Reducing Covid risks may help economy more than easing curbs: World Bank

Global institution uses daily electricity consumption and night-time light intensity to gauge impact of Covid-19

The data on monthly night-time light intensity suggests that without effectively reducing the risk of a Covid-19 infection, India's economy is unlikely to return to full potential even when restrictions are relaxed, according to a recent World Bank report. 

The World Bank advocated using two proxies--daily electricity consumption and night-time light intensity--to gauge the economic impact of Covid 19 and the containment measures. 

According to the Bank, night-time light intensity declined by an average if 12 per cent in April in more than two thirds of the districts. Local infection rates have an impact on night-time light intensity, with more cases resulting in larger declines. This has strong implications for recovery of the economy, it said in its latest report on India Development Update.  

"Without effectively reducing the risk of a COVID-19 infection, voluntary reductions of mobility make it unlikely that the economy will return to full potential even when restrictions are relaxed," said the Bank. 

The data for May and June also showed night-time intensity falling compared to the average of the corresponding month in the previous three years, the data given by the world bank later showed.  

The presumption in using this proxy is that most social and economic activities at night require light; hence the intensity of nighttime lights and the area they cover should correlate with socioeconomic indicators and economic development.

So far as daily electricity consumption is concerned, the Bank said it was nearly 30 percent below normal levels at the end of March, remained a quarter below normal levels in April, 14 percent below normal in May, and was still 8 percent below normal in June.  According to the recent data , in July, the electricity consumption was on average 7.4 percent below normal levels. In August, it was so far (until August 19) on average 8.8 percent below normal, indicating that the economy has not yet reverted to its baseline.

The Bank said the first meaningful deviation in daily electricity consumption from normal levels was on March 22, when India observed a 14-hour long curfew that the government implemented in all major cities and 75 districts with Covid-19 caes. Electricity consumption dropped further the next days and especially after the national lockdown was implemented on March 25. 

Experts, however, cautioned against over-interpreting daily electricity consumption data for economic parameters. 

Aditi Nayar, principal economist at ICRA, said domestic electricity demand recovered in July 2020, benefitting from the pickup in economic activity in some sectors, and higher demand from the household and agricultural segments led by a lull in rains in the second half of July 2020. Subsequently, electricity demand recorded a growth in early-August 2020, before reverting to a mild contraction as the rains picked up.

"In our view, the contraction in electricity generation between August-December 2019, would exaggerate the recovery in this sector in the coming months compared to the performance of the rest of the economy. Given the strong base effects, electricity demand may not prove to be a good proxy of the performance of the rest of the economy in H2 of the calendar year, 2020," she said. 

In fact, the Bank also warned that daily electricity data and information on night-time light intensity are helpful to monitor the economic situation, but they may also be able to complement national account estimates more generally.

It said electricity consumption tends to be lower in winter than in summer and for night-time light intensity, it is the opposite, with winters being brighter than summers, it said.