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COVID-19 in India: Impacts on Production, Poverty & Food Systems

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Barun Deb, Angga Pradesha and James Thurlow
International Food Policy Research Institute
Last updated: October 9, 2020

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COVID-19 in India: Impacts on Production, Poverty & Food Systems

  1. 1. COVID-19 in India Impacts on Production, Poverty & Food Systems Financial support from Disclaimer: The analysis presented in this slide deck are the IFPRI team’s own and does not necessarily reflect the views of IFPRI Barun Deb, Angga Pradesha and James Thurlow International Food Policy Research Institute Last updated: October 9, 2020 Contact: Angga Pradesha (a.pradesha@cigar.org) or Barun Deb (B.DebPal@cgiar.org)
  2. 2. Updated: August 25, 2020 Preview of Results1
  3. 3. Updated: August 25, 2020 Lockdown Imposes Heavy Economic Costs • India’s GDP is estimated to have fallen by 30% during the country’s 9-week lockdown (compared to a no-COVID scenario) • Food system is adversely affected by falling consumer & export demand (agri-food GDP falls by 5%, despite exemptions to the agriculture sector) • National poverty rate increases by 22%-points during the lockdown (295 million more people temporarily living below the national poverty line) Source: India SAM Multiplier Results Economic impacts during 9-week lockdown period (changes are relative to a no-COVID scenario) 30.3 5.0 21.9 135.1 295.5 Percentage decline in national GDP Percentage decline in agri-food system GDP Percentage point increase in national poverty rate Decline in national GDP in US$ billions Increase in number of poor people in millions
  4. 4. Updated: August 25, 2020 Costs Likely to Persist Throughout 2020 • Economy is gradually reopening & many restrictions are easing • But economic losses remain, even with a faster easing (GDP may be 9-13% lower in 2020 compared to a no-COVID scenario) • Average GDP & poverty rates for 2020 hide sharp mid-year deteriorations (many people & businesses may require government support to cope & recover) Change in quarterly GDP Change in national poverty rate (National poverty line) Quarterly national impacts under faster or slower recovery scenarios (changes are relative to a no-COVID scenario) Source: India SAM Multiplier Results -2% -26% -6% -1%-2% -30% -16% -5% Q1 Q2 Q3 Q4 Faster recovery Slower recovery 1% 19% 4% 1%1% 21% 10% 3% Q1 Q2 Q3 Q4
  5. 5. Updated: August 25, 2020 COVID-19 Outbreak & Lockdown Policies in India2
  6. 6. Updated: August 25, 2020 COVID-19 Cases & Policy Timeline Data link First coronavirus cases identified in the country The Prime Minister ordered a nationwide lockdown restriction for 21 days The government finally decided to lift the lockdown policy but still banned any large gatherings The lockdown policy was further extended by the government until May 3 The Ministry of Home Affairs and the Government of India further extended the lockdown policy The Prime Minister declared a COVID relief package of INR 20 Trillion ($US 273 billion)All domestic and international travel was automatically suspended Night curfews policy was removed. Gym and Yoga facilities allowed to open but, schools still closed 0 20,000 40,000 60,000 80,000 100,000 120,000 25-Jan 30-Jan 4-Feb 9-Feb 14-Feb 19-Feb 24-Feb 29-Feb 5-Mar 10-Mar 15-Mar 20-Mar 25-Mar 30-Mar 4-Apr 9-Apr 14-Apr 19-Apr 24-Apr 29-Apr 4-May 9-May 14-May 19-May 24-May 29-May 3-Jun 8-Jun 13-Jun 18-Jun 23-Jun 28-Jun 3-Jul 8-Jul 13-Jul 18-Jul 23-Jul 28-Jul 2-Aug 7-Aug 12-Aug 17-Aug 22-Aug 27-Aug 1-Sep 6-Sep 11-Sep 16-Sep 21-Sep 26-Sep 1-Oct 6-Oct Confirmednewcases Confirmed daily new cases
  7. 7. Updated: August 25, 2020 Sectors Affected by Lockdown Policies (1) Sector Lockdown restrictions or exemptions in targeted regions Directly Affected? Agriculture • Farming activities exempted (essential sector) • Movement restrictions occurred just after planting for winter crops • Limited extension visits to farms, suspended development projects Minimal Mining & crude oil • Extraction operations shut down Minimal Manufacturing • Food processing & medicines exempted (essential sectors) • Movement restrictions affected many operations • Nonfood producing companies closed High Utilities • Electricity & water distribution exempted (essential sector) Minimal Construction • Construction projects/sites closed, including most public works High Wholesale & retail trade services • Retailers of essential goods exempted, with limited trading times • Social distancing restrictions affected market activity High Transportation, storage & cargo • Air travel closed; cargo/freight transport exempted (essential sector) • Inter-district passenger transit closed • Urban passenger transit reduced High Hotels & food services • Hotels, restaurant, cafés, bars closed apart from take-away foods • Limited delivery options for food or other products High
  8. 8. Updated: August 25, 2020 Sectors Affected by Lockdown Policies (2) Sector Lockdown restrictions or exemptions in targeted regions Directly Affected? Banking, finance & insurance • Banks operating through digital platforms • Other financial institutions closed or teleworking (e.g., insurance) Minimal Professional & business services • Almost all closed or teleworking (e.g., legal, accounting services) • Activities involving in-person field visits affected (e.g., engineering) Minimal Public admin & law enforcement • Public services & agencies remain open, but most staff teleworking • Police & security services exempted (essential) Minimal Education services • All public schools closed without much scope for online delivery • All private schools closed with some online materials Some Health services • Health services exempted (essential) • Elective operations reduced but rising number of COVID patients Minimal Sports & entertainment • Sports & outdoor entertainment banned • Some activities operating (e.g., newspapers, radio & TV) High Other services • In-person religious gatherings banned • Informal repair firms limited due to movement restrictions High
  9. 9. Updated: August 25, 2020 Global & Other Nationwide Shocks Sector Lockdown restrictions or exemptions in targeted regions Directly Affected? Export demand • Reduced international tourism & business travel • Lower export demand for mineral exports • Lower export demand for agricultural, other products High Remittances • Decline in value of remittances sent by nationals working abroad Some Government revenues Nationwide • Fall in tax revenues due to decline in economic activity Some See detailed sector-level assumptions about production & demand shocks in Annex at the end of slide deck
  10. 10. Updated: August 25, 2020 Measuring Economic Impacts3
  11. 11. Updated: August 25, 2020 Economywide Multiplier Analysis • Lockdown policies & shocks have direct impacts on the operation of certain sectors e.g., closing businesses, restricting travel, etc. • But they also generate indirect impacts on other sectors involved in supply chains i.e., input suppliers & downstream users • Multiplier analysis uses sector input-output data to measure direct & indirect impacts throughout & across supply chains Includes impacts on GDP, jobs & household incomes • India model based on 2017/2018 social accounting matrix (SAM) & Household Consumption Survey 2011-12 (68th round) (results scaled to 2019 GDP & employment levels)
  12. 12. Updated: August 25, 2020 Economywide Impacts GDP | jobs Incomes | poverty Direct impacts Framework for Analyzing COVID-19 GlobalImpact Channels (Due to partial or full lockdowns in other countries) Indirect impacts DomesticImpact Channels (Due to partial or full lockdowns in own country) • Export demand • Remittances & migration • Foreign direct investments • Agriculture • Mining & crude oil • Manufacturing • Utilities (energy, water) • Construction • Whole & retail trade services • Transportation, storage & cargo • Hotels & food services • Banking, finance & insurance • Professional & business services • Public administration & law enforcement • Education services • Health & social services • Sports & entertainment • Community & other services
  13. 13. Updated: August 25, 2020 Impact Channels & Shocks • Lockdowns are simulated using a range of impact channels • Shocks to each channel are imposed on the model & impacts are simultaneously traced across all supply chains • Multiplier model separates entire India economy into 86 sectors (Shocks imposed on final demand that leads to the fall in production) • Shocks estimated using: • Community mobility data from Google • Press Note on Estimates of GDP for Q1, 2020-2021 from Ministry of Statistics, Government of India Impact channels used to replicate lockdowns 1 Restrictions on farming 2 Closing mining operations 3 Closing non-essential manufacturing operations 4 Restrictions on energy and water supply 5 Restrictions on construction activities 6 Closing non-essential wholesale/retail trade 7 Transport/travel restrictions 8 Closing hotels, bars and restaurants 9 Closing non-essential business services 10 Government work-from-home orders 11 Closing all schools in the country 12 Restrictions on hospitals and clinics 13 Banning sports & other entertainment 14 Domestic workers & other services 15 Reduced export demand 16 Falling foreign remittances 17 Falling government revenues × × × × × × No direct losses via these channels in India (e.g., exempted or no information)
  14. 14. Updated: August 25, 2020 Key Assumptions • Lockdown period • Government introduced national holiday for 9 consecutive weeks (25 March to 31 May) • 1-week lockdown period imposed in Q1 (January-March) while the remaining 8-week imposed in Q2 (April-June)* • Assumptions • All shocks are imposed nationwide given the broad scope of the government’s lockdown directive • Shocks are weighted by importance of Q2-2020 for sectoral GDP * January-March is the fourth quarters of the government’s fiscal year (April-March) 0% 5% 10% 15% 20% 25% 30% 35% Total GDP Crude oil Crops Food processing Hotels & food services Q1 Q2 Q3 Q4
  15. 15. Updated: August 25, 2020 Scenarios • Impacts during 9-week lockdown period (26 March to 30 May) • Impacts throughout 2020 by quarter • Compare a faster vs. slower easing of restrictions 1 3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Q1 Q2 Q3 Q4 Full lockdown period Easing of restrictions in Q3 Final easing by end of Q4 (possibly incomplete recovery) Easing restrict- ions during rest of Q2 2 1 32
  16. 16. Updated: August 25, 2020 Economic Impacts During the Lockdown Period4
  17. 17. Updated: August 25, 2020 GDP Losses During Lockdown National GDP drops 30% during the 9-week lockdown (most economic losses occur in the industry & services sectors) Assumes restrictions are not expanded or reintroduced Change in total GDP during lockdown period (%) Change in total GDP during lockdown period (US$ bil.) Source: India SAM Multiplier Results -30.3% -0.7% -42.0% -31.4% Total Agriculture Industry Services -$135.1 -$0.4 -$54.2 -$80.5 Total Agriculture Industry Services
  18. 18. Updated: August 25, 2020 Sources of GDP Losses Falling in construction activities & restrictions on non-essential manufacturing activities account for half of national GDP losses Contribution of lockdown restrictions & shocks to loss in total GDP during lockdown (sums to 100%) Source: India SAM Multiplier Results Large knock-on effects on manufacturing sectors, such as textile industries Closing schools has modest negative GDP impacts Remittances is important for household incomes & consumption spending, which indirectly affects GDP 29.5% 20.6% 20.5% 15.5% 14.3% 3.1% 2.3% 2.1% 2.1% 0.9% Limiting construction activities Reduced export demand Closing non-essential manufacturing operations Closing non-essential wholesale/retail trade Transport/travel restrictions Domestic workers & other services Banning sports & other entertainment Closing all schools in the country Closing hotels, bars and restaurants Falling foreign remittances Limited labor supply during lock down largely affected construction activities Fall in export due to disruption in global market demand Restriction on people movement reduced transport/travel services
  19. 19. Updated: August 25, 2020 -5.0% 0.7% -6.1% -11.9% -33.6% Agri-food system Agriculture Agro-processing Food trade and transport Food services Impacts on the Agri-Food System The largest impact from lock-down policy mainly hit food services, while food supply is exempt from most restrictions (food services are directly affected by the closing of hotels, restaurants & bars) Source: India SAM Multiplier Results Share of total GDP in 2019 (%) (26.8%) (17.2%) (1.8%) (6.8%) (1.0%) Change in agri-food GDP during lockdown period (%) Change in agri-food GDP during the 9-week lockdown period (US$ bil.) -$5.1 $0.4 -$0.5 -$3.5 -$1.5 Agri-food system Agriculture Agro-processing Food trade and transport Food services
  20. 20. Updated: August 25, 2020 Sources of Agri-Food System GDP Losses Significant disruption on manufacturing and construction activities created significant spillover impact to the food system Contribution of lockdown restrictions & shocks to loss in agri-food GDP during lockdown (sums to 100%) Few agricultural exports directly affected, but falling nonagricultural exports reduces consumer incomes & food demand Source: India SAM Multiplier Results Falling remittances are also more important for the food system because households spend a large share of their incomes on food 26.6% 23.6% 15.8% 13.5% 8.3% 7.1% 2.1% 1.1% 0.9% 0.5% Closing non-essential manufacturing operations Limiting construction activities Reduced export demand Closing hotels, bars and restaurants Transport/travel restrictions Closing non-essential wholesale/retail trade Falling foreign remittances Domestic workers & other services Banning sports & other entertainment Closing all schools in the country Manufacturing and construction activities are worse affected reducing household income and hence food demand Closing food services affected overall food demand
  21. 21. Updated: August 25, 2020 Unpacking Agricultural GDP Impacts Change in GDP during the lockdown (%) (changes are relative to a no-COVID scenario) Share of agricultural GDP in 2019 (%) (14.4%) (6.8%) (3.7%) (13.4%) (3.5%) (1.4%) (12.5%) (6.0%) (24.3%) (7.6%) (6.4%) Source: India SAM Multiplier Results Bumper harvest in Rabi season increased mainly cereal production Decline in investment spending & construction activities reduces demand for timber & wood products Falling export demand hurts export-oriented crops, like cotton -1% 0% 4% 2% 2% 2% 1% -1% -4% -1% -1% -1% -3% -3% Agriculture Crops Cereals Pulses & oilseeds Root crops Fruits & vegetables Sugarcane Beverage crops Traditional export crops Livestock Meat & eggs Dairy Forestry Fishing Sluggish demand coupled with disruption in transportation sector caused reduction in fish supply
  22. 22. Updated: August 25, 2020 Unpacking Food Processing GDP Impacts Change in GDP during the lockdown (%) (changes are relative to a no-COVID scenario) Source: India SAM Multiplier Results Declines in meat, fish, fruits & vegetables driven by falling consumer demand with implications for dietary quality Combination of Food processing and Beverages & tobacco share make up 100% (91.9%) (6.3%) (13.0%) (3.6%) (2.7%) (3.9%) (34.6%) (2.3%) (13.1%) (12.4%) (8.1%) Demand reduction from restaurant and other services activities generate negative spillover effects on food processing industries. Beverages & sugar refining badly affected by closure of hotels and restaurants -7% -22% -28% -3% -7% -5% -13% -2% -5% -4% -2% Food processing Meat Fish Dairy Fruits & vegetables Fats & oils Cereal milling Sugar refining Coffee, tea, etc. Other foods Beverages & tobacco
  23. 23. Updated: August 25, 2020 Impacts on Household Incomes Source: India SAM Multiplier Results Change in household incomes during lockdown (%) (changes are relative to a no-COVID scenario) All households experience large income losses Larger income losses for higher-income households (smaller losses for rural farm households because farming/food trade is exempt) (but we do not consider how these households have savings & assets that can help smooth income shocks) -29% -25% -30% -23% -12% -34% -33% All households Quintiles 1-2 Quintiles 3-5 Rural Rural Farm Rural Nonfarm Urban
  24. 24. Updated: August 25, 2020 Poverty Impacts During the Lockdown National poverty rate increases by 22%-points during the lockdown period (≈ 295 mil. more poor people) (poverty rate is the share of the population with consumption spending below the national poverty line) Source: India SAM Multiplier Results Increase in share of population living in poverty during 9-week lockdowns (%-points) Increase in number of poor people in India during 9-week lockdown (mil.) 21.9% 21.8% 22.0% National Rural Urban 295.5 210.5 84.9 National Rural Urban
  25. 25. Updated: August 25, 2020 5 Economic Impacts Under Fast & Slow Easing of Restrictions & Recovery
  26. 26. Updated: August 25, 2020 Recent Data | Changing Mobility Source: Google mobility data People’s movements suggest a slow “return to normal” activities (changes in mobility relative to Jan-Feb activity) -100.0 -80.0 -60.0 -40.0 -20.0 0.0 20.0 40.0 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 Feb Mar Apr May Jun Jul Aug Sep Percentchangefromnormalactivity(JantomidFeb) retail and recreation grocery and pharmacy parks transit stations workplaces residential
  27. 27. Updated: August 25, 2020 Easing of Restrictions & Recovery Predicting India’s “post-lockdown” period is challenging Consider two stylized scenarios: Faster easing: Economy rebounds strongly in Q3 & largely returns to normal by Dec 2020 Slower easing: Modest rebound in Q3 with productivity in Q4 still below pre-lockdown levels Fast Recovery (faster easing & recovery) Slower Recovery (gradual easing, slow recovery) Q1 Jan No lockdown restrictions or global shocks in this “pre-COVID-19” period Feb Mar 9-week lockdown (last week of March until end of May) Global shocks start in late-March Q2 Apr May Jun Losses reduced by 50% Losses reduced by 10% Q3 Jul Losses reduced by 90% Losses reduced by 50%Aug Sep Q4 Oct Losses reduced by 99% Losses reduced by 90%Nov Dec
  28. 28. Updated: August 25, 2020 GDP Impacts with Recovery Scenarios Source: India SAM Multiplier Results Change in quarterly & annual GDP under two recovery scenarios (changes are relative to a no-COVID growth scenario) National GDP is 9-13% lower over 2020 as a result of COVID-19 (given pre-COVID-19 growth trends, India may well lose more than a year of growth) -30.3% -18.7% -2.5% -26.4% -6.5% -1.1% -9.0% -28.1% -29.6% -16.3% -4.8% -13.2% April May-June Q1 Q2 Q3 Q4 2020 Second quarter Quarterly averages Annual Faster easing & recovery Slower easing & recovery
  29. 29. Updated: August 25, 2020 Cumulative Quarterly GDP Losses Even with faster recovery, India ends 2020 with lower GDP (GDP losses accumulate each quarter & will take time to recover to pre-COVID levels) Cumulative changes in 2020 GDP from end of 2019 (pre-COVID expected growth rate for 2020 was 7.5 % according to IMF’s 2019 Economic Outlook) Source: India SAM Multiplier Results -200 -150 -100 -50 0 50 100 150 200 End of 2019 Q1 Q2 Q3 Q4 US$billions Pre-COVID expected growth Lockdown + Faster easing & recovery Lockdown + Slower easing & recovery
  30. 30. Updated: August 25, 2020 Poverty Impacts with Recovery Scenarios Source: India SAM Multiplier Results Change in national poverty rate with fast or slow easing of restrictions (changes are relative to a no-COVID growth scenario) Poverty should stabilize by end-2020 as people return to work, incomes recover & consumer demand resumes (but this hides sharp spike in mid-year poverty, when many households living close to the poverty line will require government or other support to cope 1.4% 18.5% 3.8% 0.6% 21.2% 10.2% 2.7% Q1 Q2 Q3 Q4 Quarterly averages Faster easing & recovery Slower easing & recovery
  31. 31. Updated: August 25, 2020 A Detailed Assumptions About Production & Demand Shocks
  32. 32. Updated: August 25, 2020 Channels, Shocks & Affected Sectors (1) Type of restriction or global shock Major sectors affected2 Geography affected1 Size of shock Detailed subsectors affected by shock2 Direct restrictions on farming Agriculture (A) National 0% Crop/animal production, hunting, related service activities (D01); forestry, logging (D02); fishing, aquaculture (D03) Limiting mining operations Mining, quarrying (B) National 0% Coal, lignite (D5); crude petroleum, natural gas (D06); metal ores (D07); quarrying (D08); mining support service activities (D09) Closing non-essential manufacturing operations Manufacturing (C) National -20% Food products (D10); beverages, tobacco (D11-12); coke, refined petroleum (D19); pharmaceuticals, medicinal chemicals (D21); non-metallic minerals (D23); electromedical equipment (G266) National -50% Textiles, clothing, leather (D13-15); wood, paper, printing (D16-18); Chemicals, rubber, plastics (D20-21) National -45% Metals (D24-25); equipment, machinery (D26-28 excl. G266); vehicles, transport equipment (D29-30); furniture (D31), other manufactures (D33) Disruptions to energy and water supply Electricity, gas (D); water supply (E) National 0% Electricity, gas, steam supply (D35); water collection, treatment, supply (D36); sewerage, waste collection/remediation (D37-39) Limiting construction activities Construction (F) National -50% Construction of buildings (D41); civil engineering (D42); specialized construction activities (D43) Closing non-essential trading activities Wholesale/retail trade (G) National -50% Agricultural raw materials, live animals (G462); agricultural machinery, equipment, supplies (C4653); food, beverages, tobacco, incl. stalls & markets (G463 G471-472 C4781) National -50% Motor vehicle trade/repair (D45); wholesale trade (D46 excl. G462-463 C4653 C4663); retail trade (D47 excl. G471-472 G47 C4781); construction materials, hardware, plumbing, heating equipment (C4663); automotive fuels (G473) Transport/travel restrictions Transportation, storage (H) National -50% Postal/courier activities (D53); Freight rail/road/air transport (C4912 C4923 G512); transport via pipeline (G493); transport support (G522); warehousing/storage (G521) National -50% Sea/coastal/inland water transport (C5011-5012 C5022); Urban/suburban passenger/other land transport (C4911 C4921-4922) National -50% Passenger air transport (G511) Government work-from- home orders Public administration, defense (O) National 0% Public administration, defense, compulsory social security (D84) Closing hotels, bars and restaurants Accommodation, food services (I) National -30% Accommodation (D55); food/beverage service activities (D56)
  33. 33. Updated: August 25, 2020 Channels, Shocks & Affected Sectors (2) Type of restriction or global shock Major sectors affected2 Geography affected1 Size of shock Detailed subsectors affected by shock2 Closing non-essential business services Information, communication (J); finance, insurance (K); real estate (L); professional/ scientific/technica l activities (M); administrative/ support services (N) National -15% Publishing activities (D58); programming/broadcasting activities (D60); telecommunications (D61); computer programming/consultancy activities (D62); information service activities (D63); financial services, insurance, pension funding, auxiliary services (D64-66); real estate activities (D68); security and investigation activities (D80); accounting, bookkeeping, auditing, tax consultancy (G692); head offices, management consultancy (D70); scientific research/development (D72); advertising, market research (D73); other professional/scientific/technical activities (D74); legal activities (G692); architectural/engineering activities (D71); veterinary activities (D75); motion picture/video/television program production, etc. (D59); renting/leasing activities (D77); employment activities (D78); travel agencies, tour operators (D79); building services, landscape activities (D81); office administrative, office support, other business support activities (D82) Closing schools Education (P) National -10% Pre-primary and primary education (G851); secondary education (G852); higher education (G853); other education (G854); educational support activities (G855) Disruptions to hospitals and clinics Human health, social work (Q) National 0% Human health activities (D86); residential care activities (D87); social work activities without accommodation (D88) Banning sports & other entertainment Arts, recreation, entertainment (R) National -40% Creative/arts/entertainment activities (D90); libraries, archives, museums, other cultural activities (D91); gambling, betting activities (D92); sports, amusement/recreation activities (D93) Domestic workers & other services Other service activities (S); households as employers (T); extraterritorial organizations (U) National -40% Membership organizations (D94); repairing computers & personal/household goods (D95); other personal services (D96); domestic workers/personnel (D97); other production activities of private households for own use (D98); extraterritorial organizations/bodies (D99) Note: (1) Channels, shocks, and affected sector in India are nationwide; (2) The magnitude of negative shocks on certain sectors is measured based on daily people movement trend overtime according to their location collected by GOOGLE *. (3) numbers in parentheses are International Standard Industrial Classification (ISIC Revision 4) codes (by major section with detailed subsectors, D is division, G is group and C is class). *Source: https://www.google.com/covid19/mobility/

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