April 07, 2020

Opinion | A production model that could guide an economic resumption

In this article, Niranjan Rajadhyaksha presents a guide for India's economic resumption post the lockdown, considering the sectoral interdependences in production functions. Excerpts: 


"The point is that keeping one sector shut will automatically hurt the production of the other. The second strategy thus makes more sense. Open both sectors in a certain ratio to each other, or more generally all sectors in some proportion to each other. What should that ratio be? It depends on the technology of production in agriculture as well as the industrial sector. Economists have a good way to figure this out. It is called an input-output table, which is a matrix that maps how the production of a certain sector becomes an input in another sector of the economy."


On the policy implications of sectoral interdependence: 


"First, the government needs to understand the complex interlinkages in the economy. One way of doing so is to take a look at the several detailed input-output models of the Indian economy. The gradual exit from the lockdown—whenever it is done—will have to be coordinated across sectors. Opening one sector at a time will lead to production gridlocks."


Read the full article here

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