The COVID-19 virus has destroyed everything in its path. Public health, countless lives, the economy, the psychology of the masses, and on a humorous note, Donald Trump’s unwarranted wall of confidence. However, it is crucial to be aware and prepared for the consequences beyond the wrath of the virus. From an economic point of view, we’re in a world with the parental controls turned off.
India is an agrarian economy by principle, as approximately 70% of the population is involved in agriculture. However, agriculture contributes only 15% of our country’s GDP. The industrial sector contributes about 30%, and the services sector contributes a significant chunk of 55%. This is a worrisome fact as most industries and services are being dealt a massive blow due to loss of demand in response to the COVID-19 pandemic.
A snap poll conducted by the Confederation of Indian Industry (CII) on 200 chief executives across sectors found a majority of them fearing that their revenues would fall in the first two quarters of fiscal 2020-21. 52% foresee job losses in their respective sectors, resulting from the impact of the lockdown. These figures result from difficulties in transport, movement and access to the workforce due to stringent checks by local law enforcement. Tens of millions of migrant workers are now unemployed due to the current lockdown. Major manufacturing companies in India such as Larsen and Toubro, Bharat Forge, UltraTech Cement, Thermax and other automobile companies have temporarily suspended or significantly reduced operations in several manufacturing facilities and factories across the country.
On the global front, economies have been impacted in ways hitherto unseen. In the United States, the independence of states has led to a bidding war among their administrations to secure life-saving ventilators and personal protective equipment necessary to protect healthcare workers. Even in India, state governments are scrambling to acquire testing kits and PPE despite help from the Central Government. The global viewpoint on stock markets is very bearish and cruel. The ongoing oil price war between OPEC and Russia, which resulted in a fall in oil prices, has been further compounded by reduced demand, amidst nation-wide lockdowns. The oil price war is, in fact, one of the reasons for crashing stock markets. The stock markets have been affected so severely, that automatic stops in trading had to be triggered due to the erratic fall in prices.
A September 2019 report, prepared jointly by the WHO and the World Bank, estimated that a global pandemic would cost the modern economy $3 trillion. A 2018 research paper about pandemic risk, published in the WHO Bulletin mentioned income losses, reduction in the size of labour forces and productivity and an all-round disruption of economic activity. On April 1, the Secretary-General of the United Nations stated that the coronavirus would cause a global recession “that probably has no parallel in the recent past”. The previous day, the World Bank had warned that “significant economic pain” appeared “unavoidable in all countries”.
These reports paint a harrowing picture for the world economy, but they’re even more dangerous to the Indian economy. It’s no secret that India had been facing a recession even before the COVID-19 pandemic hit. With pre-COVID predictions of GDP growth already dire, this pandemic seems to have pushed us deeper into the reduction of the growth phase. Our currency has depreciated to unprecedented levels. The worst prediction of GDP growth has been Moody’s Investors Service, which on March 27, sharply slashed its projection for India’s GDP growth in the calendar year 2020 from 5.3% to 2.5%. The happiest estimate was a mere 5.2%, which still puts us on the defense in global terms.
This situation demands that the central banks of countries dig in and get the job done. With the loss of demand, a cash-based economy like India is at a definite risk of devastating economic consequences, which can only be mitigated if regulators take the necessary steps to inject some liquidity into the economy. A line of credit must be extended to small and medium-sized businesses to keep them afloat during the period of the pandemic. The government can offer short term loans at reasonable rates on a case-to-case basis. A task force, with a consulting arm, can be assembled to help businesses maneuver this crisis with minimum damage.
All around the world, governments have stood up in times of need. The United States Federal Government issued a $2 trillion aid for its people. The Government of India announced a 1.7 Lakh crore rupee scheme to provide relief to the poor and unprivileged. This involves a program that aims to provide food to 80 crore people in our country. The Prime Minister, the Governors and MPs have all agreed to take a 30% cut in their salaries for a year. Celebrities all around the world have donated and are continuously trying to support the healthcare facilities as much as possible.
The pandemic has been particularly tough on small and medium-sized businesses. But this crisis may well be an opportunity in disguise, for the brave and adaptable. For businesses to survive, they must analyze their supply chains and identify vulnerabilities. Once identified, they need to pivot their strategy to suit the current scenario. Businesses need to look at the crisis objectively and sense the opportunity to change or modify their offerings so that they can better fulfill their consumers’ needs. Basic examples would be restaurants providing no contact delivery services and grocery stores proactively stocking up on staples. A valuable tool during this period is the scenario analysis which checks the strength of a business’s financials. This analysis would give them insight into their worst-case scenarios, thereby allowing them to evaluate the need for extra working capital or any external help. Most importantly, businesses should make sure that a chain of information is in place to keep their employees informed about decisions being made at the management level. During crises like these, employees are bound to lose confidence and feel deserted if they’re not kept in the loop.
Local businesses need an immense amount of support if they are to survive the current lockdown and crisis. Large firms and conglomerates should set up seed funds to fund local businesses and provide them with adequate infrastructure to sustain the loss of revenue. Landlords should ideally delay rent payments, if possible. The health of local businesses is vital, as they are pillars of innovation and ingenuity. To this end, it would be advisable for these businesses to come together and share their experiences to avoid making the same mistakes. Governments must also make it a point to invest in local companies and support them. This is the time to proactively fund healthcare startups which may prove to be essential in fighting the virus.
For healthcare workers at the forefront, extra shift pay must be made mandatory, and salaries should be increased by a factor of at least 1.5 times. If required, they must be provided with loans at a lower rate of interest than the market. They are veritable armies, united in the face of a common enemy. Parallels of this crisis have been drawn with World War II. Both emergencies involved the deviation of resources to necessary aid. Both events prompted scientific and medical innovation at an unprecedented scale. Both events claimed lives. Like World War II, perhaps, beautiful things await at the horizon for humanity.
There might be a post-COVID-19 economic boom that might help absorb a bit of the negative impact of the lockdown and pandemic. The pending purchases might bring an influx of cash into the economy; however, some sectors like the services might not recover their losses at all. (There’s only so many times one can go to a restaurant, after all.) And, there is a possibility that the pandemic might bring a cautionary mindset in people regarding consumerism.
This pandemic might change our work ethic for the better or worse. There is a possibility of a ‘work from a home revolution’ if things don’t get better soon. Frivolous business travel will undoubtedly be out of the picture and teleconferences might soon be the norm. The resulting crisis might question the viability of the gig economy, endangering companies like Uber, Ola, Insider and many others.
This might also prompt a regression from brick-and-mortar retail, due to the over-reliance on e-commerce. The long-lasting psychological implications of the crisis might prevent people from going out to buy clothes and groceries when they can get them delivered to their doorsteps without venturing into crowded places. This mindset might forever change the entertainment industry as ‘Netflix and chill’ might replace ‘going to the movies’. For humankind, there is no going back from the consequences of this crisis, and there is little certainty about how they will shape our new world.