Examining the Economic Impact of COVID-19 in India through Daily Electricity Consumption and Nighttime Light Intensity

by Robert C. M. Beyer
Facebook COVID19

Challenge: The COVID-19 pandemic has disrupted economic activity in India. When COVID-19 started to spread in India through domestic contagion, the authorities enacted a series of measures to combat the pandemic, including a strict national lockdown from March 25 to May 4 that strongly disrupted economic activity. Adjusting containment measures and policy responses to mitigate their economic impact requires an assessment of the magnitude of the economic situation in near real-time. Since the impact can vary at different locations, an assessment at high spatial granularity is needed. Indicators traditionally used to monitor the economic situation are available only with substantial lags and often at the national level only, and hence provide little insight into the immediate effect of strong and sudden policy measures like a national lock-down. In response to such problems, economists have suggested different proxies that are available at a higher frequency and with shorter publication lags, as well as at a higher spatial granularity.

Solution: Electricity is an input to activities throughout the economy, from industrial production to commerce and household activity, so changes in consumption reveal information about these activities in real-time. Similarly, nighttime light intensity contains information about economic activity at high spatial granularity. Both electricity consumption and nighttime light intensity closely track economic activity and have been employed to improve national account estimates of GDP. Both proxies have also been used to assess the economic impact of major policy measures. Nighttime light intensity, for example, allowed assessing the impact of India’s demonetization in 2016. Electricity consumption has also been shown to have closely tracked economic activity in regions like the US and the European Union. COVID-19 infections and district-level Facebook mobility data allow to identify the channels through which the pandemic affects economic activity.

Impact: There was a strong impact of the national lockdown on India’s electricity consumption. It dropped on average 28.5 percent in the week after the implementation of the lockdown and was on average still 25.8 percent below normal throughout April. When some restrictions were eased in May, electricity consumption recovered, but it remained 14 percent below normal levels. Monthly averages remained below normal afterwards, suggesting a lingering drag on the economy. Not all Indian states and Union territories have been affected equally. While electricity consumption halved in some, it declined very little in others. Part of the heterogeneity is explained by the prevalence of COVID-19 infections, the share of manufacturing, and return migration. During the national lockdown (with uniform restrictions across the country), higher COVID-19 infection rates at the district level were associated with larger declines in mobility and nighttime light intensity. Without effectively reducing the risk of a COVID19 infection, voluntary reductions of mobility will hence prevent a return to full economic potential even when restrictions are relaxed.

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