Mriganka M Bhowmick
India is overwhelmed now. The second wave of pandemic has shattered its expectation to resume a normal life in 2021. The loss of lives, the crumbling health infrastructures along with the massive COVID spread in rural India and nascent stage of vaccination are adding up its despair. Future seems very unpredictable and blurred. Amidst of these glooms and dooms the question is looming large as what economic shocks are waiting for India in coming months and how to sail through it. The situation may not turn out as bad as it is perceived at this hour of great crisis.
If the prediction of Hong-Kong based advisory firm CLSA is be believed then India may experience the COVID peak by third week of June leaving 2% of the population infected in its way. That’s how the nature of the second wave would be, they opined. India’s corona graph for second wave is also substantiating it to a large extent. The second wave is gradually shifting from the metro hotspots to tier 2 and 3 cities and villages in multiple states forcing India to enter in a full lockdown mode, which was otherwise presumed to follow a partial lockdown model. In this ever evolving crisis situation, it’s becoming extremely hard to predict the time frame that may take to flatten the curve. The uniform peak and flattening of curve are not the characteristics of this time; rather a virulent surge at one part and reduction in other part would be nature in coming months. Whether a budding Indian economy can sustain this shock and will be able to revive with the same pace of global economy, mainly Europe and US are some critical questions that will define India post 2021.
At this juncture the lead economic indicators in April were not-so-pleasant with 28% decline of auto sales, 7.4 million job loses with unemployment rate pegged at 8% and an average 40% decline in India’s mobility keeping retail and recreational space high and dry. The trend will continue in the month of May for sure; rather it may become worse due to weak labour force participation in both urban and rural sectors due to prolonged lockdown and viral spread in rural sectors. The economic forecast by global bodies is a mixed-bag so far. Moody’s Analytics revised India’s growth rate to 9.3% from earlier projection of 13.7%, a huge cut of 4.4% and CRISIL pegged it at 8.2% revising from earlier projection of 11% growth rate. On the other hand, United Nations projected a growth of 7.5% for 2021 and an impressive 10.1% growth in FY 22 with a red-herring that economic situation seems fragile on the wake of second wave in India.
But there is a hope-story about World economic revival in 2021 anchored by G 7 group of countries. With high rate of vaccination across the G7 nations, the world’s rich nations are on the verge to obtain herd immunity. The gradual ease out of lock-down measures to fully opening economy will result in high economic activity and spending will increase after a lull period of 12 months. OECD has projected that American economy will grow more than 6% in 2021 whereas Britain at 5.4%, France at 5.9%, Italy at 4.1 % will grow respectively. The rich countries are heading toward post pandemic boom and divergence between rich and poor will become wider unless the developing economies bend back to integrate themselves .
In general, there is a consensus that second wave will be less disruptive than the first wave and India will rebound after mid-year of 2021.The basis of this consensus lies on the adaptability developed by the first wave which includes new normal like workplace adaptation, adherence to social distancing protocol, work from home concept and embracing of higher degree of digitization. So disruption will be narrowed down to only those sectors which rely on face to face meetings. These will lead to structural transformation towards digitization and automated economy. This postulate can stand vindicated for advanced economies. But India as a developing nation has to face multiple challenges to embrace the structural transformation. Thus India’s recovery will depend largely on its ability to absorb short term shock and its capacity to recover and rebuild to pre-Covid level. This requires India to recalibrate its economy very fast with critical inputs and interventions which can push the recovery index upwards.
Covid Economic Recovery Index (CERI) depends mainly on three factors like Health Resilience, Absorptive Capacity & Economic Resilience. Health Resilience depends on health system capability, pre-existing risk factors and pandemic preparedness which are surely weak points for India till date. But a rapid vaccination drive can boast the resilience to some extent.
Absorptive capacity is a factor of economic dependence on vulnerable industries in Covid, international connectivity and labour market performance. Here India is better positioned due to low dependence on vulnerable industries like tourism and export of fuels etc. Albeit a rigid labour market can pose challenges to its absorptive capacity. However, India is positioned ideally to absorb short term shock but can become less resilient in long term economic revival. The real challenge lies there.
To create a greater depth in economic resilience, India needs to work on labour market adaptability, governance, measure to infuse social capital & developing financial system robustness. Up-skilling & Re-skilling of work force post pandemic can change the game for India. As a matter of fact, international trade and commerce play key roles in recovery and its degree depends on recovery capacity of target markets. As the world economy is in a spree of recovery barring a few developing economies and African countries, India may experience a good traction in export businesses which will further strengthen the integration to global supply chain and the risk of reversal of capital flow will reduce substantially.
Covid-19 vulnerability poses a greater threat on those economies which are having only one or two particular type of revenue streams. Less diverse economies will have a higher risk. Thankfully India is a diverse economy. (IPA)
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