 or are doubling every week. These districts, 93 in all, account for more than 50% of all the credit flowing within the country.
But, a large part of the credit goes to India’s large cities; 21% of all of India’s credit in Q3, 2019, went to Mumbai and 12% to Delhi. Cumulatively, nine districts that each account for more than 1% of total credit (together they account for 51%) have 43% of India’s total Covid-19 cases. Economic activity will be immensely affected without these districts also opening up.
It may be argued that even within these districts and cities, restrictions will be opened up in some parts. But the analysis shows that across eight important states, the lion’s share of credit goes to districts where the number of cases are doubling every week or are at least 100.
From the states’ perspective, even if a majority of the districts were to lift the lockdown, it will see very minimal business happening if the large metros and economic centres are still shut down. Of the total credit flowing within Maharashtra, 61% of it is in districts that have seen a high growth rate of cases and may be the last to open.
However, the impact of opening up will be higher if it is backed by other initiatives that improve productivity.
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