Between Two Waves – A Systems View of Maharashtra State Economy amid a Raging Pandemic
After the presentation of the Union Budget 2021-22, Maharashtra presented its state budget and alongside it also tabled its economic survey for 2021-22 in February. The economic survey for the state assumes importance because it was presented against the backdrop of COVID-19 first wave. 
 
It is well known that the impact of disasters on specific regions can be much more severe than that on a nationwide scale, in relative terms. Economic survey of the state is the only official document that will show the correct picture of the regional level impact of the first wave.
 
Accordingly, this article, the last one in the systems series (1 Article, 2 Article) presents the impact of the COVID-19 first wave at the reginal level using the systems approach. 
 
However, before we proceed, some caveats are in order. The availability of data at the state level, in terms of granularity and frequency, imposes limitations on how detailed an analysis is possible.  Second, at the state level, loss assessment becomes more complicated due to the occurrence of multiple hazards at the same time. For instance, locust attack impacted many states during the COVID-19 lock-down; floods have caused widespread damage in Bihar and Assam. With multiple hazards at the same time, it is difficult to separate pandemic losses from the flood or locust attack losses at the state level.  
 
The economy of Maharashtra is mainly driven by manufacturing (automobiles, terxtiles, engineering, cement, steel, chemicals, and pharmaceuticals), finance, international trade, mass media, technology, petroleum, fashion, apparel, gems and jewellery, IT and ITES and tourism. 
 
In terms of its relative position vis-à-vis the national economy, Maharashtra is self-sufficient in manufacturing, professional services and financial services. Importantly, it is a state on the move – share of transport by means other than the railways is greater than the national average, implying that losses due lockouts in road, air, and water transport, had a significant impact on Maharashtra. 
 
From the goods and services tax (GST) data on inter-state trade, Maharashtra is among the top-5 exporters and importers, with net export of 5% of the total inter-state trade. Thus, disruption inside or outside Maharashtra has implications for the state. 
 
Even if Maharashtra succeeds in containing the second wave of COVID-19, the state economy will continue to face disruptions due to its interlinkages with other states. Furthermore, the Economic Survey 2017-18 also reports that in terms of international trade, Maharashtra accounts for 23% of the total exports. 
 
Thus, local economy is also subjected to international shocks such as uncertainties of demand in export destinations and container disruptions. 
 
In fact, the lock-down in Hong Kong impacted the gems & jewellery sector even before the first case was diagnosed in India. However, exports have recovered from the sharp dip in April 2020.
 
As per the advance estimates of 2020-21, the real gross or net state domestic product (GSDP) of Maharashtra is expected to grow at -8.0% over 2019-20, which is equal to overall GDP (gross domestic product) growth estimated by the CSO (Central Statistics Office), indicating the importance of the state which has a share of roughly 20%. But the loss in gross value added for the state at 7.8% is higher than the national estimate by 1.3% at 6.5%, clearly demonstrating the regional impact.  
 
From a systems perspective, as estimated by the author, the state economy suffered a gross output loss of Rs3.16 lakh crore on account of output inoperability, which translates into about Rs57,000 crore loss of labour income, Rs67,000 crore loss of capital income and intermediate demand loss of Rs1.93 lakh crore. 
 
Agriculture was the only sector that did well, on account better weather conditions. Agriculture being mostly rain-fed in Maharashtra, last year was the best in terms of rain year in over three years. However, the gains in rural economy were not sufficient to cushion the second order demand loss due to output inoperability. 
 
The overall sector by sector position is given in the table below.
 
 
Although high frequency indicators for the state are limited, the Reserve Bank of India (RBI)’s quarterly statistics on deposits and credit for scheduled commercial banks (SCBs), which provides district level data till December 2020, can be aggregated as per the six administrative divisions of the states. 
 
In Konkan division, the most prosperous, the deposits have risen indicating a sharp fall in urban consumption. But fall in deposits in other divisions may indicate loss of income and drawdown on savings.
 
 
At the same time, credit in Konkan division is below the peak despite the rounds of monetary easing indicating slow recovery. One must admit that ability to extrapolate much is limited from these figures due to variability in banking habits and the structure of the local economy. 
 
 
The more important question is: Where is the state economy heading in current financial year? 
 
To begin with, the state could have done better in preparing for the second wave because the directorate of health, Maharashtra had forewarned the concerned authorities about the second wave in November 2020. Perhaps political compulsions took the front seat just when the build-up to the second wave was visible in February first week. 
 
With the BrihanMumbai Municipal Corporation (BMC) expecting a third wave in July, the state has to face the livelihood-lives trade-off again. The forecasted trajectory of the COVID-19 cases in Maharashtra is shown in the chart below. 
 
 
Nevertheless, despite the past mistakes, Maharashtra has done well in containing the second wave and has taken some good decisions such as securing a one-year production licence of Covaxin, creation of a team of doctors for treatment protocol and its BMC model of management. 
 
Hence, the state government is advised not to relax travel restrictions as the third wave is to coincide with the monsoons but, at the same time, to permit transport in restricted mode. 
 
Moreover, it is advisable that attention be given to children below 18 years, lactating mothers and pregnant women who will not be covered by vaccination. Special wards and treatment protocols must be decided well in advance and communicated to the population. 
 
The state may also consider securing a line of credit following RBI’s announcement for a special window for the health sector for Covaxin production. 
 
Lastly, in terms of economic growth, the economic survey of the state reports several significant measures such as reduction in stamp duty for housing, tax exemption for transport services, according an industry status to the hospitality sector. 
 
However, with the state facing two back-to-back COVID-19 waves, to what extent these measures will cushion the negative income shock in the current year needs to be seen. The manufacturing base of the state will face value-added shock in terms of higher wage cost due to labour shortage arising from return flow of inter-state migrant labour and reduced inter-district labour mobility. 
 
In the wake rapid adoption of labour-saving technology in manufacturing and increasing dependency on agriculture, the state will have to carefully redraw its containment strategy this year to minimise the resource crunch.
 
(The author is an economist in the banking system. The views are personal) 
 
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