Recovering from the pandemic

The post-pandemic economy will be irretrievably different than what existed before.

As the global experience of the pandemic lengthens, and evidence of the impacts of policies to control it and to get beyond it accumulate, what can India learn from its own experience, and that of other countries? Obviously, no country did a great job of responding to the pandemic. Even countries that seemed like they were managing their control policies well ended up with later waves that took heavy tolls. The populations of countries that imposed the strictest lockdowns sometimes became so fatigued with the effort, along with the negative impacts on their economies, that caution was abandoned and cases surged.

Clearly, some combination of testing and contact tracing, travel restrictions, bans on crowds, social distancing and mask wearing was optimal. What was surprising was how bad many countries, even advanced economies, were at shaping their policy combinations in an optimal way. Sometimes, this was because of incompetence and hubris by political leaders, such as in the United States, Brazil, and the United Kingdom. In other cases, such as Sweden, health experts made bad decisions.

Sometimes, politicians did not pay enough attention to how they needed to guide or instruct businesses to handle the increased need for certain products such as PPEs, medical equipment, and testing kits, and how to adapt supply chains for everyday necessities. The positives and negatives of the Indian response in various dimensions have already been discussed many times in the Indian media.

Another dimension of policy responses was the degree of relief provided by governments and monetary authorities. Of course, the United States was in a unique position to do the most, since the dollar is the world’s reserve currency, and it acted the most assertively to minimize the economic damage of the pandemic and the economic disruptions to which it led, though fiscal responses were often poorly targeted.

But it seems fair to say that other countries could have done more. In some cases, it seemed that past economic research which warned against exceeding a particular debt-to-GDP ratio seemed to play a role in government caution, although one can argue that the empirical regularity on which that rule of thumb built was not solid enough, nor relevant for a crisis situation.

What is clearest, however, is that the policy response that paved the way for recovery was the incentivisation of vaccine development at unprecedented speeds. Even then, the initial failure of the US government to push ahead with rapid implementation of mass vaccination, including ramping up production, organising delivery to vaccination sites all over the country, and educating the population at large about why it was needed, illustrated yet another government failure. It was only the change of administration that turned things around, and the US’s rapid opening up and recovery are a direct result of a successful vaccination programme.

In this respect, the European Union has been a relative failure, even though it has done other things better than the US. And India stands out as a country that developed a vaccine and multiple vaccination capabilities, but failed to translate that into a rapid vaccination program. While India and many other countries are seeing declines in cases, the only sure-fire road to recovery from the pandemic is on the back of a mass vaccination effort, which requires ramping up production for a start, delivery to dispersed locations, training for those who will administer the shots, and education about the benefits.

The post-pandemic economy will be irretrievably different than what existed before. Healthcare, welfare programmes, the use of remote work and remote learning, the geography of supply chains, and more will all change to some degree or other. India’s challenge is the catch up in its vaccination effort, while simultaneously crafting a strategy for adapting to these new realities.

Each of them, because it represents a disruption of the existing way of doing things, represents an opportunity in the economic development race for a late mover like India. Adapting will require new investment, but the resources needed are far from prohibitive, and in many cases, the private sector will be able to step up if given room, allowing the government to focus on basic public goods and public infrastructure.

Professor of economics, University of California, Santa Cruz