As the world is slowly coming out of the lockdown, the economic fallout due to Covid-19 is being assessed. Whatever be the statistical pointers, it is an undisputable fact that the current crisis is worse than the South-East Asian currency crisis and the global financial meltdown of 2008-09. In fact, the ongoing recession might be as bad as the Great Depression of 1930s or even worse. It has dented both the demand and supply sides of the economy.
The governments across the world are more or less faced with similar spectra of problems. Response to these challenges could be subjective based on the country’s fiscal strength and ability to strictly follow up and implement the policies. Let us delve into these challenges. While the focus of this article is India, other countries may be referred to as necessary.
The prime responsibility of the governments across the world is to minimize the human cost. The most vulnerable section is the one at the bottom of the pyramid. Ensuring medical and food for them could prove exacting task for the governments. In some countries, there is no adequate medical infrastructure to deal with such an influx of patients. Access to food and medical aid has to be ensured for everyone.
The governments are posed with the challenge of kick-starting the economies, which won’t be an easy task due to globalization and economic interconnectedness. Manufacturing and service sectors were highly dependent on the supply chain spearheaded by China and India. Both have been battered by lockdowns. Much depends on Chinese and Indian factories coming alive and international flights becoming operational again for service sector professionals to travel across borders.
Labour crunch might be imminent as migrant workers in both organised and unorganized sectors have gone back to their respective native places. Getting them back to factories would prove to be a herculean task. Factories coming to full throttle would take some time.
The Liquidity Crunch
People have been stripped of money. Cash has to be put in people’s wallets to spur demand. Financial experts world over have discussed many concepts like helicopter money, quantitative easing to increase liquidity and money supply. But at the same time, spiralling inflation could be even more disastrous as supply side won’t be restored to full capacity anytime soon.
Burgeoning unemployment is a global concern. The US saw maximum pink slips recently. Confederation of Indian Industry (CII) warns unemployment swelling to 28% from around 10% just before lockdown. International Labour Organization (ILO) opines that one-third of the total workforce could be on roads. This is really alarming and could translate into close to sixty million people plunging below abject poverty line leading to hunger and starvation deaths.
There have been announcements of stimulus cum relief packages all over the world. If we recall, the stimulus packages followed by aggressive economic policies did pull Japan and Germany out of the morass post World War II. In the near past, bold step of quantitative easing in the US pulled it out of the 2008-09 crisis. To overcome the current crisis, any nation’s stimulus package will have to be focussed on the following four basic tenets – Relief, Employment, Business and Innovation. These may be addressed in the short, medium or long term based on how severely they are impacted due to the pandemic. As of this writing, India had already announced stimulus package in different stages and some of the measures mentioned below might be in effect already.
Short-term and Immediate Impact
This must be so devised as to leave expendable cash in the hands of people to spur demand. This could come in terms of subsidies, relief in payment of EMIs and free food coupons, NGO run langars or community kitchens. Direct money transfers to affected persons’ accounts like in Jandhan yojana, increased wages of MNREGA has definitely helped the poor in India.
These measures have to be tailored to bailout sectors severely hit by lockdown but which support the bulk of employment. Small and medium scale enterprises, travel and tourism, hotel business, etc. must be the target for medium-term measures. Easy and cheap credits to these enterprises could provide relief. The stimulus package announced by the government should also guarantee the survival of existing production capacities apart from measures taken up to lift the sagging demand in the economy.
Relaxation in compliance with statutory obligations like income tax returns, extension in contracts with the government would ensure regular incomes and subsequent employment. The government must also consider relief for daily wagers and street vendors in the form of direct money transfers, and provide them easy access to food and ration through one nation one ration card schemes.
Long-term policies should be framed to perpetuate the short and medium-term gains. Emphasis should be on building up a sturdy supply chain both in agriculture and industrial sector. This entails strengthening of infrastructure even by invoking PPP (Public-Private Partnership) model. Adequate participation of private players in core industries must be a priority. The central and state governments should move out of the ‘business’ of running businesses.
Agriculture is still the backbone of Indian economy and played a stellar role in many a time in turning around the economy. The state governments in India should ensure effective post-harvesting activities like storage, logistics, access to market, unshackling the farmers from talons of middlemen, easy and cheap credit, and soft recovery norms for the benefit of farmers.
Challenges and Opportunities
“In a crisis be aware of the danger but also look out for the opportunity” – John F Kennedy.
Harvard medical study reveals that the malady is going to be around for two years at the least. Boom and Bust would be the pattern of its assertion. WHO has finally conceded that Covid-19 will keep on surfacing as endemic in various pockets across the world. Vaccines are still elusive and may take some time to fully develop, and we may have to learn to live with masks and social distancing for some time. Thus, in the absence of a vaccine or an effective drug, governments across the world must brace up medical infrastructure and establish dedicated hospitals. They have to ensure general and medical-grade masks, personal protecting equipment (PPE), gloves, ventilators and medicines be available in adequate supply.
Of course, the behavioural changes that most people have adopted like maintaining social distance, avoiding personal contact, frequent hand washing, sanitization, etc. must continue. The whole population can be made to adopt these practices with the use of social media, campaigns, documentaries and advertisements. These behavioural changes to be ingratiated in individual lifestyle as a safeguard against the pandemic. In the long run, it would also help in combating other viruses and microbes.
The pandemic has significantly altered how we do the work, and some of the workplace changes enforced due to lockdown might remain forever. For instance, work from home, online education, video conferencing, home delivery, telemedicine, artificial intelligence in treatments, etc. will continue to be a routine for most people even after the pandemic recedes. Thus, the pandemic may have brought some efficiencies in conducting business, albeit unintendedly by managers or employees.
The Indian economy will definitely pick up by 2021 as we have seen economies emerge stronger after a crisis. The International Monetary Fund (IMF ) had predicted turn around in the form of a V curve with India bouncing back at 7.1% and China at 9.2 % in 2021. Regardless of the intensity of the pandemic, human resilience will prevail and the economies across the world might see a boom again in 2021.
-Panini Sharma (One of the prize winners of Covid-19 Article Writing Competition in the 18-24 years age group)
Picture Credits: capacitymedia.com