Virus At The Gates
17 Pages Posted: 26 May 2020
Date Written: April 29, 2020
In this work I try to understand the micro-implications of the COVID shock at the level of households. Using CMIE database, I create a metric of vulnerability and resilience of households, by analyzing the (wage) income, (consumption) expenditure, (liquid) assets and (short-term) liabilities of the households. Vulnerability can be interpreted as the extent of financial exposure to an adverse shock and Resilience is the capacity of the household to weather such an adverse shock.
The analysis suggests that around 14.4% of the households are the most robust with low-mid vulnerability and mid-high resilience. On the other hand, about 48.4% of the households are the most fragile, falling in high-mid vulnerability region with low-mid resilience. About 37.2% households fall in between the two extremes and have a mixed exposure with muddled resilience.
I also consider two hypothetical scenarios, where I consider an aggregate shock to employment and prices to determine the impact at the margin. The analysis suggest that upon a 10% and 25% shock, approximately 23 and 75 million individuals may be find themselves at the margin of financial distress, respectively.
Policy Implication: Fiscal transfers are a scarce resource. This study attempts to inform the policy on fiscal transfers by proposing a way to fine-tune both the quantum and the sequence of such transfers by identifying and segregating the households in the two dimensional array of vulnerability and resilience. First, it charters out a possible sequencing path for fiscal transfers. For instance, in the order of sequence, the fiscal support will be most productive for households which rank the highest on vulnerability and lowest on resilience. Second, depending upon the vulnerability and resilience of a household, the optimal quantum of fiscal support needed will vary across households. To be most effective, the amount of household level fiscal transfers could be made conditional on the extent of exposure and capacity of a household to the economic shock.
Keywords: Households, Vulnerability, Resilience, Economic Shock, Lockdown
JEL Classification: D14, D31, E21, E24, E32, G51, I31
Suggested Citation: Suggested Citation