Covid-19: Economic Opportunities and Challenges | Opinion – analysis
When pandemics spread, they cause economic contagion, beyond the morbidity and mortality of the disease itself. Economic activity has been reduced to impose social distancing, an indispensable bullet in the war of coronavirus disease (Covid-19).
The World Bank and International Monetary Fund (IMF) warned that the virus is pushing the world economy into a recession worse than that after the 2008 financial crisis. Moody’s downgraded India’s GDP growth rate forecast to 2020 from 5.5% to 2.5%. A report of the United Nations Conference on Trade and Development (UNCTAD) entitled The Covid-19 shock to developing countries he called on “governments to do whatever it takes” to prevent the economic downturn from turning into a recession or worse, a prolonged depression and to protect the poorest.
United Nations Secretary-General António Guterres called for a large-scale, coordinated, comprehensive and multilateral response based on solidarity and shared responsibility. His proposals for a “double-digit percentage” of global GDP investment, greatly increasing resources for developing countries by increasing IMF capacity, including by issuing special drawing rights and by MFIs like the Bank World.
Representing the world’s most powerful economies, the G20 has expressed its determination to defeat Covid-19, but so far, concerted global action and cooperation, and improved liquidity and financing have not materialized. Significant national aid and stimulus packages announced by the United States, Europe, China and India are expected to help stop economic bleeding and fund the coronavirus war.
Developing countries, including India, face several economic challenges. These include volatility and a precipitous drop in financial markets and commodity prices, and the financial gap due to declining Covid-19 tax revenue and spending. The liquidity crisis, disruptions in international trade and transport, the depletion of foreign exchange reserves, the devaluation of their currencies, the fall in export earnings due to export controls and the contraction in world markets and economic engines are also cause for concern.
They also face the prospects of a global crisis in food, pharmaceuticals and medical supplies as producer countries impose export and storage control. India may face a remittance crisis due to coronavirus-related layoffs in major labor export markets.
The economic impact in India needs to be assessed by what some Harvard economists call the “shock form” and its “structural legacy”. This will depend on the nature and extent of the disease burden, the resources deployed / diverted for treatment / care / vaccination, the trajectory of the pandemic, collateral damage to sectors, the state of the pre-crisis economy , the political responses and the special measures taken.
Resistance and rebound will depend on the duration of the blockade, the stage in which the blockade was imposed, in the case of India, was early enough, and the fulfillment of social distancing by citizens. Reducing uncertainties around health security-driven economic decision-making will help, and slightly longer locks seem better than suspension options.
India needs to ensure that a banking / credit crisis does not occur in this interregnum, liquidity is maintained at the household and corporate level, and that there is minimal disruption to capital formation and investment. Job posting should be minimized and migrant workers should be encouraged to stay in place or return after closure, including through reuse for the crown war.
Skills atrophy should be avoided, production and supply maintained through targeted support to strategic sectors, SMEs, SHG. Providing social protection to poor and vulnerable farmers and workers is essential. Prime Minister Narendra Modi’s stimulus and financial aid package seeks to achieve these goals and will continue to evolve.
If the blockade lasts for months, there is a risk of a prolonged freeze in the real economy and a prospect of recession. We need to keep core sectors protected from fire through PPE protection / equipment measures and rapid and affordable testing and status protocols until we open all sectors.
Walden Bello, the author of Deglobalization: ideas for a new world economy notes that Covid-19 dealt a second major blow to globalization and connectivity. With China, its standard-bearer, becoming the epicenter of the crisis and economic contagion, the global risks of relying too much on this “undisputed workshop in the world”, the largest merchant and exporter, are rethought. Countries around the world are considering diversification strategies outside of China and encouraging autarky in strategic areas.
The reevaluation of global investors about putting all their eggs in the Chinese basket presents an unmissable opportunity to attract them to India. While no one should underestimate China’s enduring comparative advantage and resilience, we should take advantage of India’s large market, human resources and diversified production base to become a hub for manufacturing, services, research and development and technology.
Pharmaceuticals, biotechnology, medical supplies and equipment and related infrastructure for health sector capacity, supply chain and value is a vital multi-sectoral group to create with all stakeholders, private and public. Durable consumer goods, building materials, electronics, engineering products, computing, textiles and specialty clothing, artificial intelligence, and robotics are other promising areas.
GATT / WTO Article XX allows countries “to take whatever measures they deem necessary to protect their national security interests.” We can use trade restrictions, TRIPS, TRIPS exemptions to support national value and supply chains to protect our health, food, and economic security.
A “new India” industrial and trade policy is needed to incentivize our entrepreneurs to be manufacturers, not just merchants. They must build a Make in India center to meet national and global demand related to Covid-19 and the subsequent consumption of revenge and revenge. The adversity acquired by the virus can become a transformative economic opportunity to “rebuild better.”
Lakshmi Puri is a former deputy assistant secretary-general of the United Nations, a former deputy executive director of UN Women and a former acting deputy secretary-general of UNCTAD. This is the last in a three-part series on the writer.
The opinions expressed are personal.