ECONOMIC FALLOUT OF COVID-19

The COVID-19 pandemic that killed millions of peoples continues to spread rapidly around the world. In the past seven days period (April 6 to 12) 46 per cent of new confirmed cases have been reported in Europe and 39 per cent in the United States. It is because the countries are at different stages of this pandemic. What is threatening is that some countries like Singapore and Hong Kong that had effectively contained the virus are witnessing the resurgence of this virus and are now taking additional measures to control it.

India too is witnessing a spurt in the number of cases and thus devising strategies accordingly. It went for lockdown from March 25 for 21 days till April 14 and on April 15 the lockdown was extended till May 3. With nearly 162 countries steadily going into the lock down, the fear of an economic collapse is on the rise. In India, this situation together with a sluggish economic growth in the previous year has come at the most unfortunate time.

This disruption in the country is much starker than the global financial crisis of 2008. The 2008 crisis hit the Indian financial sector but did not brought a production halt. The COVID-19 pandemic has brought a production halt too. The World Bank has forecasted the Indian economy to grow by 1.5 to 2.8 per cent in the 2020-21 fiscal starting April1 and this is the worst since the liberalization of the 1991.

The industries are in a shut position; manufacturing has stopped, construction has come to halt, stopping of trains and other transport means has restricted the movement of peoples and goods, tourism has been affected badly, job opportunities are on the decline and the unemployment is on the rise. All this is bound to have repercussions on the country’s as well as global economy. A prolong lockdown is proving economically costly with the pain disproportionately on those in the informal sector. Nearly 55 percent of the electronics imported by India originate from China. This import has already come down to 40 percent due to the corona outbreak and the subsequent lockdown. The pharmaceutical industry is also the worst sufferer as about 70 per cent of the Active Pharmaceutical Ingredients are imported from China. The tourism industry is also hit hard by this virus. With a large number of confirmed corona positive cases including some foreign tourists also, the situation is worsening. The visas being suspended, tourist destinations shut indefinitely, the whole tourism value chain that includes hotels, restaurants, workers etc are facing losses worth thousands of crores of rupees.

The aviation sector is another one to bear the tragedy. With all the international as well as domestic flights landed on the ground, the revenue from this and other sectors have gone extinct. This continued lockdown has crashed the stock markets around the globe.

Under such a scenario, reports are that the world trade is expected to fall by 13 to 32 per cent in 2020 as the COVID 19 pandemic disrupts normal economic activity. Nearly all regions will suffer double digit declines in trade volumes in 2020 with exports from North America and Asia hit hardest. The global economy could shrink by up to 1 per cent in 2020 due to the corona virus pandemic, a reversal from the previous forecast of 2.5 per cent growth. The Unite Nations has warned that the growth rate may contract even further if restrictions on the economic activities are extended without adequate fiscal responses. An analysis by the UN department of Economic and Social Affairs (DESA) has also said that COVID 19 pandemic is disrupting global supply chains and international trade. With nearly 100 countries closing national borders during the past month the movement of peoples and tourism flow has come to a screeching halt. Millions of workers in these countries are facing the bleak prospects of losing their jobs. The lockdowns in Europe and North America are hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services. Collectively, such industries account for more than a quarter of all jobs in these economies. As businesses lose revenue, unemployment is likely to increase sharply transforming a supply side shock to a wider demand-side shock for the economy.

The United Nations DESA’s World Economic Forecasting has estimated best and worst case scenarios for global growth in 2020. In the best scenario with moderate declines in private consumption investment and exports and offsetting increases in government spending in the G7 countries and China-global growth would fall to 1.2 per cent in 2020. In the worst case scenario, the global output would contract by 0.9 percent instead of growing by 2.5 per cent in 2020. The report has also said that the contraction would be higher if government fails to provide income support and help boost consumer spending. The severity of economic impact will largely depend on two factors; the duration of restrictions on the movement of people and economic activities in major economies and the actual size and efficacy of fiscal responses to the crisis. The adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels. Developing countries particularly those dependent on tourism and commodity exports face heightened economic risks. Global manufacturing production could contract significantly and the plummeting number of travelers is likely to hurt the tourism sector which employs millions of low skilled workers.

The Governments of many countries have rolled out and are considering rolling out much larger stimulus packages to avert a sharp down turn of their economies which could potentially plunge the global economy into a deep recession. Our Hon’ble PM has also rolled out rupees 1.70 lakh crore ‘PM Garib Kalyan Yojana’. Under this package about 80 crore poor people will get 5 kg wheat or rice and 1 kg of preferred pulses for free every month for next three months; 25 crore women Jandhan account holders will get rupees 500 per month for next three months; increase in MGNREGA wage to rupees 202 per day from rupees 182 per day to benefit 133.62 crore families, about 8.7 crore farmers to be paid the first installment of rupees 2000 of 2010-21 in April 2020 besides many other social safety measures.

The Economic Response Task Force under the Chairmanship of Hon’ble Finance Minister Smt. Nirmala Sitharaman has also been set up for the revival of economy by devising ways and means catering to all the stakeholders. The present situation needs urgent and bold measures not only to contain the pandemic and save lives but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability.

To put in the words of UN chief economist and Assistant Secretary General for Economic Development ‘Elliot Harris’, the collective goal must be a resilient recovery which puts the planet back on a sustainable track. We must not lose sight how it is affecting the most vulnerable population and what that means for sustainable development.

The authors are Scientist and Head, KVK-Leh; can be reached at [email protected]