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Interview | ‘Pockets with lower contact intensity can have relatively lower lockdown’

A lockdown policy that considers infection data and without considering the extent of economic interactions can lead to contradictory outcomes, says IIM-C’s Prof. Vipul Mathur

April 21, 2020 06:24 pm | Updated 06:36 pm IST

Vipul Mathur

Vipul Mathur

Professor Vipul Mathur, Faculty, the Economic Group, at the Indian Institute of Management-Calcutta has come up with a formulation for exiting the COVID19 lockdown based on a “contact intensity principle of employees”, which is being widely discussed. He speaks to Nistula Hebbaron the million dollar question of exiting the lockdown. Excerpts:

In your paper, you have spoken of the proximity model for assessing economic activity in order to make a staggered exit from the lockdown. Please explain.

Now, there are many ways to slice the question of exit strategy. One of the first things that immediately come to the mind is to identify the geographical hotspots of infections. Districts which have a higher proportion of cases should perhaps continue in a longer lockdown relative to districts which have a much lower proportion of infected cases. Now, this approach largely makes sense but it is an incomplete idea. Let me elaborate. Imagine two districts, A and B, which are almost identical in every dimension but are radically different in two aspects: first, district A has far higher infected cases than district B and second, every person in district A has to go to an office but can accomplish his job without interacting with anyone whereas in district B, everyone still has to go to an office but is required to work in teams in a face-to-face interaction setting.

Now if one were to only consider the infections data, it would make sense to keep district A in a longer lockdown and allow the lockdown to be lifted in district B.

But what would ensue after the lockdown is lifted in district B? Since people in district B work in a face-to-face setting, they have to naturally interact with each other, and therefore, the originally asymptomatic persons can likely infect their respective team members. And soon enough, the symptomatic infected cases would exponentially increase in district B, forcing it go into lockdown once again. Eventually, the economy gets shut down in both the districts and also there are more casualties in district B.

Now imagine if a counter-intuitive policy was enacted: if instead of district B, the lockdown was lifted in district A. Then people in District A would have gone to the offices and got the jobs done, and yet the infected cases would have stayed roughly the same as before because people in District A don’t have to interact with anyone else to perform their respective jobs. The economy would be up and running in District A without the number of casualties increasing in either of the districts.

Clearly, the original policy, which was arrived at by only considering the infected cases, leads to a worse situation than what the two districts started with. There is an important message here: by only considering the infection data and without considering the extent of economic interactions, the lockdown policy can lead to contradictory outcomes!

So what’s the way out?

Now, the actual economy we live in is somewhere in between the hypothetical cases of districts A and B and this economy is composed of myriad of activities. Every such economic activity is different in terms of the frequency with which one has to interact with other economic agents, especially in a face-to-face setting: a barber’s occupation involves more contact relative to say, a mathematician.

Of course, in our daily lives we depend not only on our interactions with barbers and mathematicians but also everything in between. I have attempted to quantify the extent of all such economic interactions — formally referred to as economic contact intensity — at the level of district and economic sector by using firm level data of the entire universe of Indian firms. I identify pockets at the districts and economic sector levels which have lower economic contact intensity and, all else being equal, can be preferred to have a relatively lower lockdown.

How many districts have low proximity business?

I have assessed this via the data provided by the CMIE (Centre for Monitoring Indian Economy), on the basis of that the district level distribution is relatively more compact than the economy sector-wise distribution, naturally because a typical district contact intensity is an aggregation over a diversified set of economy sectors. However, there are some 85 odd districts which can be classified to have a very low contact intensity, whereas some 40 odd districts are really high contact intensity environment. The rest have a combination, and have to be nuanced.

Which sectors have low proximity business?

Sectors such as forestry, fishing, heavy machinery, machine tools, finance, insurance, business services and consultancy, telecommunications, IT, electricity, gas and water supply are of relatively lower contact intensity. Sectors such as education, banking, while being mid-to-high contact intensive, can be remodelled to a work-from-environment and therefore can be operated with a low contact intensity.

How to move around small businesses like hair salons, restaurants?

The data tells us that small businesses have hugely variable proximity numbers. Businesses such as travel agents, photographers, food and beverages, personal care services and restaurants have high contact intensive businesses. Certain other businesses like gems and jewellery, bakery products, computer peripherals and poultry are low-to-mid contact intensive. The small businesses have to obey the usual protocols of temperature check, masks.

Are the real-estate, commercial and housing sectors dead?

Construction is an important employment generator but is also a mid-to-high contact intensity sector. It also relies heavily on allied sectors such as transportation, which are also high intensity. So, there is a multiplier effect here and that makes it a really tricky sector. We might have to keep the lid on it for a relatively longer period of time, and until then, the firms in construction will have to be supported through extension of the moratorium period and workers will have to supported by pure and simple cash transfers. Fiscal transfers, which would redistribute resources from low contact intensity pockets to high intensity pockets, can be instituted to even out the asymmetric cost implications.

Malls and retail — how do you see their future?

Unfortunately, we will have to be very careful with the malls, merchandise stores and large-scale retail outlets. The crux of their business depends upon the footfall, which makes these sectors highly contact intensive. I think this is where the technology will have to step in. The local malls will have to transpose themselves to a virtual space from where the consumers can shop in. Instead of the consumers converging to a mall, the mall will have to diverge to the consumers. That is the only way to dilute the contact intensity.

Contact intensity cannot be the only variable for opening up the economy, however?

I think of the exit plan for lockdown as a number lock which has some multiple digits that have to be cued in. The lock gets opened only and only through the right combination of the digit keys, each set at their respective optimum value or cut-off. The usual standard keys we know of, are indicators such as infection rate, population density, output share, per capita income, etc. The novel digit that I attempt to add to this list, is that of economic contact intensity which reflects the extent of proximity that is required to perform a job. When set right in conjunction with other keys, the magic may indeed happen.

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