The dreaded word, Recession, is now upon us. As more COVID-19 cases test positive, India’s lockdown status is set to get more stringent. Fear is almost palpable in the air. Equally frightening is the state of economy. The economic activity has come almost to a standstill. If our country, and the entire world for that matter, do not find ways and means to catalyse this spluttering engine of growth, we are in for a catastrophe.
The Indian economy is estimated to lose over Rs 32,000 crore every day during the 21-day lockdown following the coronavirus outbreak in India. If the lockdown continues, as it seems most likely, over 55% of businesses in the country will be adversely affected. Various businesses such as hotels and airlines are cutting salaries and laying off employees. Supply chains have come under severe stress with the lockdown restrictions in place and lack of clarity in streamlining what is an "essential" and what isn't. Majority of farmers around the country growing perishables are also facing uncertainty.
Adar Poonawalla, CEO of Serum Institute of India said that "the economic danger of the outbreak was exponentially greater than its health risks." On April 4, former Reserve Bank of India chief Raghuram Rajan said that the coronavirus pandemic in India may just be the "greatest emergency since Independence".
In the third week of March, Amazon and Walmart-owned Flipkart announced that it would stop sale of non-essential items in India so that it could focus on essential deliveries. Other fast-moving consumer goods companies in the country have significantly reduced operations and are focusing on essentials. Major companies in India such as Larsen and Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group, Tata Motors and Thermax have temporarily suspended or significantly reduced operations. Nearly all two-wheeler and four-wheeler companies have put a stop to production till further notice. Hindustan Unilever, ITC, Dabur India have shut manufacturing facilities except for factories producing essentials. Foxconn and Wistron Corp, iPhone producers, have suspended production following the lockdown orders.
Britannia Industries has urged the government to ensure inter-state movement of the raw material for the food processing industry. Although inter-state travel has been banned, it doesn't apply to essentials. However, the police and the local authorities are yet to streamline the process, causing a disruption to supply chains. Tens of thousands of trucks are parked idly, all over the country side. Data reveals that only about three per cent of India’s 10-million-plus vehicles were on the roads, thanks to an acute shortage of drivers despite the government lifting restrictions on movement of non-essential commodities within six days of announcing the lockdown last month.
Given the sudden, severe and exogenous nature of the current downturn, the economy won’t bounce back quickly. Instead, the deep psychological scars are apt to linger, with a concomitant effect on behavior on the part of both consumers and businesses. An Oxfam study claims that a 20 per cent drop in income caused by COVID-19 recession will push half a billion additional people into poverty, globally. Over 547 million people in this world will be earning less than $ 5.50 (almost Rs 400) per day.
While safeguarding human life is of paramount importance, the nation also needs to have a long-term vision. Maybe it is time to heed the young managing director of Bajaj Auto, Rajiv Bajaj, who recently said that the "lockdown makes India weak rather than stronger in combating the epidemic," and that "India may have to sell itself out of the coronavirus crisis".
Indeed, RBI has announced a number of measures to pour in Rs 374,000 crore ($52 billion) to the country's financial system. On April 1, World Bank approved $1 bn in support to India to tackle the coronavirus pandemic. On April 3, the central government released more funds to the states for tackling the coronavirus totalling Rs 28,379 crore ($4.0 billion). On April 10, the Asian Development Bank assured India of Rs 15,800 crore ($2.2 billion) assistance in the COVID-19 outbreak fight.
Have we already hedged India’s future, is what needs to be seriously considered.
The writer is a Thought Leadership consultant, a columnist and an erstwhile journalist with some of the leading publications in India.
