Mriganka M Bhowmick
India is overwhelmed today. The second wave of the pandemic shattered his expectations of returning to normal life in 2021. Loss of life, crumbling health infrastructure as well as the massive spread of COVID in rural India and the nascent stage of vaccination add his despair. The future looks very unpredictable and hazy. In the midst of these dreary ruins, the question arises as to what economic shocks await India in the months to come and how to deal with them. The situation may not be as bad as it is perceived in this time of great crisis.
According to forecasts from Hong Kong-based consulting firm CLSA, India could experience the peak of COVID by the third week of June, leaving 2% of the population infected in its path. This is how the nature of the second wave would be, they believed. India’s corona chart for the second wave also confirms this to a large extent. The second wave is gradually moving from metro hotspots to Tier 2 and Tier 3 towns and villages in several states, forcing India into a full lockdown mode, which was otherwise presumed to follow a partial lockdown pattern. In this constantly evolving crisis situation, it becomes extremely difficult to predict the length of time that may take to flatten the curve. The uniform peak and the flattening of the curve are not the characteristics of this time; rather a virulent surge on the one hand and a reduction on the other hand would be nature in the coming months. Whether a fledgling Indian economy can withstand this shock and be able to revive at the same pace as the global economy, primarily Europe and the United States, are critical questions that will define India after 2021.
At this point, the main economic indicators in April were not so pleasant with a 28% drop in auto sales, 7.4 million jobs lost with an unemployment rate set at 8% and an average drop of 40% of mobility in India keeps retail and leisure spaces high and dry. The trend will certainly continue in May; rather, it may worsen due to low labor force participation in both urban and rural sectors due to the prolonged lockdown and the spread of the virus in rural areas. Economic forecasts from global organizations have so far been mixed. Moody’s Analytics revised India’s growth rate to 9.3% from the previous projection of 13.7%, a huge reduction of 4.4% and CRISIL fixed it at 8.2% by reviewing from the previous projection of a growth rate of 11%. In contrast, the United Nations forecast 7.5% growth for 2021 and an impressive 10.1% growth for FY22 with a herring that makes the economic situation look fragile in the aftermath of the second wave in India.
But there is a hopeful story about reviving the global economy in 2021 anchored by the G7 group of countries. With high immunization rates in the G7 countries, the rich countries of the world are on the verge. to obtain collective immunity. The gradual ease of foreclosure measures to a fully open economy will result in high economic activity and spending will increase after a 12-month lull. The OECD has forecast that the US economy will grow by more than 6% in 2021, while Britain at 5.4%, France at 5.9% and Italy at 4.1% will grow respectively. Rich countries are heading for a post-pandemic boom and the divide between rich and poor will widen unless developing economies fold back to integrate.
In general, there is a consensus that the second wave will be less disruptive than the first wave and that India will rebound after mid-2021.The basis of this consensus rests on the adaptability developed by the first wave which includes a new standard such as adaptation to the workplace. , adherence to the social distancing protocol, the concept of working from home and the adoption of a higher degree of digitization. Disruptions will therefore be limited to only those areas that rely on face-to-face meetings. These will lead to a structural transformation towards digitization and an automated economy. This assumption can be justified for advanced economies. But India, as a developing country, faces multiple challenges to embrace structural transformation. India’s recovery will therefore largely depend on its ability to absorb short-term shocks and its ability to recover and recover to pre-Covid levels. This forces India to recalibrate its economy very quickly with critical inputs and interventions that can push the recovery index up.
The Covid Economic Recovery Index (CERI) mainly depends on three factors such as health resilience, absorptive capacity and economic resilience. Health resilience depends on the capacity of the health system, pre-existing risk factors and pandemic preparedness which are certainly weak points for India to date. But a rapid vaccination campaign can boast some degree of resilience.
Absorptive capacity is a factor of economic dependence on industries vulnerable to Covid, international connectivity and labor market performance. Here India is better positioned due to its low dependence on vulnerable industries like tourism and fuel export etc. Although a rigid labor market can pose challenges to its absorptive capacity. However, India is ideally positioned to absorb shocks in the short term, but may become less resilient in the event of a long term economic recovery. The real challenge is there.
To build economic resilience, India must work on adaptability of the labor market, governance, measures to infuse social capital and develop the robustness of the financial system. Upgrading and retraining the workforce after the pandemic can be a game-changer in India. In fact, international trade plays a key role in the recovery and its degree depends on the recovery capacity of the target markets. As the global economy is in a recovery frenzy with the exception of a few developing economies and African countries, India may experience a good pull in export businesses, which will further strengthen integration into the country. global supply chain and the risk of reversal of capital flows will decrease significantly.
The vulnerability of Covid-19 poses a greater threat to economies that have only one or two particular types of income streams. Less diversified economies will have a higher risk. Fortunately, India is a diverse economy. (IPA)