The article highlights the challenges posed by the second wave of covid and how aggressive vaccination could help dealing with the issue.

Severe second covid wave in India

• India’s daily new cases have surged past 1,50,000, much above the first peak.
• In India’s first wave, the increase from 50,000 to about 1,00,000 cases took about 50 days; in the second wave, it’s taken just 13.
• To start with, the second wave was more concentrated, with Maharashtra accounting for 60 per cent of cases.
• While the top five states still account for about 65 per cent of cases, the reproduction (R) factor in almost 10 states is estimated to be two or higher, creating risks for a wider and more rapid spread, if unaddressed.

Lessons from the first wave

• Policymakers, businesses and households have all learnt from the first wave and with the private sector better adapted to “live with the virus”.
• Therefore, the economic costs should hopefully not be comparable to the first wave. Yet, they may not be trivial either.
• The five states that account for 65 per cent of new cases also account for almost 36 per cent of GDP.
• As virus cases have grown and restrictions have been imposed, retail and recreational mobility across these five states, is down 10 per cent since mid-March.
• Labour market surveys have also begun to show discernable impacts on both participation and unemployment rates.

Implications of unequal recovery for developing countries

• The IMF projects India’s FY22 growth at 12.5 per cent, this would still leave India about 8-9 per cent below the level of output that was projected pre-pandemic for the end of 2021-22.
• The challenge for emerging markets is that, given the quantum of fiscal and monetary space expended in combating the first wave, space to respond to subsequent waves will be constrained.
•  Owing to the fiscal support and pace of vaccinations the US will be the only large economy, apart from China, to surpass its pre-pandemic path.
• This, resulted in increased US yields, tightened global financial conditions, induced dollar strength and triggered
• All this makes it harder for emerging economies to respond expansively to domestic shocks.
• In effect, the heterogeneity of the recovery across developed and emerging markets is imposing policy constraints on the latter which, ironically, will simply compound the economic divergence.

Challenges for India

• India’s fiscal space to respond to a second wave appears constrained due to the following two factors:
• 1) In India’s case, consolidated public debt will approach 90 per cent of GDP.
• 2) The consolidated public sector borrowing requirements are budgeted above 11 per cent of GDP in FY22.
• The dependence on budgeted asset sales has only increased, both as a hedge to tax revenues that could be impacted from a second wave, and as a means of protecting expenditures.
• It will be equally crucial to leaving enough space for higher MGNREGA demand and other safety nets on account of a second wave, even while protecting capital expenditures — which generate large multiplier effects on the economy.
• Similarly, monetary policy is already very accommodative, and with core inflation sticky and elevated, global deflationary pressures entrenched, there are natural limits to the degree of more monetary accommodation.

Aggressive vaccination is the key

• Israel, the UK and the US have all demonstrated how aggressive vaccinations can bend the COVID-curve.
• Therefore, the Indian government’s decision to approve a third vaccine and fast-track emergency approval for foreign-produced vaccines is unambiguously positive.
• On the demand side, of an estimated 100-110 million population of seniors (60-plus) in India, only about 40 million have taken the vaccine over the last six weeks, suggesting a reluctance to get vaccinated.
• But, in fact, it’s crucial to ensure the vulnerable — those whose probability of hospitalisation is the highest — are fully vaccinated to reduce pressure on the health infrastructure.

Consider the question “What are the challenges posed to the developing countries by heterogeneity of recovery across the developed and developing countries?

Conclusion

Vaccinations should be construed as simultaneously delivering both a positive demand and supply shock (for the economy), and a negative demand shock (for health infrastructure), thereby providing the best chance to decisively break the trade-offs between lives and livelihoods that bedevilled emerging markets all of last year.

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