1918, World was going through its first world war. Historical power like Great Britain, Germany and Austria and other colonial powers were losing its ground. The new world order was being created with the United States of America emerging as new superpower riding on the unprecedented growth trajectory of the economy. Other parts of Europe and part of Asia, jointly termed as Eurasia, was witnessing mass revolution against the autocratic rule of czars and other colonial powers, under the leadership of great thinker and leader of Vladimir Lenin but that’s not the only thing the world was facing. It is during this period the world encountered the new diseases called Spanish flu.

Spanish Flu at that time was considered as one of the deadliest pandemic world ever faced before, this pandemic although had ground in Europe and the United States but subsequently spread in the entire globe. In its peak, one-fourth of the world population was infected by it and flu killed around 20 million to 50 million people, including some 675,000 Americans. Like today Citizens were ordered to wear masks. Schools, theatres and businesses were shuttered and bodies piled up in makeshift morgues before the virus ended its deadly global march.

Though it is unknown exactly where from the particular strain of influenza that caused the pandemic came from; however, the 1918 flu was first observed in Europe, America and areas of Asia before spreading to other parts of the world within a few months. It should be noted that the Spanish Flu did not originate in Spain, but it is so-called because news regarding this flue was first covered in Spain. During World War I, Spain was a neutral country with a free media that covered the outbreak of the flue from the start, It was first reported in Madrid in late May of 1918. However, by the summer of 1919, the flu pandemic came to an end, as those that were infected either died or developed an immunity.

The pandemic ended but its impact on the economy was observed in 1918 itself. In the absence of data, it is difficult to categorically state the magnitude of its impact on the economy of that time, but it must have left its impact on the world economy. Its analysis will help us to understand the impact of the present pandemic on the world economy in general and India in particular.

Since the world has moved very fast in the last hundred years, but as the fundamentals of the economy is more or less the same so we can understand the impact of corona virus on the economy by understanding the impact of the Spanish flu on economy 100 years ago. The relative negative impact of Corona Virus is much more in comparison to previous historical pandemic because diseases today can be transmitted rapidly, both within and across countries.  Therefore timely responses to initial outbreaks are essential. No doubt globalization is one of the major factors of the spread of these diseases but the other two factors are climate change and urbanization.

The impact of any pandemics is always multidimensional.  It affects industrial output due to lack of labour and absenteeism, there is a lack of demand due to decreased disposable income, etc.

Different research paper on the immediate effect of Spanish flu shows that a decrease in the supply of manufacturing workers that resulted from influenza mortalities would have had the initial effect of reducing manufacturing labour supply, increasing the marginal product of labour and capital per worker, and thus increasing real wages. In the short term, labour immobility across cities and states is likely to have prevented wage equalization across the states, and substitution away from relatively more expensive labour to capital is unlikely to have occurred. The empirical results support the hypothesis: Cities and states having greater influenza mortalities experienced a greater increase in manufacturing wage growth over the period from 1914 to 1919. In the present scenario, we may face the same problem. In big cities like Mumbai , Delhi, and any other industrial cities fulfil their labour demand from an underprivileged population of Uttar Pradesh and Bihar; and in case of reverse migration, there will be a huge shortage of labour which will increase the labour cost for the industries in these cities especially for the unorganized sector and causing supply deficit. The other industrial economic issues include reduced consumption by households on tourism, transportation and retail spending; and higher demands for medical services.

Tourism industries are likely to face a tough time forward. The pandemic like corona virus can be controlled only by maintaining social distancing. The public is afraid of the virus and may not travel from one place to another for the coming few months or up to a year. They may stay in their own state to remain safe. This will certainly lead to slow down in tourism industry. Slow down in the tourism industry, in turn, will affect the aviation industry, hotel business etc. They will affect other industries leading complete slow-down of demand in the economy.

The only silver line among all these trends may come from the health industries. This pandemic may increase the concern for health and will increase the demand for a preemptive health check-up. Another industry that may see upswing is the health insurance sector and sanitization sector.

Apart from the industries, the sovereign government will also feel the heat of the situation due to the decrease in tax collection especially indirect tax due to the decrease in industrial output. Moreover, The government may also need to provide special packages to the private sector to cope with the business slow down created by the corona virus; this will further increase the fiscal deficit for the Government. In the Indian context, we have already seen the series of the special announcement by Government due corona virus. Indian Government already announced the package of 1.15 lacs crore.

As per IMF, risk of a pandemic is complex, but policymakers have tools they can deploy in response. Some tools minimize the likelihood of outbreaks or limit their proliferation. Others attempt to minimize the health impact of outbreaks that cannot be prevented or immediately contained. Still, others aim to minimize the economic impact.

Investing in improved sanitation, provisioning of clean water and better urban infrastructure can reduce the frequency of human contact with pathogenic agents. Building strong health systems and supporting proper nutrition will help ensure good baseline levels of health, making people less susceptible to infection. Of course, strengthening basic systems, services, and infrastructure becomes easier with economic growth and development; however, policies to protect spending in these areas even when budgets are constrained can help safeguard developing economies from major health shocks that could significantly impinge upon human capital and impede economic growth.

Investment in reliable disease surveillance in both human and animal populations is also critical. Within formal global surveillance systems, it may be beneficial to develop incentives for reporting suspected outbreaks, as countries may reasonably fear the effects of such reporting on trade, tourism, and other economic outcomes.

Informal surveillance systems, which aggregate information from official surveillance reports, media reports, online discussions and summaries, and eyewitness observations, can also help national health systems and international responders get ahead of the epidemiological curve during the early stages of an outbreak. Social media offers additional opportunities for early detection of shifts in infectious disease incidence.

Collaborations for monitoring epidemic readiness at the national level, such as the Global Health Security Agenda and the Joint External Evaluation Alliance, provide information national governments can use to bolster their planned outbreak responses. Additional research into which pathogens are likely to spread and have a big impact would be worthwhile.

Countries should be ready to take initial measures to limit the spread of disease when an outbreak does occur. Historically, ships were quarantined in port during plague epidemics to prevent the spread of the disease to coastal cities. In the case of highly virulent and highly transmissible diseases, quarantines may still be necessary, although they can inspire concerns about human rights. Likewise, it may be necessary to ration biomedical countermeasures if supplies are limited. Countries should decide in advance if they will prioritize first responders and other key personnel or favour vulnerable groups, such as children and the elderly; different strategies may be appropriate for different diseases.

Technological solutions can help minimize the burden of sizable outbreaks and epidemics. Better and less-costly treatments—including novel antibiotics and antivirals to counter resistant diseases—are sorely needed. New and improved vaccines are perhaps even more important.

The economic problems arising due to the present virus can be tackled by adopting an industry-specific but still holistic approach. Both long term and short term planning is required to solve the problems due to the reverse migration of labor. Tax rate and profit ratio of the product may be cut-down to balance between the cost of the items increased due to increased labor cost and retail price of the items.. The loss suffered by the Government due to the decrease in the tax rate on necessary items shall be compensated by increasing the tax rate on luxury items.

The long term planning should consist of decentralization of industrial development. The labour-intensive industries can be established in the area having a large labor population like Bihar and others. This will create job opportunity in the state like Bihar and others, and will be the source of revenue for the state. It may increase the standard of living of the population and simultaneously reducing the burden faced by other states due to the large labor influx.

For the handling the problem of lower demand level of industrial products, the Government may undertake massive public infrastructure project that will not only generate income for the downtrodden population but also create revenue opportunity for private industries.

The government might also relax the norms and procedure for Foreign Direct Investment in different sectors and industry under government route may be put under automatic route with more transparent and objective provisions.

All these non-economic and economic steps will help as country and population to sustain the jolt and shocks given by corona virus and transforming the threat created by corona virus into opportunity.

Sources

  • Salicylates and Pandemic Influenza Mortality, 1918–1919 Pharmacology, Pathology, and Historic vidence. Clinical Infectious Diseases.
  • In 1918 Pandemic, Another Possible Killer: Aspirin. The New York Times.
  • How the Horrific 1918 Flu Spread Across America. Smithsonian Magazine.
  • What the Spanish Flu Debacle Can Teach Us About Coronavirus. Politico.
  • Report by IMF.

Nishant Mishra | E-mail: csnishantmishra@yahoo.com

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