Economic Recession or Plunge
IMF forecasts world total GDP to reach $88.2 trillion in 2019 – jump from $80.250 trillion in 2017 with growth rate of 3.14%. Economic recession or plunge is inevitable due to COVID-19 pandemic outbreak. After all, the COVID-19 is once-in-a-generation threat to the world’s population. Forecast worse than the Great Depression of 1930s. The pandemic has resulted in severe global economic disruption, the postponement or cancellation of sporting, religious, political and cultural events, and widespread shortages of supplies exacerbated by panic buying. Also, there is sharp rise in unemployment, 2020 stock market crash, tourism and hospital industry collapse, crash of the price of oil, destabilization and collapse of the energy industry, increase in government debt, and major downturn in consumer activity, market liquidity crisis, riots and civil unrest. As per the World Bank, the global economy will shrink by 5.2% in 2020.
Growth is bound to decline and shrink. Normal economy may never revert back. Many jobs lost will never return. Thriving supply chains may never recover. Tourism is bound to decline substantially in short term context. Zero or negative economic growth in many nations is quite likely. Recovery will be slow in the beginning; but pick up after 2021.
When will markets and industry reopen and how rapidly they will recover is a million dollar question. Mitigation efforts—including lockdowns and travel bans—have attempted to slow the rate of infections to conserve available medical resources; but a second follow-on outbreak is not ruled out.
Ipso facto, the pandemic has created a massive economic contraction that has been followed by financial crisis in many parts of the globe with nonperforming corporate loans accumulate alongside bankruptcies. Sovereign defaults in the developing world are also poised to spike. Not only is the volume of trade down; the prices of many exports have also fallen. And the crisis will hit lower-income households and countries harder than their wealthier counterparts. Indeed, the World Bank estimates that as many as 60 million people globally will be pushed into extreme poverty as a result of the pandemic.
The global economic pillar – World Bank, the IMF, WTO and other financial institutions and alliances - are all facing challenges. All of them are predicting negative economic growth. Some experts believe the global GDP may shrink back to levels of 2008-2009. However, Governments around the world have deployed economic firepower on a scale rarely seen before.
Regional economic alliances are being viewed with circumspection by host nations out of fear of a “New Colonialism” exploiting host nations.
The rise of Chinese “Economic Frankenstein Monster” is the result of American investments of the post Richard Nixon-Henry Kissinger’s befriending of Mao Zedong- Zhou Enlai following ‘Ping Pong Diplomacy” in 1972. China’s economic success has eroded American dominance. The U.S.-led financial system of the past is today devastated.
Indian economy has almost certainly entered a contraction. Due to exodus of migrant labour, small and medium scale business enterprises, and real estate, are the worst hit or on virtual breakdown. The real critical issues to address includes: 1) Early return of migrant labour to work places; 2) Central government’s financial policies and effective implementation; and, 3) Labour Law reforms concerning Migrant Labour.
Speed is the essential parameter. The government machinery is well aware of the prudent policies to be incrementally adopted. The primary goal for fiscal policy should be to cushion the downward shock as much as possible and set the conditions for the economy to bounce back. So, initial Central Government and Reserve Bank of India’s monetary policies responses were primarily aimed at cushioning the blow to households and firms.
Demand for financial stimulus is the suggested panacea. Direct Beneficiary transfers are good ways to provide needy succour to the real beneficiaries. The Finance Minister, Ms. Nirmala Sitharaman, had announced various stimulus packages. The set of RBI announcements makes it easier and less expensive to borrow, encouraging firms and consumers to accelerate investment and encourage purchasing decisions. In addition, the government also needs to accelerate payments to suppliers and vendors to improve their cash flow during this difficult time.
As per IMF Chief Economist, Gita Gopinath, s India is spending around 1% of its GDP to combat the economic impact of Covid-19, but emerging markets on average are spending 2.5%. So, India can spend more. Surely, Modi and his team of economic advisors are well aware of the need to spend more incrementally by targeted financial infusion; but not by squandering the scarce resources.
Finally, Covid-19 has brought to limelight the real plight of migrant labour without adequate protections left free to fend for themselves after 73 years of democracy and socialism. In retrospect, the Central and State governments must enact labour laws that must provide to them adequate ‘safety net’ like direct payment of wages into their Bank Accounts based on minimum wages for various skills, provident fund, medical facilities and health insurance, housing provisions, ration cards and so on covering all aspects of their livelihoods. Surely, they cannot be left to fend for themselves in a nation that prides itself as “Welfare State”.
In sum, the real challenge is for revival of Indian economy to pre-Covid-19 status and steer it towards $5000 trillion economy by 2025. Small and medium business establishments particularly family based establishment like “Tea Stalls and Tiffin Centres”, which were the worst hit, have now resumed normal activities. Also, agricultural operations in rural areas are normal with bountiful harvest – almost contributing 3% to GDP as safety stock. No need to endlessly decry and berate the government machinery. After all, the nation collectively is waging War against the Covid-19 pandemic, the collective will of the nation is vital; but not demoralizing vituperative diatribe poured endlessly against the current state of affairs.
0 Comments