Vaccine, Economic Recovery And What More To Expect In 2021

The New Year has started with the news of vaccine approvals raising hopes of vaccination drives across different states. This is the endgame now as we are likely to emerge on the other side of the pandemic in 2021.

Ignoring all the politics aside on the vaccine approvals for a second, it is critical to set our expectations right on what is to follow over the course of the next couple of months.

For starters, we know that the vaccine will most likely require double dosages at a set interval. This means that even if a vaccination drive was to be started towards the mid of January, the second dose will be followed up in successive weeks.

Thus, it is important to recognise that even with a single dose of the vaccine, there are considerable risks of contracting the disease until the second dose is administered.

What this translates to is quintessentially that some of the mobility restrictions, mandatory masks and other social distancing guidelines will continue for the next few months.

More importantly, the lag in our ability to remove these restrictions would result in some sectors registering a slower pace of economic recovery.

This has important implications for our growth recovery process which has been considerably stronger than what was anticipated — or when compared to some of our other peers — as it points that contact services may not be able to revive immediately after the vaccination drive is launched.

Such expectations are unrealistic as they ignore the public health response which is very likely to be risk averse even after the vaccination drive is initiated.

Very likely we may have governments being risk averse even after completion of vaccination drive within their countries as they wait to see things getting under control before we gradually relax a lot of these restrictions and guidelines.

The best way to consider the public health guidelines are into two categories — first, guidelines and advisories that are to be enforced on the people. That is, guidelines such as mandatory masks and advisories on frequent hand-wash, sanitising etc.

The second are public gathering restrictions that are put in place on businesses such as hotels, restaurants, cinema halls and other such places.

The guidelines and advisories issued to individuals is likely to continue well into the second half of the year as they will be removed only gradually while the second set may be removed gradually during the first half of the financial year.

When the pandemic started, in April in a joint paper with Dr Arvind Virmani, we had argued that different sectors may witness a different pace of economic recovery with contact services lagging behind the other sectors.

India’s recovery so far has been on similar lines as contact services continue to be impacted by the pandemic and this should not come as a surprise as the virus continues to be spread across the world.

Even within contact services, some sectors may take longer than others to recover.

However, we do recognise that the hypothesis of permanent change in attitude towards travel for commercial purposes etc were probably too exaggerated. That is, I do sense that the world will go back to being normal in more ways, and the only permanent change could be in terms of diversification of supply chains.

The fact that different sectors in our service sector will experience a different pace of recovery is critical as services sector is a key component of India’s total value added.

More importantly, the degree of policy support will now have to be narrowly focussed on assisting recovery in sectors that seem to be lagging while supporting overall growth in general. These sectors would very likely be tourism, hospitality and entertainment industry (except for home entertainment).

But the key takeaway is that even as vaccination drives are initiated across the world, we will have to be risk averse in order to swiftly emerge on the other side of the pandemic. This means that some of the advisories and guidelines are likely to stay throughout the coming few months.