ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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COVID-19 Scarring and Sustainable Recovery Challenges

A Production Function Approach

The scarring effect of the pandemic is estimated by grouping the industries into four subsectors based on energy and labour intensities. A comparison of model output and the projected growth from a hybrid data set revealed the least impact on green industries. However, the intertwining of green and brown industries and the consequent short-run transitional cost necessitates calibrated policy intervention for sustainable growth.

The opinions expressed in this article are those of the authors and do not represent the Reserve Bank of India.

The COVID-19 pandemic has disrupted the global economy due to supply-side limitations, and it has spread to  the demand side via job losses, health risks, and heightened future uncertainty. Anecdotal evidences suggest that with the ongoing pandemic, contact- sensitive sectors have been affected more than non-contact-sensitive sectors, notwithstanding the relative importance of demand versus supply amplifications. With the expansion of the immunisation programme and advancements in medical care, economies are gradually rebounding. It is also of policy relevance to remind ourselves of the objective of following a sustainable growth path (Acemoglu et al 2012). Given the backdrop of the COVID-19 pandemic, therefore, the challenges are twofold: the economy must not only revive but also follow a sustainable path which is consistent with the expansion of the green economy. In this vein, we make an attempt to highlight new evidence using capital, labour, energy, materials, and services (klems) database.

We examine the heterogeneous impact of the COVID-19 shock on several industry groups using a supply-side partial equilibrium framework. We use the klems data set to aggregate industries in terms of contact sensitivity as compared to non-contact-sensitivity subsectors. Additionally, as part of recent policy initiatives towards environmentally friendly production methods, it may be necessary to be aware of the structural changes, physical dangers, and transitional risks to the brown industries versus their greener equivalent. Therefore, we further classify industries into green and brown industries—green being the environment-friendly, whereas brown being the polluting industries.

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Updated On : 13th Feb, 2024
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