Covid-19: What govt’s partial lifting of restrictions may mean for economy

The much-expected guidelines for the partial lifting of limited economic activity announced by the government are pragmatic and would be in force post April 20. It is good that the government has opened the doors towards working on an exit route and has included the most essential activity, agriculture to operate freely. With the Rabi harvest to reach its peak this month, allowing the free flow of labour and transport to enable sale of produce is a big step that has been taken.

While agriculture can be justified, allowing other activity like construction in rural areas or IT related activity along with certain conditions being imposed can be interpreted as an experiment to see how it plays out. The spread of the virus is still quite prodigious in our country and one can still not be sure if the number of new cases has peaked out or whether it is going to be higher. This being the case, any relaxation has to be calibrated, which is the approach taken. Given the data on the spread of the pandemic it does appear that the higher cases have emanated in states and districts where there have been more testing which can also mean that regions with nil cases could be because of the absence of testing. Therefore, it needs to be seen how this works out.

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But the message for India Inc is clear. Companies need to be prepared for the lockdown to end and should have their internal strategies in place. The services such as aviation, hotels, malls, etc. would have to wait for a much longer time as they involve direct interaction of people which will be the last set of activities to be relaxed. All these come under public spaces which will be the lowest priority in any phased withdrawal plan of the government. The others need to plan on how to go about their business as the new normal comes in maybe after a gap of three months. The pressing issues will be to plan their production levels which will determine the requirement of labour. This will necessarily mean that those industries which are B2B would have to evaluate how other businesses are placed to come up with their strategies. Next, the challenge is to re-assemble the workforce especially if it includes causal labour which had moved back to their home towns. This will have issues relating to restoration of transport especially buses and trains as it would be difficult otherwise for any reverse migration to take place.

At the macro level, this may not amount to significant increase in production as the present space provided is restricted more to non-urban areas which have not been infected. This should be seen more as a case of easing of supply chains which was a major impediment in the first phase of the lockdown. Farmers will be better off for sure though would still face challenges at state border levels as regional rules vary across territories. While SEZs have been afforded some more freedom, given that other countries, which are our trading partners, have their set of embargoes on flow of goods, there may not be much advantage for the concerned units. The positive however is that by allowing free movement of all goods irrespective of them being essential or not, a major stumbling block has been removed which should hopefully ensure that supplies of raw materials in particular are smooth.

On the whole a calibrated approach is the best option, and the government has quite rightly started it off with a few baby steps which will serve more as an experiment before opening up in a bigger way. The present relaxation actually loosens some strings while still keeping the reins tightly clasped.

(Madan Sabnavis is chief economist at CARE Ratings. Views are personal)