Post-coronavirus, how India can bounce back
“It’s the economy, stupid," Bill Clinton famously declared during his 1992 Presidential campaign. He won, the US economy boomed, sputtered a bit, then boomed again and Clinton won a second term in 1996. Prime Minister Narendra Modi has paid full heed. The guidelines for relaxing the nationwide lockdown in specific sectors will come into effect from April 20. They apply to activities in districts free of Covid-19 cases: agriculture, SEZs, construction projects, inter-state goods transportation, IT, e-commerce, pharmaceuticals and, most crucially, MNREGA.
Tough quarter ahead
For state governments and the Centre, getting daily wage earners back to work on construction sites and factories is a priority. The decision to keep all air and rail travel shut till May 3 could hurt such workers. The impact of the lockdown on India's economy meanwhile could be dire. Most estimates place India's GDP growth in 2020-21 at below 2 per cent. Even that will be hard to achieve unless there is a quick rebound in economic activities. By comparison, GDP growth in the year ending March 31, 2020, to be announced next month, is likely to be a flattering 5 per cent simply because the lockdown from March 25 affected only 6 days of the financial year.
The biggest impact on economic growth will be witnessed in the April-June 2020 quarter. GDP could fall precipitously. April is a washout. May and June could see slight incremental recoveries. But the economy is not likely to achieve a semblance of normalcy till July - even if Covid-19 virus cases are brought under control by then. The travel and entertainment industries face a particularly difficult year. Hotels, restaurants and malls could be badly hit. Dining out may take a long time to recover.
For Indian restaurants this is an existential crisis. Many could close. Those which survive will need to change their business model to takeout dining. Swiggy, Zomato and other food delivery apps will benefit from this but the dine-in restaurant business may not be quite the same again. Indeed, the world won't be quite the same again. The huge number of fatalities in the West has caused a fundamental shift in thinking on the future of world trade and global supply chains.
The WHO mess
China has quickly got back on its feet. Factories are humming again. Wuhan, where the virus originated, is back in business. Ironically, China is exporting personal protective equipment (PPE), face masks and other aids to protect the world's healthcare workers from a pandemic it exported.
The culpability of the World Health Organisation (WHO) in covering up the initial spread of the virus, reportedly at the behest of the Chinese government, has been called out by US senators furious at the damage Covid-19 has caused to the American economy and American lives. The US now accounts for a third of all Coronavirus cases worldwide and has suffered over 32,000 fatalities - more than 10 times the number of deaths caused by the 9/11 terror attack. Lawsuits have meanwhile been filed in Texas and Florida by Freedom Watch, a conservative activist body, seeking damages of $20 trillion from China for the economic Armageddon it has unleashed on the world. The US has put on hold its annual contribution of $400 million to WHO.
The US is WHO's largest contributor and accounts for 15 per cent of WHO's annual budget. (China contributes just $44 million.) The price for restoring American funds could be the resignation of WHO's under-fire Director-General Dr. Tedros Ghebreyesus. Global business leaders like Bill Gates, however, warn that denying US funding to WHO could be counterproductive in the fight against Covid-19. Meanwhile, several US and European companies in China are relocating. Some will return operations to their own countries despite higher labour costs. Trust in China as a reliable global supplier and contract manufacturer has severely eroded in the West.
Trying times
India needs to get its economic act together before it can hope to be one of the countries -- along with Vietnam, the Philippines, Malaysia and Indonesia - to pick up some of the manufacturing global supply chain business from China. To put the Indian economy back on its feet so that it returns to at least 90 per cent of its pre-Covid-19 capacity by the July-September quarter, India will need not just a graded exit policy from the extended lockdown but also robust policy-making to recharge the economy. The stimulus package of just under Rs. 2 lakh crore announced by the government amounts to less than 1 per cent of GDP.
This needs to increase incrementally over the next eight months to 5 per cent of GDP or Rs. 12 lakh crore. Some of the funds can be borrowed from the Reserve Bank of India, the rest through issue of rupee bonds. With interest rates low, the annual servicing cost of borrowing will add a mere 0.2 per cent to the fiscal deficit. The benefit of a recharged economy far outweighs the concerns of fiscal fundamentalists. These are trying times. They must be faced with resolve not trepidation.
(Courtesy of Mail Today)