Covid-19 and its economic impact – editorials
Economies can also get sick from viruses. While health safety remains the priority, New Delhi should consider the economic consequences of the coronavirus pandemic (Covid-19). The immediate impact is visible: a sharp contraction in sectors such as transport, entertainment, tourism and, what is more damaging, the export of goods and services. Uncertainty has led to an exodus of foreign capital from the stock market. In the medium term, especially if the virus continues to spread within and outside India, the existing slowdown in investment and consumption will be exacerbated. More importantly, a protracted pandemic will plague India’s service sector, the single engine that has kept the economy going. The United Nations Conference on Trade and Development has estimated that India will lose almost $ 350 million in trade. The worst-case scenario for the Asian Development Bank is an almost $ 30 billion poorer economy. But these are largely educated guesses. The future spread of the coronavirus, the ability to create panic, and its impact are still unknown.
However, there are some potential advantages in the dim light. First, the economy is less integrated with China and the world. Its early isolation from China was notable for its minimal economic damage. Two, in a post-pandemic world, many companies and governments will seek diversity security and put India back in the spotlight on investment. New Delhi has other priorities now, but it should complete the policy package with which it aims to attract companies fleeing China. Three, New Delhi should benefit from the world oil price war. The expected windfall in revenue should be used wisely, with the goal of filling the gaps the virus will leave in the economy. If this windfall is elusive, New Delhi should be prepared to loosen its fiscal belt a little. The pandemic will be accepted by the markets as an acceptable reason to be financially expansive.
In a somewhat longer time horizon, India must contemplate a new era of restricted globalization. The international political economy has been geared towards ever closer integration and lowering of barriers since World War II. The impact of technological change, the movements of the United States to decouple its economy from China, nativist politics in the developed world and, now, the barriers that will follow the current pandemic point to a new paradigm. India, a long-time reluctant globalizer, will find this new environment less perplexing than others, and should plan ways to take advantage of this advantage.