What makes it different?
Yash Agarwal
Asia GR @ ICANN | Founder - Public Policy India | Ex: Twitter, Indian Parliament, LAMP | Internet Governance and Technology Policy
India entered into the pandemic with eroding growth and weak Public Finances. Strong macro fundamentals could yet help save the day for it.
?This is a rather inopportune moment to be penning an essay on challenges emerging owing to COVID19 for the Indian economy, given the much discussed and already delayed economic stimulus ‘package’ could be announced anytime next week. As has been reported and discussed ad nausea, the announcements are expected to address most sectors of the economy and hence we can obviously expect it to leave its yet unknown imprint on the Indian economy in due course.
In light of that, I’d steer clear from getting into specifics, or offering my two bits on what we can do to tackle emergent economic challenges better, given the fact that I’m no economist and there are those who’re both better equipped and better endowed to do so. My focus here would instead be on what makes this particular economic downturn different from its immediate predecessor, both in terms of nature and scope as well as focus a bit on what still gives us hope for a fast, sustainable recovery.
Covid19, apart from being a global health emergency, is an economic catastrophe as well, in equal measures if not more. This is one of those very rare occasions when the global economy has had to be put under a brake and the pandemic is truly universal in the sense that it has spared almost no country to think of. Think of it, all our socio-economic institutions are designed for, and geared towards growing our economies, increasing national incomes and furthering our prosperity. All of sudden, we’ve had to bring more than two thirds of it to a halt, that too for extended periods of time.
I’d like to add an observation here, all this talk that we’ve had to make a choice between human lives and economic growth, I can say it with due evidence that it’s false and misleading. Sweden had not had a complete lockdown, all its Nordic neighbours have. Yet, economic activity, mobility etc fell in Stockholm in close proportions to the extent it did in Helsinki or in Oslo, with a proportionally much higher death toll to go along with it, sounds like worst of both worlds. People stayed indoors, there was a massive drop economic activities in general and they’ve reduced their mobility owing to abundant caution and not out of a government diktat. Do remember, this is one of world’s wealthiest countries with first-world health infrastructure and superior social hygiene norms built in day to day lives anyways.
If we are to premise it in that sense, and we saw it in Britain’s early response strategies as well, then the choice that governments across the world had to make was not between the economy and saving lives, but saving lives or not instead. Which brings me to my main observations for India.
I) The current economic slump hasn’t emerged out of some fundamental fault with our current economic system, but owing to a global medical emergency instead. Yes that isn’t to imply that there isn’t anything wrong with our systems in place, but the point being that unlike the 1991 crisis, it isn’t this set of things fundamentally wrong within our own economy that has brought this to fore and hence some key decisions taken would work like a magic pill for recovery. This is going to be long, slow and iterative.
II) Unlike economic crashes brought about by wars, or by natural disasters for example, there has been no destruction of any physical economic production capacity/resources in this case. For example, Europe’s post war boom was premised, to an extent, on the very ideas of rebuilding destroyed economic capacities of production destroyed by the war, generating jobs, wealth and prosperity in process. As we plan a graded resumption, it’d help to keep this in mind.
III) India entered the 2008 crisis with the best, fastest and most sustained period of economic growth we had ever seen. Globalisation was on a swing, our exports were booming and sub multi-digit GDP growth was actually a reality. Hence, in its immediate aftermath, we could muster the space and resources to mount a fiscal response, spend our way out of it to an extent. This time around, well, the conditions were far from the same, with the escape clause in the FRBM act having been invoked in February of this year before the Pandemic made its presence felt in India.
IV) I’d have to draw a contrast here though vis a vis 2008, on a different front, that of macro economic fundamentals. Be it inflation or be it forex reserves, thankfully, India’s been doing pretty well on these two crucial parameters, inter alia, and it’ll hold us in good stead as we tackle the pandemic and it’s attendant impact on our economy. India has had moderate to low inflation for last half a decade, and our forex reserves in March were inching towards half a trillion dollars, highest ever and leaving us comfortably placed to face further challenges that emerge going forward.
V) The biggest and most fundamental difference of them all. There is an external variable in the 2020 economic slump that almost none before this have had, that of a microscopic pathogen which is taking upon societies and infecting humans by the second all over the world! The point being, no matter how much we plan, strategise, pour in cash etc, there are things which are simply beyond our control and determination. The extent of spread of the virus, how long would it’s after effects linger on, by when do we get a vaccine to conclusively put an end to the uncertainties it has birthed; it’d not be incorrect to say there is no way to answer these fundamental queries conclusively and hence help us plan our way out of it.
As I write this, news has emerged that in Seoul, another incident has occurred wherein a lot of people have been suddenly infected at a pub over the course of a couple of evenings, and hence all pubs/bars etc in the city have been ordered to shut down again. Do remember this is South Korea we’re talking about, a country which has performed fabulously by all standards in tackling the virus and it has had maintained high vigil all along anyways.
There are, of course a range of other aspects that we could delve into: How low oil prices would help India lower its import bill, take inflation and with current account balances. Or the fact that owing to the timing of the outbreak, by the time we get to mid-September, which is when we’ve almost all of India’s biggest, most major festivals, and cascadingly a huge chunk of our sales/marketing/manufacturing etc owing to festive demand, by that time we’d have gained a certain upper hand and hence make most of the seasonal demand push to aid our economic recovery. Or how the pandemic, amidst the rubble of destruction it is leaving behind in its wake, has essentially forcefully created a more than 7,000 crore industry in the healthcare sector almost overnight in India and brought down our import dependence on most PPEs, medicines, ventilators etc to close to zero.
Okay I shall stop here because as I keep writing, newer and more recent ideas keep coming up in my mind and this would get too lengthy and incoherent if I were to continue. But I’m attaching some of my preferred reads on different aspects of Covid19 from an economic perspective down below. Happy reading, take care and do leave your feedback in the comments section down below!
Readings:
https://www.nytimes.com/2020/05/03/world/asia/coronavirus-spread-where-why.html
https://www.wired.com/story/inside-the-early-days-of-chinas-coronavirus-coverup/