Can Chennai’s economy bounce back after COVID-19?

The impact of the coronavirus pandemic on the economy will be widespread, but recovery must begin from the ground up.

As the second most populous country in the world, and among the most densely populated, India continues to be at high risk of spread of the extremely contagious novel coronavirus disease, with millions vulnerable. Hence, the Indian government announced a stringent lockdown from March 25 until May 3, on all activity except delivery of essential services. Even as the lockdown has been extended to May 17, the government has now initiated phased lifting of restrictions in various locations based on the severity of the spread.

As of May 3, Tamil Nadu had more than 3000 cases with Chennai being one of the ‘red zones’ with a high positive case count. The most common strategy at the moment is to identify hotspots within the state and enforce strict lockdowns there and look at hotspots within cities as well. North Chennai has the majority of cases (65%) in the city, owing to high population density as well as increased testing.

The extended lockdown period capped by a four-day intensive lockdown has naturally dealt a significant economic blow to Chennai and its people. Think of an average citizen’s daily or weekly routine that revolves around work, commuting by public and private transportation, buying essential goods and services etc. A lockdown stops these activities in their tracks for a specific period of time and has a significant impact on the city and its citizens going forward. As Andy Mukherjee writes in The Print:

The forced social distancing is going to hit metropolises like Mumbai, New Delhi, Bangalore, Chennai, Hyderabad and Kolkata and tourism centers like Goa. None of this is easy in a highly informal economy like India. The lockdowns that nervous cities and states are now forced to impose to slow the coronavirus could upend livelihoods in ways that will be hard for government programs to combat”.

Chennai has undergone significant and sustained urbanisation over the past 10-15 years, with infrastructure projects such as housing, large commercial spaces and the next phase of the metro. However, with the lockdown in effect, the impact on these will be felt for months ahead. The challenge any government, national, state or local, faces in such a time is how to deal with the ongoing situation as well as prepare for the eventual economic effects that a lockdown can have. Cities, with their large native and small to moderate migrant population will likely be the hardest hit as they are the centers of economic activity.

Public transport including Chennai Metro has been closed along with malls, retail outlets, theatres and non-essential shops. Each one represents a vast amount of economic activity on a daily basis with people spending money on them; however, during the lockdown, this stops.

Many large multiplexes such as PVR have decided to invoke the ‘Act of God’ clause in not paying rent for the period of the shutdown as the company operates its properties on a rental basis. Some of the biggest malls in the city such as Express Avenue and Phoenix Market City have multiplexes which were closed even prior to the national lockdown. Coming back to business will take some time as it depends on people’s willingness to return to malls, cinemas and large indoor crowded spaces.

A city-wide shutdown affects all aspects of its economy as small and big businesses halt activities, resulting in unemployment

More often than not, a crisis like this takes an economic toll on the most vulnerable. India’s economy as a whole is largely informal. Large sections of the workforce are casual laborers who live on a daily wage. A survey conducted by the government as a part of an effort to create an informal economy database, estimated that India has 450 million informal workers.  

Chennai is home to lakhs of migrant workers from across the country. Due to the lockdown, they cannot leave the city and have had to rely on whatever savings they have and any government assistance. Many of them work in shops, small businesses, local transportation, domestic help services, in the hospitality sector and on construction projects, which have been put on hold for the time being. 

Businesses big and small will be affected due to the lockdown. Chennai is home to several manufacturing units which have halted production. Several automobile manufacturers such as TVS, Ford, Renault and Hyundai, which have factories on the outskirts of Chennai, have closed their plants. The popular electronics grey market Ritchie street has been shut down for close to two months as import of goods from China had decreased significantly since the outbreak in Wuhan.

The popular Koyambedu market which attracts thousands for their regular fruits and vegetables shopping has been closed for retail trade after two traders tested positive for Covid-19. Koyambedu has also become a significant cluster of the newer infections, prompting fears of a total shutdown. Thiruvanmiyur market has already been shut with traders moving to smaller clusters after reports of a positive test for one of the vendors. Such moves will affect many traders and vendors who rely on daily and weekly wages from here.

In the real estate sector as well, there is likely to be a long-term impact due to delays in completion of projects and reluctance on the part of people to purchase. In the first two months of this year, the Chennai Metropolitan Development Authority (CMDA) doubled the number of planning permissions. According to a report from ANAROCK Property Consultants, the nationwide lockdown will affect the real estate sector as projects will be delayed by weeks, if not months.

Even with the local government encouraging increased multi storied buildings and IT Parks, the month of April is likely to be a low point. The two main reasons – the sector is labor and capital intensive, both of which are not in adequate supply given current circumstances. S. Sridharan, Chairman, Confederation of Real Estate Developers’ Association of India (CREDAI) Tamil Nadu Chapter was quoted as saying, “It is an unprecedented scenario for real estate. Developers would be hit because cash and fund flow would be a major issue, as banks would release funds only after completion of every stage.”

Governments will need to revive city and state economic activities from the bottom up

A nation-wide shutdown meant a shock to the city’s economic system, leading to large scale unemployment. With daily wage labourers likely to be the hardest hit, the state and local government will need to start there when it comes to getting the city back on track. Rathin Roy, Director, National Institute of Public Finance and Policy, in an interview, stated in part, the need to treat the economy as if this is wartime:

A wartime economy involves investing in winning a war because if you do not win the war, there is no economy to invest in. It is very clear that the standard tools or economic analysis, and the standard instruments of macroeconomic policy will not be effective in these circumstances. We have to shift the way we think about the economy from a business-as-usual scenario to a wartime economy. We need to be a couple of months ahead of the curve.”

In order to be ahead of the curve, let us take the example of Kerala’s economic response to the pandemic. The state in mid-March announced a Rs.20,000 crore relief package. One of the members of the planning board and an Economics professor at the Tata Institute of Social Sciences, said in part, “₹20,000 crore is almost two-thirds the size of the state’s annual plan. What the state is going to do is to see that there is immediate spending over the next three months”. Part of the thinking here is that the economic impact, if not the pandemic itself, will play out for another six months at least to varying degrees.  

One of the proposals that was being considered by the centre is adopting a temporary universal basic income scheme for those who are amongst the most vulnerable. This is a policy of giving those people a standard amount of money directly. The Tamil Nadu government announced a Rs.3280 crore relief package which includes financial assistance of Rs.1000 to all ration card holders. The Indian Network for Basic Income (INBI), has asked the government to consider an emergency basic income of Rs. 4260 per month to cover basic essentials.

Tamil Nadu is now among four Indian states with the highest number of Covid-19 cases. This means more expenditure on healthcare will be required; the state is spending Rs.8814 crore or 4.15% of revenue expenditure on medical and public health. Chief Minister Edappadi K Palaniswami, on the last day of the Assembly, stated that hawkers, autorickshaw drivers and construction workers will get a special assistance of Rs.1000 along with 15 kg rice, 1 kg dal and cooking oil for free.

Getting back to normal in a phased manner by putting public health at the forefront

When the lockdown is being lifted in a staggered manner, state and local governments need to tread carefully. The city needs to get back to some sense of normalcy in phases; mainly to ensure there isn’t a resurgence of the virus, in which case things could go into a cyclical nature of lockdowns. There is a debate, that is not limited to any particular city, on the balancing act of people’s health versus economic growth. One place to watch will be the origin of Covid-19, China. 

At the beginning of April, factories across China started to reopen in a phased manner with new restrictions and guidelines in place for workers and regular checks on employees. In the epicentre, Wuhan, technology and automobile factories have been up and running for a few weeks, after the city was under a nearly two and a half month lockdown. In general, the manufacturing sector in China has slowed for the month of April due to poor export demand. Other countries in Europe such as Spain and Germany are also looking at reopening factories as lockdown restrictions are being eased. 

Similar Standard Operating Procedure(SOP)s have been issued for resumption of manufacturing and construction activities as on May 3 in Tamil Nadu. But the absence of labourers, most of whom are migrants, and the threat of the virus still at large necessitate periodic reviews of the decisions.

The 2014 Ebola crisis in Africa might offer some clues as to how a pandemic affects society and the recovery efforts. More than 11,000 people died as a result of the Ebola outbreak, which caused an economic downturn. The epidemic cost $53 billion in social and economic losses for West Africa. In Liberia, the economic effect was immediate as the disease started to spread. According to an IGC report, 12% of business shut down during the peak of the outbreak. Amara Konnech, former Finance Minister of Liberia, in a column explains:

The global prices of rubber and iron ore, our major exports, sunk to lows in 2014 from which they have yet to recover. Then came Ebola to sink the economy altogether. We began developing a post-Ebola recovery plan mid-crisis. As a result of that forward planning, we raised funding for economic recovery not only in Liberia, but also in the other affected countries such as Guinea and Sierra Leone”.

Even as India lifts the lockdown in a staggered manner from May 4, the number of cases continue to rise steadily. Therefore a full reopening of factories immediately might not be prudent. According to the Federation of Indian Chamber of Commerce and Industry (FICCI), the recovery from the current situation could take six months. Economic activity can be facilitated only once businesses reopen in a phased manner and employees are safe. Public transport will be key to ensuring labour can move freely, with strict health guidelines in place. The formal and informal sectors of the economy might have different trajectories when it comes to recovery. While the timelines going forward are unclear at the moment, any planned economic recovery must be done with public health as top priority.

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