Opinions

A possible strategy to revive the economy post lockdown

By: Nishant Satyam and Vasu Golyan (IIM Indore)


“This is not a one-time thing; this is our entire future.”

Greta Thunberg

Introduction

The impact of the COVID-19 pandemic presents the most significant challenge post-World War II, the world has been facing. Across countries, disruptions have become the norm, rather than an exception, in all aspects of life. It is estimated that over 2.6 billion people (nearly a third of the global population) across 100 countries have been facing government-enforced lockdowns, implemented to arrest the spread of the highly contagious virus. Challenges, especially for India, in the form of supply-chain disruptions, suspension of economic activity, mass-migration of seasonal labour, availability of essential goods/services, and contact-tracing and testing in a highly populated country spread across vast demographics, all the while ensuring the norms of social distancing and limited health resources, are perhaps any government’s worst nightmare.  

However, what could be even worse, as numerous experts around the world have repeatedly stated, is not knowing when and how all this will be over? What type of exit strategies can governments apply? When will it be safe to move out of our houses? How will economic activity restart amidst a shortage of labour and norms of social-distancing? Can we minimize the impact that this pandemic will have on every aspect of our life? As WHO has repeatedly stated, the coronavirus is here to stay. Until a cure or a potential vaccine is developed, it will continue to have an impact on how we function as a society, or how a government runs its economy. This pandemic is thus, not just a one-time thing, but it is our entire future, and all that we could do currently, is to prevent its spread and deploy strategies across sectors, which minimize the impact of this deadly virus.

Countering the Economic Impact

After the healthcare sector, industries are the ones most affected. The lockdowns have suspended all economic activity. Be it heavy industries such as iron and steel, automobiles, cement, telecommunications, or the services sector, from ITeS to the tourism industry, all of which form a significant proportion of India’s economy, have been negatively affected by the lockdown. Apart from the evident pains faced by big corporate houses, the Micro, Small and Medium Enterprises (MSMEs) are the most affected. They do not possess the financial ability to see through such long-periods of low-to-zero business. They are unable to pay their staff, or sell their existing inventory. MSMEs employ nearly 40% of India’s workforce and contribute 29% to the country’s GDP. Supply chain disruptions, absence of labour (who have migrated) and zero-demand of their products, has pushed such industries to the brink of bankruptcy.  

Ensure financial security for MSMEs

The Indian government needs to ensure the survival of these industries, not just because of their significant contribution to the economy, but also because of the massive number of people they employ. During such unprecedented times, the government cannot afford to have the problem of unemployment as well on its hands. Strategies in the form of tax reliefs, liquidity injections, an extension of moratorium on loans, working capital loans at cheap interest rates can go a long way in ensuring that this crucial sector survives the impact of the pandemic.

Start-ups and MSMEs

A golden opportunity would be for the start-ups in the country to team-up with the MSMEs and use their expertise and innovation in services and ITeS, to augment the productivity of the MSMEs manufacturing capabilities. This mutual collaboration can open up enormous opportunities for both the stakeholders, at the same time ensuring the survival as well as value addition for both during tough times. Onboarding the agriculture sector as well, along with technology, manufacturing and the vast supply-capacity of the rural farmlands, can fast-track India to growth, in the post-COVID-19 world. It will also augment the struggling incomes of the farmers, as well as allows MSMEs and start-ups to expand into a significant market-base.

Product adaptation

The MSME sector, as well as the established MNCs, must adapt their products to suit the demand of the current times, i.e. to essential goods or services or start producing medical equipment or active pharmaceutical ingredients (APIs) etc. It can serve the dual problem of utilizing the idle manufacturing capacity and supplying items which are in short supply globally. Of course, such shifts in product-offerings must adhere to the highest quality standards, and government agencies across the country will need to authenticate and approve these new products on a fast-tracked priority basis.

Tourism revival 

Source: Indiatoday.in

The suspension of all forms of travel, the ensuing economic lockdown and changed consumer perception regarding travelling for leisure purposes, will be a major setback for the tourism industry. As individuals will be reluctant to travel immediately after the pandemic has been brought under control, both the government, as well as the private sector, will need strategies which ensure that the sector can get back on its feet. The tourism sector currently has zero business going on, as people have been confined to their homes due to the nation-wide lockdown, putting nearly 4-5 crore jobs at risk. Moves such as deferring all statutory payments on rents, loans and taxes, short-term working capital loans, government contribution in providing for the salaries of the employees and considering a 6-month tax holiday etc. can help the industry survive, until hopefully, normalcy is restored by the end of 2020 or early 2021. Significant support must also be provided to the already struggling aviation sector, in the form of tax-reliefs and fuel subsidy. A reduction in the government fuel cesses applicable on aviation fuel, given the historically low crude-oil prices, can also be considered to provide some sort of relief to airline companies, once services resume.

Manufacturing expansion

Amidst the economic gloom, this pandemic also presents a great opportunity for India Inc., be it MNCs or even the MSMEs. Since China enforced restrictions on economic activities, manufacturers and countries across the world realized that they couldn’t be too reliant on a single supply-node. Additionally, the dubious ways in which the Communist Party of China has handled the pandemic as well as threats of retaliatory measures from countries such as the USA, Australia create a sense of business uncertainty. Another trade-war like situation cannot be ruled out. Capital flight from China, in a post-pandemic world, is an eventual reality. And countries like India, which have low-labour costs, and a developing manufacturing base, can take advantage of this capital flight, and become the next global manufacturing hub. Policies which attract companies looking to shift production out of China (such as Japan’s $2.2 billion to incentivize firms moving production out of China), ease restrictions on land-availability and raw material, tax-sops etc. can significantly accelerate the post-COVID-19 economic recovery in India. Make-in-India, trade-substitution and complementing the strong service-sector in India, are great opportunities which the country can exploit, to accelerate the recovery of the industrial sector, in the post-COVID-19 phase.

Sports

The sports industry has been facing heavy losses to the tune of thousands of crores in India itself. The IPL stands suspended, with the BCCI looking at losses of around INR 4,000 Crores alone. Globally, marquee events such as Wimbledon have been cancelled, whereas the Tokyo 2020 Olympics has been postponed by a year. Major football leagues across the world have been suspended, and sports associations continue to lose money. A future action plan will involve strategies which leverage technology to extents never seen before, to get consumers to watch sports from the comfort and safety of their homes. Even post-normalization, since audiences will be reluctant to come out of their homes and join large crowds, livestreaming of sports events, with zero-to-minimal actual audiences, will be the norm for years to come. 

Concluding Comments

The ongoing pandemic has presented humanity with difficulties it seldom encountered before. Even though similar highly contagious diseases have spread previously in human history, but the relative isolation of countries and the absence of globalization ensured that country-specific outbreaks were quickly contained. However, the extent of international integration and the advent of globalization has spread the virus across 212 countries, disrupting all facets of human life. Especially in a densely populated developing country like India, the challenges are multi-fold. 

Innovative strategies which leverage technology, deploy international relations, promote innovation and adaptation, turn challenges into opportunities and fast-track relief measures are the need of the hour. The Indian government, as the custodian of the future of more than a billion people, faces the tricky task of reviving a shut economy, while controlling the pandemic, and simultaneously ensuring minimum-acceptable welfare of the people. In today’s world, despite what geography might say, no country is an island. The flows of capital, labour, technology and science all bind us together. International cooperation, strategic decision-making and innovation can only get the world out of this sticky situation.

Till then, adapting from Sir Winston Churchill’s speech, “we shall fight in the hospitals, we shall fight in the containment zones, we shall fight with advancing technology and medical research, we shall fight with all countries as one, and we shall defend humanity. We shall fight with all our resources, and we shall never surrender.”; the world will, through innovative strategies, tame the COVID-19 pandemic because, in the end, life always finds away.

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