Millennium Post

For an economic rebound

Post-lockdown, India has many available economic opportunities that will allow in recouping its financial loses and even come out ahead; write Biswajit Mandal & Saswati Chaudhuri

For an economic rebound

The spread of the Coronavirus has been showing no signs of abating and has taken the whole world into a synchronized lockdown. The experts are of the opinion that mid-May may be the time when India's curve might flatten out. So, anticipating a phased extension of the lockdown, we recount some of the economic ramifications that it might entail.

To put things in the proper perspective, let us tangentially connect COVID-19 with the Indian economic situation. The third quarter of 2019-20 of the Indian economy was slowly witnessing a ripple effect of a slowdown as its real GDP was at its lowest in as many as the last six years. COVID-19 acted as a supplementary shock to send shivers and chills across the backbone of the Indian economy. A containment effort like the lockdown is bound to bring the economy on its knees — impacting consumption, investment and trade.

Thus, there is no denying the fact that this pandemic would adversely impact some Indian industries but the rest of the Indian economy would remain relatively insulated because of its low reliance on intermediate inputs. The only silver lining across the horizon is the declining oil prices in the global market. Since the Indian government has not passed this fall in oil prices to consumers, it might improve its fiscal position. The sagging Indian economy may also have some relief in agriculture front due to predictions of good harvest and good rainfall.

Given the almost certain upcoming economic crisis, the prime question boils down to what India can do to minimise the upheaval and to bring back the economy in order. Since the problems are manifold, probable solutions cannot be unidirectional. We need to address the situation from both the demand and supply sides. This is a long-run plan. Before adopting such remedies, the Indian government must ensure the supply of basic necessities by means of cooperative farming and a well designed public distribution system such that the majority of the workforce, both skilled and unskilled, remains safe and healthy to contribute in the domestic production system in coming months. The declared fiscal stimulus package is undoubtedly a step taken in the right direction. And once the relentlessness of COVID-19 dies down, we have to spotlight two things: One is trade, the other is health.

Import demand would not be very encouraging, at least, in coming years which indicates at some sort of self-reliant economy. Unfortunately, this is not possible these days as the world has already gone a long way towards economic interdependence and globalisation. This contradicts the basic principle of comparative cost advantage argument as well. Thus we must figure out those countries where Indian goods are appreciated and India has cordial bilateral relations. One such country is the USA. There is another convincing reason behind such opportunity — USA-China trade war — which has already taken a serious turn during the COVID-19 crisis. India must capitalise on it. So the recent decision of lifting the ban on the export of Hydroxychloroquine to other countries is a brave step forward. Also not to forget that India did not join RCEP (Regional Comprehensive Economic Partnership) in the recent past in anticipation of being one of the important global leaders. So we must not miss the bus. There is always a first-mover advantage. India should appropriate it. This would also help our unemployment ridden economy to not be overstrained with the difficulty of return migration in both domestic and international fronts. For such an opening, public investment must be the top priority at this crossroad since private investors may not find the environment very lucrative to work with.

Another encouraging dimension of the Indian economy is its strength in the service sector which does not necessarily require physical movement of labour. This character of service trade also creates a feel-good factor in the destination country as the reason behind displacement in the job market is not visible which happens when a large number of people migrate internationally. On top of this, India trades in services with some countries which are located in different time zones, allowing both of them to work continuously without augmenting the unemployment snag. Hence, virtual trade in services is another area of importance in such trying times. Richard Baldwin argues how the world has moved from the phenomenal 'great divergence' to 'great convergence' through virtual trade in services. And India is unquestionably the leader in this market because of its geographical location and abundance in skilled, tech-savvy, English speaking labour force. The idea is very simple but most pragmatic: Most of the activities of today's globalised world are connected via the internet. And very recently, the composition of trade has also been tilted in favour of virtual service trade. According to the World Bank, in the recent past, the value of global service exports was about $1.4 trillion. Further, the World Bank reported that the percentage of communications, computer, information, and other services was 45.9 per cent and that of insurance and financial services was 11.7 per cent of the total global service exports. This mainly includes business services such as engineering, software development, call centre, insurance claim settlements, medical advice, etc. This type of trade allows us to beneficially utilise the time zone differences by adopting the time saving follow-the-sun system of service provision. Service production is traditionally divided into multiple sequential stages and the stages are assigned to various groups located in different time zones. The process is accomplished by each group working in regular office hours and transferring the task to the other group when working hours end. One common element of all such activities is the non-requirement of physical transportation of the product, be it intermediate or final. But it certainly requires high bandwidth internet or Information Communication Technology (ICT). ICT helps in virtually transporting the finished task quickly, avoiding the delays usually related to physical transportation. Thanks to the information technology revolution, the cost of ICT has gone down drastically, making room for conducting virtual transaction almost costlessly. To exploit this possibility, time zones (TZ) of trading partners or countries must be non-overlapping. In addition to this, such transaction does not require international mobility of labour which goes well with the idea of closing international border following global lockdown.

Concurrently, the Government must be very careful about the basic health infrastructure of the country as the niggling question that is going to come to the fore is — who or what is going to substitute human capital? Researchers also need to analyse the health condition and working capability of all the Coronavirus survivors. An economy sans healthy individuals can never exist.

Dr B Mandal & Dr S Chaudhuri are Associate Professors of Economics at VisvaBharti University and St Xavier's College respectively. Views expressed are strictly personal

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