CORONA AND THE GLOBAL ECONOMY

The virus which started about four to five months back in a small way in the city of Wuhan in China is now threatening the entire world.  This has been named as Novel Cornona virus 2019. World over every government is seized of this particular pandemic which is just not threatening the health of the population but the economy of almost all the countries.

In New York one of the economists had already sounded a bugle saying that the US government should come forward to pay USD 1000/- to each and every one irrespective of age, religion, race and ethnicity who are all residing in USA. This he has reasoned as the downturn in the economy coupled with this life threatening virus will make the people stay at home and not every job can be done sitting at home; therefore, the people will not be getting any money to buy essentials and this is one such move that the US government should immediately start putting in place. A former California governor had said that the basic income guarantee scheme is to be implemented imeediately.

The stock markets across the globe have started crashing and most of the indices are in red.  In India, less said the better about the stock market. The recent IPO of a company was withdrawn in the face of very low encouragement from the market.  Another high profile IPO ended up collecting 26 times the offer but the investors lost on listing as there was a 13% discount to the issue price on the first day of listing.  As of writing this, though the scrip has recovered, still it is below the issue price.  Most of the other scrips have lost heavily. The latest actions of the government in controlling the movement of people and seeking house quarantine of those who have travel history are other areas which are deeply affecting the economy in the country.

The hotels, restaurants, multiplexes, cinema halls, parks, and almost all public places have become ghost houses as they are either closed or have almost no foot-falls. Some of the cities in the north, west and south have already put in place a detailed action plan to make the IT companies to advise its employees to work from home.  Still there is a long way to go.  It is not just IT companies, there are countless other areas where peoples' presence will be required to run the show.  These are critical areas and the slow down seen in most of the other areas is going to affect the overall economic health of the nation.  The IIP numbers will come down drastically in this quarter and the next quarter when the virus is expected to be severe in its impact in the country.  

In some of the European countries the impact is already felt; that there is a total lock-down in most of the cities in Spain, Italy, France, Belgium etc. Germany is contemplating partial lock-down of its cities in the aftermath of the serious impact in Italy and Spain. Many European cities are like ghost towns with very few people seen outside near some of the famous places in those cities. The global air travel is the first casualty with many either cancelling their travel or staying home without any travel plans.  The business travelers are now resorting to video conferencing. It is reported that almost all airline companies are running very limited occupancy leading to cancellation of many flights and grounding of air crafts.  There are bans on persons traveling from particular countries to other countries. Slowly each country is locking its doors on others including their own citizens arriving from abroad. Travel within the country and to places abroad are now banned in most of the nations. 

The advisory to stay home and maintaining social distancing also is leading to less productivity in terms of lower attendance in factories, offices etc.  Some of the leading industries have cut down the workforce by cutting down production.  These will have some long term impact on the economy.  The Singapore minister of health was very vocal saying that it will be a year to a year-and-a-half before the global economy bounces back; if it had been a localised epidemic, it would take normally four to six months for the country to bounce back; but being a global pandemic affecting more countries, the economy will take more time to return to positive outlook.

In this background, the Indian economy being not a stand alone one is also feeling the heat. The growth of  highly inter-dependent global economy in the past three decades and the over dependence on IT services will have its serious impact in the next six months to one year.  The banking services and some of the other nation-wide services have become totally dependent on IT services in the country. These services require the people to operate in highly constrained spaces with more people per square meter in the IT world, will suffer most from the social distancing. Even in IT services not all work can be done from home;  there are many areas in which personal attention is needed.  Given these constraints, and the governments, commitment to fight this pandemic to keep the welfare of the people above all, is going to be a big blow to the economy of the country and all the nations of the globe.

Though the stock market is not the only indicator of the economic activity of the country, they in turn indicate the health of the industries in each country.  Still a lot more is likely to happen in the next couple of months when this pandemic is expected to reach its zenith and create more tension and concern globally.  The economic slow down thanks to various measures of the countries to combat this pandemic will definitely have a telling effect on the global economy overall.  There is already a slow down in many countries with production cut and stopping many economic activities like tourism, entertainment, travel, industrial production etc.  Similar is the case in India as well, though given the size of population, the country is sitting literally on a powder keg vis-a-vis the pandemic. The slowing down of the economy is totally inevitable and the same will take anything from a year to two to get back to robust growth.  The question of reaching the five trillion USD economy in the next two years will therefore be postpone by a few more years and may be, possibly by 2026 the country may reach the magic mark.  

Presently the country and its political leaders are engaged in finding ways to tackle this pandemic and keeping the death toll at the minimum without allowing the same to exponentially escalate. At the same time, the economic slow down also has to be tackled with equal zeal.  The government of India had taken a lead in bringing all the neighbouring countries to the table to agree to fight the pandemic together and share the best practices.  It has also pledged a huge sum to the common fund for this purpose.  How the pandemic is being tackled in the south Asian scenario is to be seen in the weeks/ months to come. At the same time, the economic slow down which is hurting some of the smaller nations in this geography is also to be taken note of.  For a country with almost 1.35 billion strong people is going to find it extremely difficult to come to terms with the economic slow down, it is going to be an equally big task for its smaller neighbouring countries, though with lesser population. 

The announcement of the prime minister of the country that a task force had been formed at the center for dealing with economic fall out of the pandemic, is like a whiff of fresh air in the noxious atmosphere.  The only hope is that the outfit saddled with the responsibility is able to rise above the political compulsions and make the results visible and available to all.