Impact of COVID-19 on India: alternative scenarios for economic and social development

Abstract

The COVID-19 pandemic has led to major learning about the social and economic losses that an external shock to the system can cause. In this paper, we examine some sustainability issues focusing on three key focal points of sustainable development – economic growth, poverty and inequality in the context of climate change. We focus on the inter-relationship between economic growth, investment, labour force participation, energy consumption, poverty and inequality under alternative scenarios using the global framing of Shared Socio-Economic Pathways (SSPs). An econometric model is used for estimating the relationship between GDP and its determinants along with fitting a General Quadratic and/or Beta Lorenz curve using the World Bank’s Povcal software for determining the relationship between income, poverty and inequality. Alternative GDP growth paths, redistribution assumptions and poverty lines are used for simulations which reveal the extent of sensitivity of the developmental targets to scenarios up to 2030.

Keywords:

• COVID-19
• economic growth and recovery
• poverty
• inequality
• Shared Socioeconomic Pathways
• development

JEL CODES:

• I32
• Q54
• Q56

Acknowledgement and disclaimer

The authors are grateful to Kavi Kumar, Ganesh Kumar, B N Goldar and Kanchan Chopra for comments on a part of the framework which was developed earlier. They are grateful to the two anonymous reviewers of the journal for their comments. The views expressed in the paper are those of the authors and do not reflect those of the institutions to which they belong.

Disclosure statement

There is no conflict of interest on the part of any author in this manuscript.

Authors’ contribution

All the authors have contributed to methodology, data curation, analysis, writing – original and review. In addition, Purnamita Dasgupta and Manoj Panda have contributed through resource mobilization and conceptualisation of the study.

Notes

1 Even before attaining low middle-income status, Sri Lanka and state of Kerala are two well-known examples of high social development comparable to high income countries.

2 Ahluwalia (1978), Panagariya and Mukim (2014), Datta, Ravallion and Murgai (2016), NITI Aayog (2016) provide, among several others, long term analysis of poverty in India.

3 Some of the ideas for the model conceptualisation are built upon an earlier work by the authors at the Institute of Economic Growth (IEG 2020) related to the impact of climate change. However, this paper is an independent empirical exercise that explores COVID-19 impacts for the economy.

4 The IMF and the World Bank project India’s growth to be 8.8% and 5.4%, respectively in 2021. In order to provide for a fairly good range for the uncertainty, the RS1 is somewhat higher than what several optimists expect, while RS2 is somewhat lower than what several pessimists apprehend.

5 See, Planning Commission (2009 and 2014).

6 Since sample survey data generally do not adequately capture estimates for the bottom end of the distribution, the goal of ending extreme poverty by 2030 has been interpreted by some organisations such as the World Bank as reducing poverty incidence to a low rate of 3%.

7 Chen and Ravallion (2010) check sensitivity of trend to specification of poverty line and find that the trends do not change up to a fairly high level close to the poverty line used in the US.

8 A variant of this model had been developed by the authors and applied in other contexts (see for instance, IEG 2020)

9 A consumption expenditure survey was conducted in 2017–18, but its report has not been released.

10 Deaton and Kozel (2005) and Newhouse and Vyas (2018) note that only a fraction of growth in national accounts trickle down to households.

11 Household surveys do not capture consumption of upper income groups adequately for several reasons, but what matters for poverty estimation is whether consumption levels of lower income groups are captured adequately.

Additional information

Notes on contributors

Purnamita Dasgupta

Purnamita Dasgupta, Chair Professor in Environmental & Resource Economics at the Institute of Economic Growth, Delhi (on leave), is currently Theme Leader, Ecosystem Services, ICIMOD. She has been visiting professor at University of Cambridge, UK and Johns Hopkins University, USA. Her teaching and research focuses on the relationship between environment and economic development. Her research includes contributions to IPCC, IPSP, modelling for India’s NDCs and NATCOM processes, drafting regulation on e-waste, and the Supreme Court committee on NPV for Forests among others. She has published widely in international journals such as Climatic Change, PLOS One, Environment and Development Economics, Environmental Development, Environmental Health Perspectives.

Manoj Panda

Manoj Panda has been the RBI Chair Professor at the Institute of Economic Growth. He was Director of the Institute of Economic Growth (IEG, 2012–2019) and of the Centre for Economic and Social Studies (CESS, Hyderabad 2008–2012). He has served in various academic positions at the IGIDR, Mumbai and NCAER, New Delhi. He has also spent a year at the Yale University, USA on a post-doctoral fellowship. He holds a Ph.D. in Economics from the Indian Statistical Institute. His research areas span macroeconomics, computable general equilibrium models, and interaction of growth with inequality, poverty and carbon emission. He has published in reputed international and national journals and is widely acclaimed for his contributions to policy research in India.

Rohan Bansal

Rohan Bansal is a Manager (Research Officer) in the Monetary Policy Department at the Reserve Bank of India. I hold a master’s degree in Economics from the Delhi School of Economics (DSE). My main research interests include the effect of monetary policy on economic activity, macroeconomic forecasting, especially pertaining to forecasting inflation over the medium to long run, the efficacy of Flexible Inflation Targeting in developed and emerging economies and building and modelling a stress testing framework for the banking system. My most recent publications include “The Report on Currency and Finance – 2021” published by RBI where I had written parts of ‘chapter 5: open Economy Flexible Inflation Targeting’ and did empirical estimation on the effectiveness of sterilisation (through OMOs and other instruments) during the Flexible Inflation Targeting regime in India. I am also working on the convergence of Goods and Services Inflation in India and the reasons thereof using a Vector Error Correction Model.

Samraj Sahay

Samraj Sahay is an Independent Researcher based in New Delhi, India and works in the field of Environment and Economic policy research. He is a PhD in Environmental Economics with specialization in Economics of Climate Change Adaptation and its health effect from University of Delhi, India. He has worked on several research projects at University of Delhi, mainly related to economics of adaptation, mitigation, socio-economic modeling (shared socio-economic pathways – SSPs) for climate scenarios, greenhouse gases emission (monitoring and inventorization), adaptation to floods and waste management. He has served as an expert reviewer for the second order draft (SOD) and first order draft (FOD) of the Working Group II (WGII) Contribution to the IPCC Sixth Assessment Report (AR6) and is also serving as reviewer for reputed international journals. He has published research papers in reputed international journals and presented research papers in national and international conferences. His work mainly involves empirical research and is passionate about application of econometric models in his research. His research interest includes climate change adaptation, health effects, nature-based solutions, mitigation, socio-economic modeling for future climate scenarios; renewable energy; greenhouse gases; waste management and econometric modeling.