How the ‘Unknown Unknown’ coronavirus is slowing down the Indian economy

Outside the Eco-Chamber

There are things we know that we know, the known knowns. There are things we know we don’t know, the known unknowns. But there are also things we don’t know that we don’t know, the unknown unknowns. And these are the most dangerous of the lot, simply because one can’t plan for them in advance.

The coronavirus, which is wreaking havoc all across the world, was an unknown unknown until a few weeks back. Experts are now suggesting that social distancing through self-isolation is the best way to control the spread of the virus. Basically, what has been suggested is that individuals need to stay at home as far as possible and avoid crowded places. Everything from bus stands to railway stations to airports to malls to cinema halls to restaurants are best avoided, as far as possible.

And that being the case, self-isolation is bound to have an impact on the overall economy. The moment an individual decides to stay at home, he is not spending money he otherwise would have. So, if he uses his own car or bike to get to the office and back, in case of self-isolation, there is no need to buy petrol or diesel to do that. If he uses a cab or an autorickshaw, there is no need to pay for that.

Over weekends, if the idea is to go out and chill in a mall, watch a movie or eat out at a restaurant, all that doesn’t happen either. This again curtails spending. The second-order effect of this is to slowdown credit card spending.

Also, in places like Delhi and Kerala, the cinema halls have been shut until March 31. In Bengaluru, they have been shut for a week. So, even if someone wants to go out for a movie, he or she can’t. This has led to the postponement of this year’s biggest Hindi film release Sooryavanshi, with Delhi being one of the biggest markets for Hindi cinema. Film shoots are also being cancelled.

Over and above this, any plans of purchase of big items, everything from TVs to washing machines to two-wheelers to cars to air-conditioners, is postponed, simply because the idea is to avoid crowded spaces. The second order effect of this will be a slowdown in bank-lending for such purchases.

When people start thinking in this way, the market system also reacts to it. Many stand-up comedy shows have been cancelled all over the country.

Any holiday plans also take a backseat. As Manual Cardoso, general secretary of the All-Goa Traditional Shack Owners’ Association, told the Press Trust of India a few days back: “Even domestic tourists have cancelled their holidays. Beaches are deserted. Tourism is down by almost 50% as it is and the coronavirus situation has hit it further.” With the government suspending all tourist visas until April 15, foreign tourism across India is going to be negatively impacted.

Also, India is not the only country to have cancelled tourist visas in order to isolate itself from the virus. Hence, people are unlikely to travel across nations. With people not travelling generally or for tourism, for that matter, airline traffic is bound to be impacted. Pictures of empty airports are all over the social media.

Ultimately, one man’s spending is another man’s income. If a substantial portion of the society decides to self-isolate, they will end up not spending money like they were earlier, and in the process the incomes of others will be negatively impacted. It is but natural that those whose incomes are negatively impacted will spend a lower amount of money, in comparison to before, as well. This is how the coronavirus will break the consumption cycle, one that had already weakened in India since demonetisation, and bring down economic growth.

Also, any right-thinking government will ensure that people avoid crowded places. Take the example of the Australia vs New Zealand cricket series being played in front of empty stadiums. The India vs South Africa cricket series has been called off. Of course, this means that the cricket boards lose out on the money that ticket sales would have brought in.

The Indian Premier League (IPL) T-20 cricket tournament has also been postponed until April 15. Along similar lines, several football leagues in Europe have been postponed as well. Other than stadium ticket sales, all the money coming in from advertising, TV rights and all kinds of merchandising rights, is going to be impacted.

This is how the economic cycle is likely to work because of self-isolation (both voluntary and that forced by governments). With people cutting down on spending, it is going to impact individual earnings and business earnings, and this, in turn, will impact the overall economy, slowing down economic growth even further.

But, at the end of the day, what is more important, human lives or the economy? At least, there is no confusion on the answer to this question. So, self-isolate and stay safe, until this blows over.