Written by Swaroop Nair of Amity University, Maharashtra
Edited by Noor Deewan
The coronavirus pandemic disrupted the entire global order. Governments across the globe were forced to impose strict shutdown measures and rethink their healthcare and economic policies. They kept on extending the lockdown periods in hopes of containing the spread of the virus until it was so realized that the pandemic wasn’t showing any signs of ending soon and in attempts to flatten the curve, the economy was only dipping to new lows.
Before the world was taken over by this unprecedented hurdle, we were living in a world order that was characterized by increasing globalization and interdependence. The lockdowns restricted travel and emphatically put a complete pause on all economic activities. In countries where tourism and global trade contributed the most to their GDPs, the economic fall has been extremely severe. Unemployment levels soared high, the stock markets crashed, the prices of oil and natural gas fell down and all sorts of manufacturing and industrial units were shut down and had to incur heavy losses. The IMF and World Bank in their reports have forecasted major shrinkage of global economy accounting to the worst economic crisis since the Great Depression.[i][ii] Despite lifting the lockdown impositions and introducing heavy fiscal and monetary policy support systems implemented, countries, the developed and the developing alike, are finding it difficult to revive their economies.
This downfall in economy is not localized or restricted to a region or a particular group of nations. Although some have witnessed a greater loss than the others, countries in every region are effected by this virus and the challenges it brought with it. USA is seeing millions and millions of people applying for unemployment benefits and was officially in recession. UK and Australia are too in their first recession in years. Asia, Africa, North and Latin America, the coronavirus has severely shackled the economies in every region. Our own country, India, is among the worst affected, both in terms of the number of coronavirus cases and economic downfall and is staring at recession dead in the eye.
Even before the pandemic scare, our economy was showing signs of slowing down and at a time when it needed a positive push forward, it instead received another setback. Several factors culminated to result in a massive drop of GDP in the first quarter – Indian GDP contracted by -23.9 percent, the worst in its history. Except for the agricultural sector, almost every other industry experienced negative growth and the government borrowing is also increasing. It is indeed true that we are not the only country affected, but economic strategists and policy makers including Nobel Laureate Abhijit Banerjee are worried about the current state of Indian economy and it seems that everybody is only interested in finding a scapegoat, be it a bat or a person or an entire nation or even God. Apart from the government’s big announcement of a fiscal stimulus package of around Rs.21 lakh crores, a more direct fiscal stimulus and a more efficient approach would be required to avoid a recession or even a depression as some experts fear.
What makes it even more difficult to deal with the economic crisis is that it is a consequence of a heath crisis. The pandemic forced the political leaders to rethink their healthcare and economic policies. There was no alternative; lockdowns were necessary to be imposed for the sake of the health of the public. Public health and safety wasn’t something to be compromised. There isn’t a choice, both the crises go hand-in-hand. Thus, what is required is a tight fiscal policy working in tandem with a proper public healthcare policy system because until and unless the health crisis is not completely subverted, a complete economic revival cannot be achieved.
Looking at the positive side, we have seen a lot of gradual improvement in the last one month in India. We are beginning October on a rather good and hopeful note given the fact that we are seeing a steady increase in manufacturing sector activities thereby improving the PMI (Purchasing Managers’ Index) after it had slipped in the month of April.[iii] Auto sales are increasing, petrol demand is hitting pre-COVID levels, even diesel sales are picking up and the country’s exports too grew in the month of September after contracting for six months in a row, all indicating that an economic revival is not completely out of sight.[iv]
According to major international organizations, the downfalls were inevitable and its scars aren’t going to fade away in the near future; there is a lot at stake but every country is in it together. This is especially the time for countries to cooperate and work in liaison to defeat the virus and improve the global economy. The disruptions caused by the virus in the past few months have been heavy; nearly every sector has felt its deteriorating effects. However, the improvements India has been showing now is indicative of the fact that we probably are on the right track. While public health should always be the priority, with efficient handling of the situation and introducing appropriate fiscal stimulus and policy measures, India, and other countries, can hope of reviving their economies and restoring normalcy.
[i] Press Release, COVID-19 to Plunge Global Economy into Worst Recession since World War II, The World Bank, June 8, 2020, at https://www.worldbank.org/en/news/press-release/2020/06/08/covid-19-to-plunge-global-economy-into-worst-recession-since-world-war-ii
[ii] Gita Gopinath, The Great Lockdown: Worst Economic Downturn Since the Great Depression, IMFBlog, April 14, 2020, at https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/
[iii] Fastest PMI growth in 8 yrs; auto sales, GST collection up, Times of India, October 2, 2020, p.1
[iv] Exports rise for first time in seven months, up 5% in Sept, Times of India, October 3, 2020, p.1
Image courtesy: The Economic Times