Economy Beyond COVID-19: The Story of a Declining Lion

With epedemiologist Ramanan Laxminarayanan hinting at around 1 million deaths in the COVID-19 spread, the India Inc. is certainly up to take a long term hit, and further deepen the economic woes of the people with time.

The people involved in services under public administration have implemented phased, and abrupt lockdowns all over India, spread across various states and union territories, the people have also in the past 10 days of this month either lost their jobs (both in the formal and informal sectors) as well as businesses taking a hit and especially the services/ IT industry which is looking at a roller coaster ride in the near term thereby looking at mass unemployment and bankruptcy looming all over the industry.

Affected Sectors of the Economy

The sectors that shall remain buoyant in the process are identifiable, while the Finance Ministry feels that they can’t identify the sectors which shall be hit, and shall deserve the relief packages. It is simple mathematics that the FMCG sector, Internet businesses and Pharmaceutical industry (with medical care and production facilities in the healthcare sector along with services) are bound to grow while at the same time all other sectors shall see a sharp dip in overall productivity. Banking for e.g. will be one of the worst-hit since the companies which already have been eaten by bigger fish across sectors, or are struggling to generate revenues, will see a tough time to service their liabilities in the backdrop of dip in revenues/ loss of business, and the overall economic activity across sectors coming to an abrupt halt since the lock-downs began will put banks in a position to not be able to maintain balance in their deposit-lending operations, which should be tackled by capping the ability to withdraw cash. Even agri-market and production already battling an errant rainfall pattern, will in the near term look at inflation levels rising sharply, as the demands across FMCG and agro-products increase with extensions in the lockdowns. Thus, the overall impact will be cyclical in the economy, both macro and micro, wherein a relief package or a tax holiday will not suffice, thus the needs of the businesses will have to be catered to from the point of view of the man sitting on the account books of the businesses.

Mass Unemployment

There have already been mass lay-offs and in the time to come we will further see a spike in unemployment rates spread across sectors, and at every level of the corporate hierarchy. The unemployment will not just be in loss-making private enterprises (majority of them being in the small cap & mid cap segments) but also will spread onto the loss-making public sector undertakings of the central and state governments.

The only challenge the mass unemployment will show the economy is providing new avenues of livelihood and providing liquidity to the persons affected to sustain themselves and their dependents. Servicing relief packages sponsored by the government and then the rising burden on insurance companies and the banks tacking a bitter pill (beginning from the 1st of May) will dent the government exchequer in the backdrop of mass unemployment.

Is COVID-19 on the rise in India?

The abrupt challenge for the frail healthcare system in the country points to the failure of successive governments in laying down strong foundations of the Ayurveda, Unani, Siddha and Homeopathic medicine systems from developing in the country, which would have provided better immunity in the wake of the COVID-19 spread. The testing methodology has thought been revised by the ICMR on March 20th, yet the screening systems are not within the reach of the maximum population, and then there is a possibility of further spread even if there is a possibility of containment as well, through community spread. There is also a lack and dearth of PPE kits for the healthcare professionals and the police personnel, who are devoting their life to serve and help the people across the sub-continent, which will become the ready carriers of the virus.

The lack of infrastructure to clean and sanitize the places of public utility on a large scale, also seem a possible threat as a consequence of which there will be a challenge that once the virus scare is over, it doesn’t recur during the humid months of the year.

Simple Solutions:

Amid the push to Swachh Bharat behaviour, the government seems specifically unprepared to tackle the economic fall-out which is in the offing. With the government revenues already abysmal the further decline driven by COVID-19 spread, will impose a direct strain on the exchequer. If by chance there are a million or more deaths, then the banks and insurance companies will certainly look at the government (s) with further PF and other withdrawals from banks. Overall, the COVID-19 will have a cyclical effect linked with all the sectors of the economy, and the government funds will also be drained, the power to spend the country shall reduce by 40% in general and there will be a task to rebuild the economy, if the spread is not contained, and in reality, it is absolutely next to impossible to do so in a country like India. Therefore small solutions that the government might do to are:

(a) The government must put a cap on cash withdrawals and circulation, and more payments must be done online.

(b) PPE kits must be provided to the police and healthcare personnel immediately so that they don’t become the first carriers of the COVID-19.

(c) The government should further deploy AYUSH medical practitioners to suggest ways to tackle the immunity with Indian medicine solutions which will be available easily and will be more effective than the western medicinal therapies.

(d) There has to be a complete financial emergency to be declared if there is a spurt in the cases of the virus beyond 15th of the April.

(e) Private players will have to be roped in the relief operations/ packages, as well as the supply chains will have to be maintained at all costs.

(f) The media must play a supportive role that improves the psyche of the people to push towards beating the disease, rather than inducing fear and hysteria. Quarantine and Isolation will never provide the aim of containing the disease since testing 130 crore Indians is almost next to impossible.

(g) Panic situations should be handled effectively.

(h) Internet bandwidth should be enhanced immediately to tackle the burden in the offing.

Let us hope for the best.