Economic Impacts of the COVID-19 Lockdown in a Remittance-Dependent RegionJEL codes

The economic impacts of COVID-19 lockdowns on poor and vulnerable households living in rural areas of developing countries are not well understood due to a lack of detailed micro-survey data at the household level. Utilizing weekly financial transaction data collected from households residing in a rural region of India, we estimate the impacts of India's COVID-19 lockdown on household income, food security, welfare, and access to local loan markets. A large portion of households living in our study region is reliant on remittances from migrants to sustain their livelihoods. Our analysis reveals that in the month immediately after India's lockdown announcement, weekly household local income fell by INR 1,022 (US$ 13.5), an 88% drop compared to the long-term average with another 63% reduction in remittance. In response to the massive loss in earnings, households substantially reduced meal portions and consumed fewer food items. Impacts were heterogeneous; households in lower income quantiles lost a higher percentage of their income and expenditures, but government food aid slightly mitigated the negative impacts. We also find an increase in the effective interest rate of local borrowing in cash and a higher demand for in-kind loans, which are likely to have an adverse effect on households who rely on such services. The results from this paper have immediate relevance to policymakers considering additional lockdowns as the COVID-19 pandemic resurges around the globe and to governments thinking about responses to future pandemics that may occur.

Automated summary

The COVID-19 lockdown in India significantly reduced local household income and remittances, leading to decreased food consumption and increased financial stress. Government food aid helped mitigate some negative impacts, but the increase in borrowing rates and demand for loans may pose additional challenges for vulnerable households.