As a strategy, extended public restrictions are not optimal to fight Covid-19 because they create a ‘see-saw’ between recoveries in health and economic activity.
Rapidly scaling up vaccination, on the other hand, presents a one-shot – or two-jab – solution that can deliver both, health and economic rebound, simultaneously and faster.
But the pace of vaccinations in India is too sluggish.
During India’s first Covid-19 wave, restrictions were relaxed relatively faster as daily cases declined, allowing faster mending. But this time around, governments remain wary. To be sure, caseloads remain well above the first wave’s peak, even if they are declining.
In the past few days, Maharashtra, Odisha, Telangana, Andhra Pradesh, Delhi, Kerala, Tamil Nadu, West Bengal, Bihar, Rajasthan, Punjab and Haryana, which were expected to unlock their economies, extended curbs – with conditional relaxations. These are not expected to be completely lifted anytime soon, given the herd-immunity challenge.
Worryingly, the vaccination rate in India has only slowed in the past 2-3 weeks, from 1,666 per million in the last week of April to 1,463 per million in the last week of May, mainly due to lack of supplies. That means, just 3.5% of the total population is fully vaccinated and ~13% has received at least one jab.
In the US and the UK, 35-40% of the population is inoculated and more than 50% has received at least one jab. As per an International Monetary Fund report*, China is on track to fully vaccinate its adult population by end-2021 given its substantial production capacity.
Countries with higher vaccination coverage, i.e., close to 40% of the population inoculated, are seeing a faster catch-up in economic activity. This is only logical, given that higher coverage reduces the risks associated with relaxing restrictions and social distancing. It plays a huge role in assuaging fear (of getting infected) and allows for resumption of economic activity, as has been the case in the US and UK.
This is clearly reflected in the relevant purchasing managers’ indices (PMIs), which are not only steadily rising and significantly above the ‘expansion’ mark, but are also much above their long-term PMI averages. Whereas for those with vaccination coverage less than 20%, economic activity is either sluggish, or a pick-up, if any, seems fragile.
Two, rapid vaccination is helping laggard sectors – mainly services – catch up faster. This is something that even policy support alone could not do till now. For instance, in the US, households are reorienting their consumption toward services, thanks to the improving healthcare situation effectively supported by rapid vaccination that has helped reduce restrictions.
Most forecasters believe a sizeable pick-up in services demand will be a lead driver of consumer spending in the second half of 2021.
China’s story is somewhat different. Its recovery and restoration of business confidence owes its strength not only to the recent pick-up in vaccination, but also to macroeconomic stimulus and early containment of the virus.
Back to India, where economic recovery has been slow, shaky and lopsided – the government targets to fully vaccinate the adult population by end-2021. That translates to covering half of the population – a tall order indeed, give the challenges.
One, our population is huge. And two, vaccine supplies are short.
The supply issue is expected to be sorted by August, as higher domestic production and imports start to kick-in.
But, once vaccine supplies and government procurement start increasing, the next big hurdle is deploying them.
At that stage, as a study by Formal et al** suggests, some of the primary challenges that could arise include: (a) safe and secure transportation and delivery of vaccines; (b) fair vaccination allocation to priority groups; and (c) encouraging uptake of vaccines.
While the vaccination drive so far India has fairly managed the first two, it is the third that the government will have to focus on, to cover maximum ground in minimum time.
In that, vaccine hesitancy could pose a barrier. Resistance to vaccines could rise as caseloads dip. Or, there could be delays in acceptance of newer vaccines that enter the market, as the above cited study suggests.
To tackle this, the government will have to engage in clear communication to create awareness about vaccine safety, side-effects and trust, and perhaps, also provide incentives. In the US, as resistance to vaccines rose, local governments announced a number of incentives including lotteries, college scholarships (for those in the 12-18 age group), savings bonds, and cash payouts to encourage people to get inoculated.
In all, vaccination is our only safe bet. But until then, policy support will have to be deployed for segments that have been hurt the most or that suffered a second blow.
Besides ramping up healthcare infrastructure spending, it is crucial to extend income and employment support to smaller firms, the rural economy, services sector and the urban poor – the four segments most likely affected by re-imposition and extension of restrictions on economic activity. Rising medical expenses alongside dwindling incomes would have also added to the pain.
If we are indeed on the road to the December vaccination target, recovery should start in the third quarter once there is better clarity and progress on vaccinations, and strengthen into the fourth quarter of this fiscal and the first quarter of the next.
Dipti Deshpande Principal Economist at CRISIL. Views are personal.
* R Agarwal and G Gopinath, (May 2021). A Proposal to End the COVID-19 Pandemic. IMF Staff Discussion Note. SDN/2021/004
** R Forman, S Shah, P Jeurissen, M Jit and E Mossialos (2021). COVID-19 vaccine challenges: What have we learned so far and what remains to be done? Published by Elsevier B.V.