STOP, LOOK, GO: THE NEW NORMAL

The aggressive resurgence of the covid-19 pandemic is forcing India to rethink its economic strategy. EPISODE #23

Dear Reader,

A Monday of cheer to you.

I approach this week with mixed feelings. On the one hand I am relieved that the rate of infections of the SARS-COV-2 virus causing the massive surge in covid-19 pandemic in India is slowing down. Though the story is not uniform across the country with some states like Kerala in the middle of an unprecedented spike in infections. Worse the virus footprint is now rapidly expanding to rural India, where little or no health infrastructure exists. Therefore it will be some time before the threat alert can be lowered.

On the other hand I am deeply anguished to share the loss of Sunil Jain, the Managing Editor of Financial Express. He succumbed to covid-19 on Friday. I overlapped with Sunil in college and later in our chosen profession: journalism. We shared some excellent moments. Sunil was an outspoken individual with strong views. Somehow I was convinced that he would fight his way out of this. Unfortunately it was a moment when even prayers failed us. R.I.P. What worries me is that almost all of us have suffered a similar loss within our immediate family or circle of friends. As a friend wrote, after Sunil’s passing, in an anguished text message: “Anil, when will all this end!”

This comes at a time when a fresh round of whodunnit is yet again raising uncomfortable questions about the origins of the covid-19 pandemic in Wuhan, China. A news report first published in ‘The Australian’, sourcing documents allegedly procured by the US State Department, has cast serious aspersions. However, the matter has so far failed to get any traction—especially from the hard-nosed investigative journalists at the New York Times, Financial Times, Washington Post and so on.

Separately, a clutch of top scientists have submitted a joint letter published in Science calling for further investigations into the origins of the virus. Those interested in reading the full document please click here. They acknowledge the brilliant work of experts in quickly understanding the science behind the virus and in coming up with an antidote in record time. They argue that similarly the world needs to bring closure to the debate about the dodgy origins of the virus.

More investigation is still needed to determine the origin of the pandemic. Theories of accidental release from a lab and zoonotic spillover both remain viable. Knowing how COVID-19 emerged is critical for informing global strategies to mitigate the risk of future outbreaks.

Guess the jury is out on this and we not heard the last on it.

But I am baffled by the continued aggression of China on the world stage. One would think, given the circumstances, they should keep their head down right now.

Yet, in another show of ‘Wolf Diplomacy’ China publicly warned Bangladesh from joining the QUAD—the grouping of United States, Australia, Japan and India with the unstated collective objective of denying China in its efforts to claim hegemony in the Indo-Pacific region, a vital international trade lane. (I am sharing a short clip from Al Jazeera in the recommended reading/viewing segment for this week to explain wolf diplomacy.) This increasing belligerence—most would recall how they launched a military offensive in Ladakh last April-May—smacks of defensiveness. Worse Beijing risks isolating itself. Bizarre. Because in the post-covid world where uncertainty is the known-unknown you need more friends. Don’t you think?

But what all this sabre rattling is doing is to inject fresh uncertainty about the prospects of the global economy. The last thing that the world needs. Most countries are still reeling from the fallout of the covid-19 pandemic. And in the case of India the situation is even more dire. The second wave of the pandemic has forced most of the country into a lockdown. It is bound to exact damage, particularly with respect to the contact economy—sectors like hospitality, civil aviation and tourism.

It is my argument that these frequent lockdowns are forcing businesses and policy planners to accept a new paradigm: Stop, Look and Go.

This is terrible news for the Indian economy already burdened and suffering under a legacy of underdevelopment and neglect of key sectors like health, education and infrastructure. This week I put the spotlight on this new normal and the consequences.

The pix this week is courtesy of Poonam Chawla.

And thank you for your support. A big shoutout to Srikanth, Madhukar, Vandana B, Gautam, Balesh, Premasundaran, Atanu, Abhijit and Aashish for your informed comments and amplification. Grateful. And, many thanks to readers who hit the like button 😊.

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Read on

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Pix by Poonam Chawla

THE NEW NORMAL

If the quarter ended June of 2021 was a shock (when the economy contracted by a record 23.9%) then Q1 of this year’s fiscal, 2021-22, was supposed to be one of awe (the economy was projected to rebound dramatically with a record growth rate of 34%). Not any longer. Analysts are already paring their estimates for the first quarter ended June.

The surge in the covid-19 pandemic has forced most state governments to impose a lockdown. And this when the economy was barely recovering from the nation-wide hard stop ordered last year. The contact economy—hospitality, aviation and tourism—was barely climbing out of the deep hole.

It is now back to square one for these  employment friendly sectors. Worse big business has to brace for fresh supply chain disruptions. The silver lining though is that unlike last year when the entire nation ground to a halt, this time the lockdowns have not been coordinated. In that sense the impact will be felt but may not be as severe as the one experienced last year.

From the prevailing outlook—especially with the vaccine project yet to gather momentum—it looks like the covid-19 pandemic is here to stay. At least for the next two years. A lot will depend on whether our politicians can stop their bickering and get razor sharp focus on getting 900 million Indians vaccinated ASAP. If indeed they walk the talk then a bulk of the jabs can be done this year itself.

Till then India remains vulnerable to fresh waves of the pandemic. And lockdowns are likely to be frequently deployed as the first line of defence. Consequently Indian business will have to get used to a new mantra: Stop, Look and Go.

However, unlike a speeding vehicle which, thanks to a tried and tested braking system, can come to a dead stop at a red light, be ready at yellow and move once the light turns green, businesses cannot be expected to possess such resilience. And if they do, it will come at a substantial cost.

The first round impact will be on overall economic growth.

The second round fallout, the one which is more worrisome, will see deepening of the structural fault lines that have already set in; growing income inequality, deepening digital divide, joblessness and further erosion of the country’s already fragile health fabric.

Picking up the pieces won’t be easy this time. Worse this cycle of stop-go will severely undermine a sustained economic recovery.

Revised Forecasts

Not surprising then that analysts are already paring their growth forecasts for this year.

In an opinion piece published in the Indian Express, the chief economist for Axis Bank Saugata Bhattacharya, says that they have lowered their growth projection for the quarter ended June to 24% from the earlier forecast of 34%.

“In light of the second wave of the pandemic, we have revised downwards our GDP growth forecast for 2021-22 from our pre-second wave assessment of 11.8 per cent to 9.5-10.5 per cent now, depending on the severity and duration of the lockdowns.”

Arguing similarly, Pranjul Bhandari, chief economist for HSBC India, says the economic costs of the covid-19 pandemic could outlive the lockdown.

“We see four ways in which the second wave differs from the first. One, while staggered state-level lockdowns feel less stringent than the national lockdown last year, they come with more uncertainties around timing and impact. Two, the urban spread of the second wave has been more concentrated in more affluent households, who drive more consumption demand. Weak sentiment there could hurt recovery. Three, as the disease spreads into the rural heartland, rural demand may not be as dependable. Four, with rising global commodity prices, domestic manufacturers are grappling with falling margins.”

The Scarring

I have already flagged in a previous edition of Capital Calculus 2.0 (if you wish to read it again please click here) that the economic fallout of covid-19 is rewiring the dynamic of poverty. The combined impact of the loss in jobs and rising medical expenses is pushing people back into poverty. Frequent lockdowns is eroding livelihoods and accelerating this trend.

In its latest estimates put out in January the World Bank believes the increase in the number of the new poor could be anywhere between 119-124 million—and that bulk of them will be in South Asia.

Worse the gap between the haves and have nots has widened in the last one year. The well-off have not lost out as badly. On top of it the shutdown of schools and colleges has meant that learning has moved online—given the presence of digital divide it is only natural to assume that the poor students will progressively fall back. The impact on human capital—which worsens as we go down the ladder of economic empowerment--will only accentuate this growing trend in inequality.

From the public policy point of view these are entirely new set of challenges. And sadly they come to sit on top of existing fault lines—some of them, like providing basic amenities such as drinking water, electricity, housing, are tasks which India has only just initiated.

The economic timeline is right now on a roller coaster with sharp variations across quarters. In such circumstances almost every element of public policy needs to be revisited to inject resilience. For instance the circumstances influencing this year’s union and state budgets have been altered and hence need to be revisited and repurposed. Business as usual, which is the prevailing dharma, is no longer an option. As they say it is not a moment to be on your heels. Instead we need to be on our toes.

The upcoming meeting of the Goods and Services Tax Council (GST)—the federal body driving indirect tax reforms—headed by Finance Minister Nirmala Sitharaman is an excellent platform to sound out a federal strategy. Not only will it help in better coordination (the jab project has clearly demonstrated the consequences of failing to coordinate), laggard states with limited administrative capacity, can be provided a helping hand—like forming a smaller coalition with states that are more capable and share a border. In short, the GST Council needs to walk the talk on cooperative federalism.

Or is it too much to expect our politicians to rise above themselves and join forces to combat this once in a century pandemic?

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Recommended Viewing

I am sharing a clip from YouTube which succinctly explains the term ‘Wolf Diplomacy’.

Till we meet again next week. Stay safe.