The year 2020 has begun with an unprecedented pandemic called COVID-19. Originating in China, it soon spread across the world like a wildfire. Three months have gone by with almost a little improvement globally. Looking at the ramifications of COVID-19, almost 130,000 people have lost their lives. Another 120,000 are infected and quarantined. With a lockdown in many countries, one can hear alarming bells of global recession tolling. March 2020, has finally seen the inevitable recession in the world economy.
Bloomberg Economics, who is a new GDP tracker, has confirmed the news by stating the contraction of the global economy from 0.1% in February to 0.5% recently. Robert Azevedo, the director-general of the WTO, has shown his concern for the depleted supply chain of the world thus, painting a bleaker picture in comparison to 2008-09. Asserting the WTO’s concern, the IMF and the World Bank are further expecting a downfall of the economy worldwide. The IMF chief Kristalina Georgieva fears that this economic depression of 2020 is the worst as against the Depression of 1930’s. Though many governments have given a fiscal stimulus, the emerging markets and the developing countries will be facing the hardest hit of the crisis.
What is the effect on Indian employees?
India, as an emerging market and economy, is the worst hit. What does the ILO have to say about it? With India struggling with the corona outbreak and a slumping economy, it further stares at a catastrophe of rising unemployment. A clean sweep of around 195 million full-time jobs or 6.7% of the working hours is looming over India.
‘ILO monitored 2nd edition: COVID-19 and the world of work’ go on to paint another gloomy picture of ‘coronavirus pandemic’ as the worst global crisis after World War II. Guy Rider, the director-general has more to add. He anticipates that with 90% of the population serving in the informal economy, an estimated 400 million workers are feared standing beyond the poverty line.
What are the statistics of job losses in India?
With the unemployment to brew post lockdown, there is a tsunami of statistical data. CMIE assumes a hike in unemployment by 23%. The figures for a rise in unemployment from 8.5% to a staggering 23.5% in April have a lot to say.
The Indian labour force has people who are employed, unemployed, or is actively seeking employment. The three months of the corona outbreak is showing a dreadful fall in employment from 411 to 396 million. At the same time, there is a rise in unemployment from 32 to 38 million. Mahesh Vyas, CEO of CMIE, merely adds to the already bad picture by stating a low 39% labour participation rate as against a 41.9% in March 2020.
What do the experts say? The experts, blame the migration of the workers to their home towns for the rising unemployment figures. Also, there is no government register to track their movement.
Sector-wise impact on diminishing employment
CII poll shows a detailed, sector-wise impact on unemployment. A majority of the firms have expected their revenues to fall from 10% to 5% for this quarter. The firms are further anticipating a poor demand post slowdown. They also fear with 80% of their inventory lying idle only 40 % of it may last till after lockdown.
A majority of the companies, engaged in the production and distribution of essential goods and services, are facing a lot of operational constraints during the lockdown. Limited manpower and movement of goods are the major hurdles in the trade. Though the Central government has allowed partial operations, the lockdown continues at the local level disrupting the supply chain. The job front survey of around 52 companies, reports an expected 15% to 30% of job loss post lockdown.
The FIEO, an apex body of exporters, expects 15 million job losses in the export sector. The cancellation of orders and the inability of the units to repay the loans being the reasons for unemployment. Retrenchment is also expected in industries like gems and jewelry, handicrafts and textiles which are labor-intensive. The retailers (small, medium and large) are not far behind. They expect a 20% lay-off of their manpower. More than 95% of the food retailers have closed down their businesses. They expect to earn only 40 % of their last year’s earning. For many retailers, business recovery may happen over a period of six months or even a year. CII expects the center to announce a bigger fiscal stimulant package to boost the economy.
India’s bland reaction
The former RBI governor Raghuram Rajan has remarked that COVID-19 is the greatest emergency since Independence, also urging the government to spend more on the poor. The government should invite experts even from the opposition to deal with the pandemic. Rajan further states that investing in the needy will be a step in the right direction by a humane nation like us. He has thoughtfully compared India with the US and Europe who can afford to spend 10% more of their GDP. But for India to think on those lines is difficult with a huge fiscal deficit blocking the path.
Biswajit Dhar, Professor for Economics at JNU, observed the Rs.1.7 lac crore package announced by the Finance Minister is quite insipid. Further opening that a meager Rs. 500 to the deprived should be substantially increased.
India’s limited fiscal space
Former RBI governor, Urjit Patel has a lot to say. He comments that in the first place India simply cannot clone what other developed countries have done. Secondly, the EME ( emerging market economy) like India has to consider many factors before any such announcement. The national fiscal deficit on a considerably higher side, any overdoing of monetary measures, Will end up in the sharp decline in the revenue with the state governments pressed further to cut down costs. Our macroeconomics should follow the global re-balancing portfolio. The international investors will not be warded off to other EME countries. Maintaining stability is the need of the hour.
What is India’s strategical response for saving it’s sinking economy?
So what are the challenges posed in front of India? Ashima Goyal, professor IGIDR and a member with EAC-PM, reflects that though with a weak economy India has always absorbed a number of financial shocks with a toughness. With various new reforms, NPAs peaked, public sector banks using the bankruptcy process for recoveries, and keeping themselves in a lending position once the demand recovered are a few encouraging instances. Private sector banks are normally healthy. Even the problems at the YES Bank were solved by pushing in fresh capital, New management, and resolution.
Ashima Goyal further proposes a strategic comeback for India. Insisting on following a sequence, she has suggested the following measures:
- Survival of the daily workers and casual laborers through income transfers, food, and quarantine arrangements.
- Avoiding closures of permanent businesses dodging job losses by credit provisions and tax breaks.
- A simultaneous revival of supply with a boost in demand to be supported by an additional fiscal benefit of 3% of GDP which makes around Rs. 6 trillion available for spending.
- The growth revival will further ask for adequate liquidity for the foreign outflows.
- Temporary payment difficulties leading to bankruptcy should be avoided.
- A combination of liquidity support, lower rates, more funding is the required aid.
- Supply-side reforms and long term measures to activate key industries like pharmaceuticals. Thus attracting foreign trade.
How is India thinking to restart its secondary sector post lockdown?
The secondary sector has been badly scarred by the lockdown. The strategy will be effective only with new reforms for the sector. A focus on infrastructure projects and finance by reviving DFIs. Moreover, the export industry should explore local currency-based trade with neighbors. India’s total exports had seen a massive surge in 2018-19 and this trend further continued until COVID-19. The government has to ensure a good spend in Infrastructure by readying the DFIs to raise additional funds.
Will the crisis be an undeniable opportunity for India?
Every cloud has a silver lining. The COVID-19 crisis is the cloud with a silver lining of opportunities. Many countries are rethinking using diverse policies to be self-reliant. Thus reducing the global risk of Chinese reliance.
Global Investors should be encouraged to invest in India rather than China. As against Chinese flexibility, India has to stand up with its large markets, human resources, and services. India can project itself as a hub for various sectors.
An interesting insight tells us that India can use trade restrictions, TRIPs, TRIMs and other exemptions to protect and support it’s supply chains across the world. ‘Be Makers and not just Traders’ is the new idea to be floated via a ‘New India Industrial and Trade Policy’, to pep up our entrepreneurs. As a ramification rebound, a ‘Make in India’ hub has to created for meeting COVID-19 related demands.