As COVID-19 continues to march and spread around the world, various governments have turned to proven public health measures, such as social distancing, to physically disrupt the contagion. By doing so, which is inevitable to check the pandemic, it has also severed the flow of goods and mixing of people and ultimately stalled business and economies. This is more likely to head towards yet another global recession of a different kind.
Earlier, the recession started in 2005-2006 in the USA triggering events that began with the bursting of the United States housing bubble and spread across to different countries gradually. This time around, virtually every country on this planet is undergoing its own recession and the economic contagion is now spreading as fast as the disease itself.
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As the virus began to spread rapidly, global politicians, policy makers, and markets were put to test and all the stock markets in the world tumbled due to the uncertainty arising out of the economy and business which has been adversely affected by COVID-19. Now, much further along the disease trajectory, the economic costs are much higher, and predicting the path ahead has become nearly impossible, as multiple dimensions of the crisis are unprecedented and new to all.
On Monday, Niti Aayog CEO, Amitabh Kant will be meeting with senior finance ministry officials and other stakeholders to find out how, when and what steps need to be taken after the lifting of lockdown to put the economy back on the rails. India is swiftly coming to terms with a rare unclear impact event. As we approach April 15, policymakers will have to carefully analyse a tough trade-off on whether the lockdown should be continued at the cost of longer-term economic devastation, or a rational ‘unlocking’ allowing India to go back to the normal routine at the risk of health.
A simplistic way to arrive at the value of the loss in economic activity would be to compute the loss on a daily basis due to the lockdown. Based on pre-COVID-19 projections of India’s Gross Domestic Product (GDP), the average daily GDP value for FY-2021 was estimated at about $ 8 billion. A 30-day lockdown would, thus, imply a maximum possible loss of $240 billion. Experts have analysed that consumer wallets show that the Covid-19 outbreak could cast a shadow on items equivalent to about 30-35 per cent of India’s consumption. Purchases of durables such as clothing and footwear, furnishings, vehicles and durables for recreation, etc may be postponed for a time period unless it is absolutely essential. They have further warned that one should expect demand destruction in items such as transport services, recreation and culture, restaurants and hotels and beverages etc, in the immediate quarters if lockdown is not lifted this month.
Whatever be the actual numbers, it will be a humongous task for the policy makers to work on it. In fact, voices from all corners are also being raised that the help of the 15th Finance Commission which is headed by veteran and experience retired bureaucrat and economist NK Singh should be used by the Government of India to salvage this crisis.
In this uncharted territory which has never been trod before, naming a global recession adds little clarity beyond setting the expectation of negative growth. Pressing questions include the path of the shock and recovery, whether economies will be able to return to their pre-shock output levels and growth rates, and whether there will be any structural legacy from the coronavirus crisis. In fact, recovery from this catastrophe is more worrisome. It will be a tough task for all the policy makers or economists to ponder upon how and where to begin with even if it is staggered.
What is more uncertain is that even after the lockdown is lifted there is no guarantee of the virus not bouncing back. Another wave of infections remains a real possibility, meaning that even countries that acted relatively quickly are still at risk every time they nudge their economies back to work. Indeed, the world has seen some resurgence of the virus in Singapore and Hong Kong. In that sense, only history will tell if their early and aggressive responses paid off.
