KTEE406 Development economics Topic: INDIAN ECONOMIC CHALLENGES IN THE SECOND CORONAVIRUS WAVE AND RECOMMENDATIONS FOR UPCOMING THIRD WAVE

Abstract The economy of India is a middle income developing mixed economy. It is the worlds sixthlargest economy by nominal GDP and the thirdlargest by purchasing power parity (PPP). According to the nternational Monetary Fund (IMF), on a per capita income basis, India ranked 145th by GDP (nominal) and 122th by GDP (PPP). Since the start of the 21st century, annual average GDP growth has been 6% to 7%, and from 2013 to 2018, India was the worlds fastest growing major economy, surpassing China. Historically, India was the largest economy in the world for most of the two millennia from the 1st until the 19th century. However, besides those proud achievements, India also has to go through the challenges of two waves of the Covid19 pandemic. Bharats growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy. Notably, India had also been witnessing a prepandemic slowdown, and according to the World Bank, the current pandemic has magnified preexisting risks to Indias economic outlook. On May 31 2021, the Indian government released the data for GDP that during the financial year 20202021, GDP contracted by 7.3 percent. It is the most severe contraction from the time India got its independence. The reasons behind this trajectory are obvious – lockdown leading to the closing of business units, increasing nemployment rate and a significant decline in domestic consumption.

INDIAN ECONOMIC CHALLENGES IN THE SECOND CORONAVIRUS WAVE AND RECOMMENDATIONS FOR UPCOMING THIRD WAVE

Hà Nguyệt Lan Chi, Trần Khánh Ly, Nguyễn Kim Chi, Phạm Nguyễn Phương Linh, Nguyễn Bình Minh, Nguyễn Hải Phương, Nguyễn Đức Anh, Đỗ Ngọc Vũ,

Nguyễn Hồng Hạnh Sinh viên K59

Cơ sở I Trường Đại học Ngoại thương tại Hà Nội, Việt Nam

Nguyễn Thị Hải Yến

Giảng viên Bộ môn Kinh tế Phát triển

Cơ sở I Trường Đại học Ngoại thương tại Hà Nội, Việt Nam

Abstract

The economy of India is a middle income developing mixed economy It is the world's sixth-largest economy by nominal GDP and the third-sixth-largest by purchasing power parity (PPP) According to the International Monetary Fund (IMF), on a per capita income basis, India ranked 145th by GDP (nominal) and 122th by GDP (PPP) Since the start of the 21st century, annual average GDP growth has been 6% to 7%, and from 2013 to 2018, India was the world's fastest growing major economy, surpassing China Historically, India was the largest economy in the world for most of the two millennia from the 1st until the 19th century

However, besides those proud achievements, India also has to go through the challenges of two waves of the Covid-19 pandemic Bharats growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy Notably, India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has "magnified pre-existing risks to India's economic outlook" On May 31 2021, the Indian government released the data for GDP that during the financial year 2020-2021, GDP contracted by 7.3 percent It is the most severe contraction from the time India got its independence The reasons behind this trajectory are obvious – lockdown leading to the closing of business units, increasing unemployment rate and a significant decline in domestic consumption

The Prime Minister announced a total economic stimulus package worth 270 billion USD and then raised it to 400 billion USD By July 2020, a number of economic indicators showed signs of increasing again and recovering By December 2021, India had returned to pre-COVID-19 growth and has prepared new solutions to deal with the upcoming 3rd wave of Covid-19 epidemic

Keywords: economy of India, pandemic effect, slowdown, recovering, solutions

Working Paper 2022

1 Economic development of India and its role in Asian economy

1.1 The role of India in Asian economy

The economy of India is a middle income developing mixed economy India’s economy is a mixture of traditional village farming and handicrafts alongside booming modern industry and mechanized agriculture It is a major exporter of technology services and business outsourcing, and the service sector makes up 54% of its economic output Since the start of the 21st century, annual average GDP growth has been 6% to 7%, and from 2013 to 2018, India was the world's fastest growing major economy, surpassing China With a nominal GDP of $2.94 trillion, India was the world's sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP) in 2021 However, according to the International Monetary Fund (IMF), on a per capita income basis, India only ranked 168th by GDP (nominal) and 155th by GDP (PPP), due to its large population

1.2 Economic development of India before and after the first wave of pandemic

Table 1 GDP of India before and after the first wave of pandemic

Adjusted GDP, PPP (trillion USD) 8.27 9.02 9.56 8.97

Source: World Bank

Table 2 GDP per capita of India before and after the first wave of pandemic

GDP per capita, PPP (USD) 6182.9 6675.4 6997.9 6503.9

GDP per capita growth (annual %) 5.7 5.4 3.0 -8.2

Source: World Bank

Before the onset of the COVID-19 pandemic, India was in the midst of its most significant slowdown in economic growth since the global financial crisis Over the year to the March quarter

2020, GDP growth had slowed to just above 4 per cent, well below the decade average of around

7 percent during the 2010s Fiscal and monetary authorities had provided some support to the economy, although these measures had yet to arrest the slowdown before the beginning of the COVID-19 pandemic

After the initial COVID-19 outbreak, the Indian economy was severely disrupted Indian economic output fell by 25 percent, one of the largest falls in GDP in the June quarter of 2020 of any economy This was the impact of the stringency and length of India's initial lockdown A sudden loss of income for many of India's laborers led millions of migrant workers to leave urban areas and return to their villages As a result, there was a sharp decrease in GDP per capita growth for India in 2019 and eventually a negative growth rate in 2020 (-8.2%)

1.3 The main issues of economic development of India

• Heavy population pressure: India is the second most-populated country in the world, the first

being China (about 1.4 billion people in 2020) In India, the high levels of illiteracy lead to a

high level of birth rates Hence, there is an increased economic burden on the country

• Lack of access to basic amenities: Population living in slums (% of urban population) in India

was reported at 35.2 % in 2018 Also, only 46.6 percent of households in India have access to drinking water within their premises This leads to the low efficiency of Indian workers

• Inequality in wealth distribution: In India, merely 1 percent of the population has 58 percent

of the total Indian wealth Also, 57 billionaires have the same amount of wealth as the bottom

70 percent of India

• Low level of technology: The majority of products are made with the help of inferior

technologies Further, most enterprises in India are micro or small Hence, they cannot afford modern and more productive technologies

• Beside that, there are many other challenges for the Indian economy, such as: huge dependence of population on agriculture, low quality of human capital, lack of infrastructure, under-utilization of natural resources…

2 The challenges of the Indian Economy in the second coronavirus wave

2.1 The lack of awareness and prevention of Indian people about the disease

In the article “Cross-sectional study on the role of public awareness in preventing the spread

of COVID-19 outbreak in India”, the authors have determined the awareness, knowledge, and

attitude about COVID-19 and relate the behavior of Indian society, especially when the country is restarting all its economic activities, after the complete lockdown They have concluded that the level of COVID-19 public awareness is poor in India

The high percentage of illiteracy rate, congested living areas, and unequal access to natural resources1 that are vital for a healthy life are observed not only in villages but also in metropolitan cities like Delhi and Mumbai Social distancing is not a general practice Festivals, rituals, ceremonies, and general gatherings2 are part of the Indian societal framework It is always difficult

to bring changes in the cultural societal framework This has hindered India from preventing the pandemic effectively despite many efforts of vaccine dissemination and roll-out

According to a survey conducted by the above-mentioned article, about 90% of participants were aware that washing hands frequently with soap and water for at least 20 seconds, especially before eating, after using the bathroom, and after blowing your nose, coughing, or sneezing; and using hand sanitizer with at least 60% alcohol if soap and water are not available and wearing masks could prevent the spread of COVID-19 (Postgraduate Medical Journal, 2020)

The virus that causes COVID-19 disease is named the 2019-nCoV virus which is a new species of coronavirus Half of the participants have wrong assumptions about this since only about 60% of participants were aware of the structural details and nomenclature of coronavirus3 (Postgraduate Medical Journal, 2020)

The statistics showed that about 42% of participants thought that it is the same virus as SARS and the same medication could treat them (Postgraduate Medical Journal, 2020) Open-ended and cross-sectional surveys were carried out among the medical fraternity in China and India which raise concerns about the inadequacy of knowledge of the medical staff of hospitals caring for COVID-19 patients4 and in psychiatric hospitals5

Fake vaccines6, apart from giving a false sense of security with a heightened risk of exposure

to the disease, endanger a person’s health and may also erode trust in legitimate vaccination programs and lead to vaccine hesitancy, nullifying efforts to reach mass immunization

On the other hand, many studies have also shown multiple environmental factors that can affect the outbreak speed of COVID-197, which are:

• Meteorological parameters, such as air temperature, humidity, rainfall, air pollution, and smoking

• Living environment deprivation, especially in megacities, which are infectious diseases, overcrowded slums, and segregated low-class residential areas

2.2 Health-care system on the brink of collapse

When experiencing the second wave of the coronavirus disease of 2019 pandemic, India has been facing a severe lack of awareness about covid and the inability to ensure the living environment of its people The second wave of the epidemic has passed, but its consequences are too devastating

Figure 1 The coronavirus second wave in India

Source: self-synthesized

The second wave took place in about 2 months and created more destruction than the first wave8 Many people would think that the main reason was the emergence of new strains of COVID9 However, WHO believes that the Covid-19 outbreak in India is not entirely due to it but due to many other factors such as the lack of awareness and the insecurity in the living environment That put the health-care system on the verge of collapse

India launched the vaccination program on 16 January 2021 but the vaccination rate was slow When the second wave of covid hit, contagion increased, and so did demand for vaccines India’s vaccination program was struggling to make an impact and supplies were problematic, although it

is one of the countries with the largest pharmaceutical production capacity in the world10

The slow implementation of the vaccination campaign and the lengthy process of scheduling vaccination appointments on the government-managed app had frustrated many people11 The government had halted vaccine exports in March in order to focus on domestic inoculations, undergone an amendment in the rules of foreign vaccine manufacturers, paving the way for other foreign vaccines in the Indian market However, the health infrastructure was not enough to meet even if there was an adequate supply of vaccines

India's medical infrastructure, which was already struggling before the pandemic, was severely overwhelmed They found a severe shortage of medical equipment such as test kits, PPE, masks and ventilators, liquid medical oxygen, as well as a shortage of medical professionals12 Meanwhile, India's Ministry of Health denied responsibility for not providing medical oxygen

or adequate vaccination to the people This made India's healthcare system weaker and prone to collapse

2.3 The economic collapse of Coronavirus

2.3.1 Economy of India during the pandemic

Many countries around the world have been greatly affected by the economy, trade and India

is no exception when the nationwide blockade has brought nearly all economic activities in India

to a sudden halt According to the Ministry of Statistics, India's growth rate in the fourth quarter

of fiscal year 2020 was 3.1 percent (Ministry of Statistics, 2021) Unemployment surged from 6.7 percent on March 15 to 26 percent on April 19, before falling back to pre-lockdown levels by mid-June (Kishore, 2020) (Vyas, 2020) (Sharma, 2020) At the same time, India faces problems of supply chain stress during the lockdown, as well as the collapse of the tourism and hotel industries This has led to a decrease in government revenue (Chaudhry, 2020) Besides, at the end of June

2021, India had a border dispute with China, causing trade tension between these two countries and making the national situation even more difficult (Sutirtho, 2022)13

Even before the pandemic, India's growth was falling, 8% in Q4 FY18 to 4.5% in Q2 FY20 (Rajan & Gopalan, 2020) In January 2020 itself, well before India's lockdown or reactions to the pandemic, the International Monetary Fund reduced India's GDP estimates for 2019 and also reduced the 2020 GDP forecast (Rajan & Gopalan, 2020) However, according to the World Bank, the current pandemic has "magnified pre-existing risks to India's economic outlook"

2.3.2 Comparing China and India economy

China and India together constitute almost 40 percent of the world population, and both had imposed strict lockdowns early on, despite crushing economic costs The lockdown measures in China had led to a historic decline in growth of at least 6% in 2020 (Gilles & Guo & Ke, 2021) Similar to India, China also faces a stagnant economy, rising unemployment, as well as problems with an energy crisis However, China - which had the first outbreak - was able to contain the virus much more efficiently as well as having a faster economy recovering than most other countries including India

The main cause of this difference comes from the political and social factors of the two countries China and India responded to the pandemic with an iron fist, using draconian public health measures (Oommen, 2021) In China’s case, a population conditioned over the decades to meekly submit to an authoritarian state’s diktats helped tremendously A highly centralized political system made sure that China could reallocate resources, including human resources, quickly from regions that were less affected Besides, China residents are more united and they have a strong belief in the government In India, on the other hand, combined with significant healthcare infrastructure restrictions, a fundamental lack of faith in the State's ability to offer support systems for the populace hampered the efficiency with which it implemented its

COVID-19 response The contrast between India's chaos and authoritarian precision cannot be more pronounced than in the field of mobility control Even as the number of incidents grew, authorities

at the national, state, and municipal levels in India were reluctant or unable to supervise large-scale political or religious rallies (Oommen, 2021)

3 The revolutions of the Indian Economy and the government’s actions after the Coronavirus second wave

3.1 The policies of the Indian government to recover the domestic economy

3.1.1 Fiscal policy and monetary policy

• Fiscal policy: India announced its fiscal measures in two tranches with the first tranche promising USD 23 billion for households and businesses and a second more enhanced tranche

of measures targeting businesses (about 2.7% of GDP) and expanding support for poor households (about 1.5% of GDP) (Malik, n.d.)14

• Monetary policy: The Monetary Policy Committee of the Reserve Bank of India delivered a 115-basis points reduction in the policy repo rate and announced an accommodative stance of monetary policy15

3.1.2 Healthcare and vaccination policy

• Vaccination: India has developed Covaxin indigenously and along with Covishield of AstraZeneca has been made available for the Indian people On 20th April 2021, availability

of the COVID vaccines in the open market and permission has been given for vaccination of all above 18 years of age from 1st May 2021 (Joshi & Mehendale, 2021)

• Increasing care and treatment capacity to minimize complications and mortality: Building or creating adequate facilities in terms of hospital beds, oxygen supply, medicines, ventilators, and other critical care facilities in each district to provide proper medical care to moderate and severe cases is critical (Joshi & Mehendale, 2021)

3.1.3 Self-reliant India campaign

In May 2020, the Indian Prime Minister launched the Self-Reliant India campaign to help the country overcome the challenges from the COVID-19 pandemic On 12 May 2020, the Prime Minister raised a clarion call to the nation giving a kick start to the Self-reliant India campaign, and announced the Special economic and comprehensive package

India has exported two made-in India Covid-19 vaccines to a number of countries “During the moment of crisis, India is able to serve the world today, since is capable, self-reliant in the field

of medicines, vaccines,” he said

3.1.4 The world units’ policies to fight Covid-19:

UNICEF actions to deal with the break-out of the universal pandemic in India: “UNICEF and partners are doing everything they can to keep Indian children and their families safe and healthy." (UNICEF, n.d.)16

UN support to help India fight rapid COVID-19 surge: “In India’s time of need, the UN is doing everything it can to rapidly provide critical equipment and supplies to central and state governments”17, said Resident Coordinator Renata Lok Dessallien

Nations around the world offer aid to India: “As India battles the second wave of the

COVID-19 pandemic, help, support, and solidarity has poured in for the nation from all corners of the world” Here are some nations supporting India during the second wave:

• The United Kingdom: sent 495 oxygen concentrators, 120 non-invasive ventilators, and 20 manual ventilators to India; 100 ventilators and 95 oxygen concentrators

• The United States: Providing the supplies of therapeutics, rapid diagnostic test kits, ventilators, and Personal Protective Equipment (PPE), oxygen generation, and other related facilities on

an urgent basis (Nigam, 2021)

3.2 Indian economic recovery after the second wave:

3.2.1 Tell-tale Signs of economic recovery in India post-covid:

There are the top five factors that show that India is on the road to recovery18

• Economic Indicators show signs of recovery

The report shows that there has been an upswing in more than 85 percent of the high frequency economic indicators in India in 202119

Among the 19 HFIs, there are some indicators whose recovery is way beyond 100 percent, such as e-way bill by volume, merchandize exports/imports, coal production and rail freight traffic, which suggests that not only the recovery is complete, the economic growth is now gathering momentum over the pre-pandemic levels of output20

• More than 40 per cent rise in GST collection

With GST collection surpassing more than Rs 1.3 lakh crore in November, India recorded the second highest GST collection in this financial year The GST collection in November in this financial year is almost 25 per cent more than the amount collected in the same month last financial year21

• Highest Private Equity Investments in 2021

With an investment of around 43 billion USD recorded in private equities, there has been a rise by nearly 20 percent between 2018 and 202122

• Growing Employment Opportunities

The study shows there is an enormous opportunity of employment under the Production Linked Incentive Scheme (PLI)23

• Rising Credit Scores

While there is a growing opportunity of employment, the credit score is also on the rise, mentions the report24 Banking credit sector is one of the sectors that is getting stronger with each passing year Banking credit has gone up by more than 65 per cent between 2017 and 2020

3.2.2 Indian economy’s future and role in the post-COVID-19 world:

According to the flagship United Nations World Economic Situation and Prospects (WESP)

2022 report, India's economic recovery is on a solid path, amid rapid vaccination progress, less stringent social restrictions and still supportive fiscal and monetary stances In detail, the report says25

The report said that the global economic recovery is facing significant headwinds amid new waves of COVID-19 infections, persistent labor market challenges, lingering supply-chain challenges and rising inflationary pressures

3.3 Indian government’s preparations for the third wave:

India should start preparing to fight a possible 'third wave' which may be caused by the emerging Omicron variant, a top health expert has warned, keeping in mind its high transmissibility, but possibly low fatality26

3.3.1 The preparations of the Indian government to beat Omicron boom:

Central and state governments have said that they are more prepared this time around to tackle the third wave in India The “third wave of the pandemic” - driven by the new variant of concern omicron - is projected to peak February 3, 2022

In the meantime, India’s medical oxygen capacity, essential for serious COVID-19 patients, has increased nearly 28 per cent between October 2020 and November 202127

The Union government has sanctioned 1,563 Pressure Swing Adsorption (PSA) oxygen generation plants28

ODAS and ODTS have been developed to meet the increasing demand for medical oxygen29

3.3.2 The government’s restrictions to minimize the spread of Omicron variants:

Some states in India which are largely affected by the global pandemic have enacted policies and bans to strictly control community transmission and ensure a safe distance for the alerted area30

3.3.3 The preparations of hospital in India:

The health care system for people, especially patients with covid 19 is greatly improved by the Indian government The government decided to invest a large amount of money to upgrade oxygen beds for patients to minimize the death rate due to covid 19 Children and the elderly are also subjects of great concern31

4 The recommendations for Indian economic development

4.1 Improving the healthcare system

India’s health system faces the continuing challenge of responding to the requirements of the foremost disadvantaged members of Indian society during COVID 19 pandemic Despite progress

in improving access to health care, inequalities by socioeconomic status, geography and gender still persist This is often compounded by high out-of-pocket expenditures, with the rising financial burden of health care falling overwhelming on private households, which account for over three-quarter of health spending in India Health expenditures are answerable for quite half Indian households falling into poverty; the impact of this has been increasing pushing around 39 million Indians into poverty annually

After the Covid-led unprecedented crisis, the Indian healthcare industry is undergoing a significant transformation The Covid epidemic has brought the shortcomings and flaws of India's healthcare system to light At the same time, the pandemic has also displayed the way for the digital intervention within the healthcare systems which are speculated to alter the healthcare landscape in 2022.The Covid-19 pandemic has reinforced the health sector's importance and also the have to strengthen efforts The oxygen-crisis led devastation which India witnessed during the second Covid surge has shown that the state must be better prepared for the health emergencies

In this paper, we examine the major issues that India's healthcare systems face Unbalanced resource allocation, restricted physical access to excellent health services, and insufficient human resources for health; excessive out-of-pocket health costs, health spending inflation, and behavioral variables that impact the demand for proper health care are just a few examples We argue for the use of particular principles in the quest of fairness in health care in India, given the sensitivity of the country's nascent health-care system Adoption of equity metrics in monitoring, evaluation, and strategic planning, investment in developing a rigorous knowledge base of health systems research, development of more equity-focused deliberative decision-making processes in health reform, and redefinition of specific responsibilities and accountabilities of key actors are among them These principles, together with the improvement of public health and primary care facilities, constitute a strategy for guaranteeing more equitable health care for India's people The government must get international funding for the healthcare system India also boasts a thriving pharmaceutical and biotechnology sector, as well as world-class scientists and a booming clinical trials business It also has world-class hospitals that attract overseas patients and treat the country's wealthier people The country's fast increasing health system remains a source of worry

as the Indian government attempts to offer universal health care for all There are discrepancies in health and health-care systems between poorer and wealthier states, as well as underfunded and sometimes inefficiently operated and controlled health-care systems New government-funded health-care programs are expanding coverage, but coverage is still restricted

The government must train and equip suitable professionals with technical understanding, both in diagnosis and sickness management, to deal with the significant increase in cases The country's capacity to develop extraordinary health executives and professionals is being strained

by both public and private health systems As a result of rising to these difficulties, the people of India have the potential to have a significant impact on their own future health as well as the future

of global public health and medical initiatives

The initial wave completely destabilized India's healthcare system, and the expanding number

of cases constituted a major concern, resulting in a scarcity of hospital beds, oxygen, medication, and human resources Due to the obstacles posed by the pandemic, both waves of covid-19 have introduced significant adjustments and developments It sparked a severe slump across all industries, resulting in further reorganization that will eventually lead to a more robust and modern healthcare system Some of the trends that emerged during the pandemic included online medicine delivery, teleconsulting, medical gadgets, clinical intelligence and enablement, and so on For the Indian healthcare system, technology has produced a leapfrog moment As a result of the rigorous lockdown and confusion generated by the epidemic, digital integration in the healthcare profession became the final resort for smoothing out activities Patients became more comfortable with computer-assisted remote diagnosis and treatment, and governments began to expand and digitize their traditional healthcare systems

4.2 Raise Indian public awareness about the disease

The growing pandemic of COVID-19 disease requires social distancing and personal hygiene measures to protect public health as recommended by WHO Personal hygiene (respiratory hygiene, using face masks, washing hands with warm water and soap, use of alcohol-based hand sanitizers, avoiding touching mouth, eyes & nose, cleanliness), social distancing and careful handling of purchased products are all effective preventive measures that people can take to prevent themselves from being infected

In order to raise the population’s conscientiousness and encourage them to take measures mentioned above, there is a clear need for training programmes with respect to locale-specific scenarios targeted to a specific cluster of population emplaning upon their respective lifestyle, to improve the knowledge and compliance about risk and preventions It is recommended that a structured and well-planned educational program should be undertaken to enhance the awareness level and contribute to better practice In addition, the role of media, physician, government and non-governmental organizations and religious groups is extremely important in creating awareness about the various aspects of spread, prevention, treatment of the disease by means of interesting programmes, poems, songs, cartoons, talks, among others, to facilitate confidence of people to let them protect themselves, follow their economic activities and care COVID-19 patients

Creating awareness by innovative ways should be adopted as one of the best practices to combat the spread of pandemic Presentations on TV, social media in local people’s friendly language, online and live competitions with continuous guidelines are required There is a need to