Movement of the DJIA between January 2017 and March 2020, showing the all-time high on 12 February, and the subsequent crash during the COVID-19 pandemic
In recent history, generations together may have never seen a lockdown as we are experiencing today. It is very difficult to believe that a country of 1.3 billion can come to a standstill & it’s not just about India, but the world as large, that includes the developed & developing nations, who are also grappling hard to fight back the pandemic…
The major crisis witnessed in recent times are Dot Com crash, 9/11 attack and Global Financial Crisis (GFC). Each of this crisis was a big challenge by itself. What’s different this time is that this pandemic has brought the world to a near standstill because of the need for “quarantine” given it’s contagious nature , which in turn is completely crippling world economic activity. The most dangerous part is about the tremendous fear psychosis that it has managed to develop in the minds of people. This could result in changed consumer behaviour resulting in lesser consumption & thereby lesser production and so on.
To put in historical perspective, this situation is being witnessed first time after Second World War.
German economy is expected to contract by 10% in the immediate future. French economy has said to be contracted by 6% in first three months of this year.
Global trade is going to contract by 32% this time as against the 12% contraction in 2009 post GFC. Frankly, nobody can guess with surety where global economy is heading in next 6-8 months. Already money is very cheap with near zero interest rates globally. The stimulus by US, Japan, EU would add to this further.
As far as India is concerned, there will be light at end of tunnel but as we say, it’s “conditions apply” The only immediate solution other than the “vaccine” itself is to devise an intelligent response to the pandemic . A prolongated complete lockdown can prove counter productive & may well be the perfect recipe for an economic disaster. At the most lockdown should be extended a week or two , during which the government should identify “hotspots” and limit the lockdown only to those hotspots. After that let all economic activities restart with this partial, selective lockdown limited to hotspots while enforcing social distancing norms generally not only limited to just the hotspots. India can leverage its leadership in Pharma , I-T, Chemicals manufacturing. In the last five years, India has tasted success in the ‘Make in india’ initiative in electronics & smart phone manufacturing segments.
India, with one of the lowest corporate tax rates in the world, is well placed to attract investments into these sectors. As of now, the MET data predicts a timely & an above average monsoon. If direct benefit transfer is used to put money in hands of people , it can help consumption to revive.
To summarise, steps like withdrawal of the complete lockdown in a strategic & timely manner, implementation of DBT, an above average monsoon & a pro business stance to create an environment that can kick start of economy and India may certainly be on the growth path once again in the next six months… Let’s hope for the best!!!