Page 46 - ES 2020-21_Volume-1-2 [28-01-21]

Saving Lives and Livelihoods Amidst a Once-in-a-Century Crisis 29

V-SHAPED ECONOMIC RECOVERY DUE TO TIMELY STRINGENT
LOCKDOWN
1.42 Evidence from the experience of Spanish flu establishes that cities that intervened with lockdowns
earlier and more aggressively experience stronger recovery in economic front in the long run. Learning
from this experience, India implemented an early and stringent lockdown from late March to May to
curb the pace of spread of COVID-19. With the economy brought to a standstill for two complete
months, the inevitable effect was a 23.9 per cent contraction in GDP as compared to previous year’s
quarter. This contraction was consistent with the stringency of the lockdown (Figure 26).

Figure 26: Correlation between Stringency and GDP Contraction during Apr-June, 2020

Source: Compiled from various sources
Note: Bubble size corresponds to number of deaths as on 31 December, 2020; number of deaths per lakh indicated
st
with the bubble
1.43 The economy was gradually unlocked since June, 2020 and has experienced a V-shaped
recovery since then. An attempt has been made to capture the impact of the stringency of lockdown
on high-frequency indicators of economic activity States across India. The contemporaneous as
well as lagged impact of change in stringency of lockdown across States on month-on-month
growth of varied economic indicators from time period since unlock begins i.e., from June to
October has been studied (Box 7). The state-wide Stringency Index as detailed in Box 4 has
been used for the analysis. It may be noted that April and May had similar stringency across
States as mandated by Central Government.

Box 7: Using First-Differences to Avoid Spurious Correlations

Time series data on various economic indicators commonly exhibit a trend effect i.e., to grow over
time
Example: y = α 0 + 1 + t t
α t e , t = 1, 2, ... where e represents errors that are i.i.d., independent and
*
t
identically distributed.
In this case, it can be seen that ∆y = y – y = α Thus, the first difference of y does not have a time-
t
t-1
t
1
trend incorporated into it.
Granger and Newbold (1974) argued that the “levels” of many economic time-series are
integrated or nearly so. As a result, if such data are used in a regression model a high R2 value