New DelhiA study by economists from the Reserve Bank of India (RBI) suggests that COVID-related restrictions have hurt the economic activity of states with a high share of industry and services much more than those relying more on agriculture and mining .
In a paper titled ‘Impact of Covid-19 on Economic Activity Across Indian States’ published last Friday in RBI’s monthly bulletin, authors Sudhanshu Goel, Akash Kovuri and Ramesh Golet, from the bank’s Department of Economic and Policy Research, made the case. Policies that restrict mobility – in this case lockdowns – do not disrupt agricultural activity as much as they do in the industrial and service sectors.
The study’s findings about the pandemic’s “differential impact” on 18 states in the two years following the pandemic helped states formulate and deploy their policies, depending on their respective economic structure, in times of crisis, when mobility is affected. highlighted the importance of.
In short, the authors indicated that one-size-fits-all policies may be detrimental to economic health.
“During a crisis such as this, well-informed and coordinated policy decisions at the national and state levels will result in minimal damage to overall economic activity,” the authors wrote. He said that the recovery will also be faster.
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How was ‘economic activity’ measured?
To measure the “miscellaneous economic trajectory” of states, the authors used an index covering various indicators of economic activity, including goods and services tax (GST), electricity generation, employment rates, exports, demand for work under Mahatma Gandhi. build out. Deposits in accounts under National Rural Employment Guarantee Act (MGNREGA), and PM Jan Dhan Yojana.
The authors used a two-year time period to study these variables – from March 2020 to February 2022 – for 18 states whose data was fully available and which account for about 93 percent of India’s GDP.
According to the authors, a positive value of this index is in the case of above-average economic activity, and vice versa in the case of a negative index value.
The Economic Activity Index showed that the first and most severe lockdown, introduced in April-May 2020, was the toughest time for India’s economic activity.
The average Economic Activity Index score for 18 states in April 2020 was -2.1, and remained negative till December that year.
When the second wave hit the country in May 2021, the average of 18 states was positive – almost – at 0.005. However, during this period, most of the states were negative except Bihar, Jharkhand, Chhattisgarh, Maharashtra, Gujarat and Odisha.
By the time the Omicron edition came out in January–February 2022, the economic activity index remained positive for all states, meaning they were able to counter the impact, albeit with varying degrees of success.
The average score was 0.8 in February this year with Karnataka (1.49), Bihar (1.29), Odisha (1.28), Rajasthan (1.16), Uttar Pradesh (1.09), Jharkhand (0.9), Haryana (0.89) and Gujarat (0.83). ) scoring above the national average. The lowest-scoring states in the index at this time were Assam (0.26), Kerala (0.34) and Tamil Nadu (0.43).
What this data shows is that prolonged restrictions hit the economic activity of some states more than others. Similarly, while some made a rapid comeback despite continued restrictions, others took longer to find their footing.
Why did COVID affect the states differently?
To understand why COVID-19 restrictions affected states differently, the authors tried to relate “mobility” to the type of economic activity.
For this he calculated two things.
One of them was Mobility Quantity, which used data from Google’s Community Mobility Report that charted movement trends Using different categories of places, such as stores, parks, workplaces, etc., in different locations over time. The second was the contribution of various sectors to the earned income of the state.
The analysis showed that the relationship between mobility and agricultural activities was weak. This implies that a mobility restriction policy was less likely to affect agricultural activities. The newspaper said that within agriculture, the impact was lowest for those involved in forestry and logging.
According to the report, industrialized states showed a high correlation with mobility, meaning that higher restrictions tend to reduce economic activity. However, it is most applicable to states that had a higher share of manufacturing activities.
According to the paper, the share of mining and quarrying displayed less correlation with mobility, and therefore a restrictive policy was less likely to affect this group of industries.
In the case of the services sector, the data showed that mobility restrictions had the greatest impact on states with “higher reliance on contact-intensive services”, such as trade, hotels and transportation.
According to the authors, the analysis could be used the next time India resorts to emergency measures that include mobility restrictions.
“Such a nuanced analysis at the sub-regional level and economic structure emphasizes the need and importance of a different policy response by states based on their respective economic frameworks, complemented by national policy interventions,” the authors wrote. This, he said, would allow the “wheel of economic growth” to “recover faster after major economic disruptions”.
This analysis represents the personal views of the economists and should not be taken as an official statement of RBI.
(Edited by Aswari Singh)