VICTORY OVER COVID-19 TOUGH

BEYOND PUBLIC HEALTH, the second order effects of the Covid-19 spread are now visible: Joblessness is rising, migrants are returning home, and macroeconomic fundamentals are deteriorating. But what stands out is how a weak economy limits the response.

We see some evidence that early focus on testing and contact tracing helped New Zealand and Australia arrest the spread of the virus, though low population density might have also helped. On the other hand, Brazil and Mexico show high prevalence of deaths and low testing, a sign of risk (chart 1). Testing has been weak in India as well.

But there seems to be a link between the level of testing and per capita income of a country: Low income countries across the world have seen limited testing (chart 2). Incomes are further expected to fall due to the decline in economic activity.

As a result, the International Monetary Fund’s “optimistic” projections show a sharp drop in growth, though it still believes that India and China will post positive growth (chart 3). However, India’s fiscal response in the form of a stimulus, till now at 0.8 per cent of GDP, has been one of the lowest among countries for which data is available (chart 4).

By announcing that it will borrow ~12 trillion (gross) this year from the market, over 50 per cent more than the original target, the Union government seems to be preparing for some kind of support (chart 5). Revenue losses, however, would hamper its effectiveness, as they might take up a large part of the borrowing. ABHISHEK WAGHMARE