Economic Recovery Post Covid-19: Centralised vs Decentralised Lockdown

ABSTRACT:To arrest the spread of COVID-19, most countries have imposed some form of lockdown to ensure social distancing. For India, a complete was imposed by the Central Government over four phases and over two months (April-June, 2020). While the effectiveness of such a stringent measure is yet to be established, some estimates of the economic distress owing to lockdown are available and it projects a substantial drop in GDP as well as State Domestic Products. It is therefore important for India to plan the unlock down phase well. Unfortunately, with the possibility of may more pandemic related disruptions that are likely to happen in the future, both lock down as well as removal of lockdown becomes a key determinant for both controlling the spread of pandemics as well as revive the economy. In this paper, we develop a theoretical framework to address how un lockdown must be planned and discuss the respective roles of the States as well as the Centre. The model is set against the backdrop where a large part of the migrant labor has also been forced to return to their home States. In our model, the Centre as well as the States maximize the Expected Economic output while planning un lockdown. The probability of COVID spread is modeled using simple Epidemiological probability function. We find that a centralized lockdown would mean lower lockdown levels for the labor receiving state compared to the case when such decisions were decentralized and a higher lockdown level for the labor sending state as compared to the case when such decisions were decentralized. We recommend that the role of the Centre in easing of lockdown must be limited to two things. One, support the States with more investments in health infrastructure that will help them reduce lockdown intensities. Two, compensate the expected shortfall in wage income through a Direct Benefit Transfer to the labor in the two States. Our model can be used to implement unlock down phases should a contingency in the future arise.