Will India go from a high-risk to risk-averse strategy in opening up its economy?

One of the biggest reasons for the large-scale panic during the first wave of the Covid-19 was that there was very little knowledge about the disease. Nobody knew whether or when vaccines would be available. There was little clarity on how long the lockdowns would last and whether there would be more than one wave of the pandemic?

There is now greater clarity on these. Vaccines are available but not in required quantities in India. Ensuring the latter could take some time. India’s exuberance – both the state and the private sector are guilty on this count, but the former has greater culpability – in believing that it will not face a second wave of the infections has been proven entirely misplaced. The Nomura India Business Resumption Index (NIBRI), a measure of business activity compared to a pre-pandemic base, fell to 60 in the week ending May 23, just three percentage points higher than what it was in the week ending May 24, 2020. It reached 99.3 at the end of February.

This experience is likely to play a crucial role in shaping expectations about the probability of a third wave of infections and associated restrictions on economic activity. Sajjid Chinoy, chief India economist at JP Morgan, has underlined this fact in an essay published in the Business Standard, arguing that “the suddenness and sheer viciousness of the second wave could inflict behavioural scars for the coming months till a critical mass of vaccinations is reached”. These scars, Chinoy argues, could manifest themselves in policymakers becoming more conservative on restrictions, income uncertainty and precautionary savings increasing for households and private investment taking time to recover, notwithstanding the significant easing of monetary conditions.