They say that the devastation wrought by a deluge can never be estimated while the downpour is still in progress. You have to wait till the worst is over, and till the fury of nature has abated sufficiently, to start to figure the actual losses. While the rain is lashing, you are more worried about the rising water, the leaking roof, the unhinged door and the outside wall that has just collapsed. You don’t know what lies beyond. The current pandemic is much the same. It has spread today to 215 countries around the globe. All the news everywhere is only about humans infected, those tested positive and about virus deaths. No one is even talking of economic impact, just yet. The headwinds from the pandemic are so severe, in fact, so vicious, that let alone look at post COVID scenarios, even guesstimating the severity of the economic damage is extremely difficult to do at this stage. It is, therefore, more a wait and watch for economic analysts as they react to varying scenarios on a case-by-case basis, factoring in the headwinds and the sheer adversity of circumstances. It would, therefore, be prudent to let the world economic order settle down a bit before endeavouring to gauge if its contours have been permanently altered, in more ways than one.
On sheer magnitude and size, the US is a US$ 21 trillion economy. China clocks in at US$ 14 trillion. India, in comparison, is at a puny US$ 2.8 trillion. From a different lens, if you take just 2017 figures for comparison, India was the world’s fourth-largest economy in terms of goods & services. It produced US$9.4 trillion worth. But it was, and is still, a long way behind the Top 3: China, with production worth US$23.2 trillion, the European Union with US$20.9 trillion, and the United States with US$19.4 trillion. Solutions for different economies, therefore, cannot be the same.
The US unemployment data is at a record high – indicating great pain ahead. 22 million have lost their jobs over the past month – the real unemployment rate is most likely nearing 18%. The highest one-week record – before the current streak of multi-millions getting jobless – was 695,000 in October 1982. With 29 million unemployed today, the real unemployment rate is actually higher than in any single month since 1938!
China has a different problem. Debt. Overwhelming debt. China’s total corporate, household and government debt rose to 303% of GDP in the first quarter of last year. China’s total debt stands at over US$40 trillion – some 15% of all global debt. And that is a real big problem in a world economy that is already in doldrums.
India was already hurting before the pandemic hit us. With the lockdown creating widespread disruption across sectors, India is headed to what Dun & Bradstreet (D&B) termed as “severe demand shock”. D&B, in fact, went on to elaborate it saying, “… a fall in the optimism levels amid heightened uncertainty has led to a ‘double whammy’ – closure of businesses leading to global supply chain disruptions and a steep fall in the consumption.” And that is a fairly accurate assessment of the current situation.
Post-Covid, the world, and the world economy will have to seek a ‘new normal’. Full recovery of economic activity, including GDP growth, jobs, and unemployment, will take at least a year, and could most likely much longer. Economists at MIT Sloan have identified four important factors that will impact recovery and getting to that ‘new normal’:
-Negative consumer sentiment and spending. It could well take over 12-18 months for the pall of gloom and uncertainty to fully lift, and that for those in business (with perennial costs & overheads) is a long waiting period.
-The gig economy is becoming more the norm around the world.
But most of the labour market protections, including rules on overtime pay, the minimum wage, health benefits, and retirement benefits, were built on an assumption of ‘regular’ employment over the decades. Gig economy workers will now require ‘permanency’ and protection. Their numbers today are significant.
-Large segments of the economy are likely to be permanently disrupted as a result of the coronavirus’s impact on the travel, retail, and entertainment industries, among many others, requiring capital and labour to shift into new areas of economic activity on a massive scale. This is not going to be easy.
-Industries that survive the downturn, including those that are vital to our economic system, will face a long period of adjustment to working and interacting virtually rather than face to face.
The only silver lining in these troubled times, especially for countries like India, is the drop in global oil prices. Currently hovering just above US$ 30 per barrel, oil prices could further drop and go down to as low as US$ 20 per barrel within 2020. A one-dollar fall in crude oil price results in reducing the country’s import bill by almost Rs 2,900 crore. Unfortunately, though, the Indian rupee is under pressure against the dollar … a rupee fall in the value of our currency against the US dollar results in increased spending by up to Rs 2,700 crore on oil imports. So, India’s prayer would be for oil to fall quicker and lower than the descent of the rupee.
Now to business. Going forward, the world, and India too, will have to look at the business from a more nationalistic point of view. Our ‘Make in India’ programme, despite much publicity and hype has really not delivered to expectations. We are far too dependent on China for almost everything, and that in post COVID times will have to change. And, change rapidly. We have been speaking about setting up manufacturing parks where the land, surrounding infrastructure, labour and logistics will be efficiently and cost-effectively be taken care of. These efforts need to be stepped up. In a way, this pro-active self-help could re-ignite the economy and accelerate business recovery.
We in India have somehow always fancied ourselves as the service backroom of the world while China was the factory for all. Well, that in all likelihood is going to change. With US and Western economies in big trouble, part nationalism and part slack demand may badly hit all the captive service units of global multinationals that were handling IT, billing, HR, customer service and more from India. We have to figure out how to cushion and combat that downturn in fortunes for our star industry sector. The blow could be debilitating.
Post-Covid, contrary to popular belief, hi-tech automation and AI will actually lift productivity and economic growth as businesses rebuild, but then millions of employees worldwide will need to switch occupations and/or upgrade skills. The World Economic Forum (WEF) in fact has estimated that the emerging professions resulting from automation could account for 6.1 million additional jobs globally between 2020 to 2022. Whether India embraces this shift to higher technology still remains to be seen.
At the ground level, much is likely to change. Travel. Tourism. Eating out. Home deliveries. Commerce. Entertainment. Spectator sports. News consumption. Education. Each of these businesses will have to learn to expect the unexpected. What are the chances they will cope, and succeed? Fifty-fifty.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.