Hard knocks
COVID-19 has impacted more than our fragile public health systems, engulfing and impacting our interconnected economies and supply chains worldwide
The new Coronavirus, which emerged in the Chinese city of Wuhan in December 2019 has infected more than 10 lakh people in more than 150 countries globally. The virus outbreak has become one of the biggest threats to the global economy and financial markets. Fear of the coronavirus has rocked financial markets worldwide.
To contain the COVID-19 outbreak, China locked down cities, restricted the movement of millions and suspended business operations, which not only hit the Chinese economy but slowed down the world economy. Later, it rapidly spread across the world with reports of more than 12 lakh active cases and more than 70,000 deaths with worst-hit countries facing heavy toll of deaths like Italy (15,887), Spain (13,055) and Iran (3,739), etc.
The Organisation for Economic Co-operation and Development, (OECD) in its March report, downgraded its 2020 real GDP growth projections for all economies.
COVID-19 will have a larger adverse economic impact as compared to disasters like the SARS episode in 2003. Since then, China has become more integrated into the global economy as its share in global GDP has increased from 6.5 per cent in 2002 to 17 per cent in 2019; in global FDI from 2.5 per cent to 7.5 per cent; in global trade from 4 per cent to 11 per cent and in global tourism from 2 per cent to 9 per cent. China is a major commodity importer as its share in global demand for selected commodities has increased substantially during 2000 to 2018 like aluminium import increased from 12 per cent to 57 per cent; copper from 12 per cent to 52 per cent; nickel from less than 5 per cent to 48 per cent; zinc from 17 per cent to 45 per cent; lead from 10 per cent to 42 per cent; natural rubber from 16 per cent to 40 per cent and crude oil from 6 per cent to15 per cent.
Supply chains are vulnerable as value-added trade flows between China and key partners show that value-added export dependence of computers, electronics and electrical equipment sector to China is almost 63 per cent, whereas it is much lesser in case of USA (4 per cent), Japan (8 per cent), South Korea (7 per cent), DAE (10 per cent), DEU (6 per cent) and Europe (15 per cent). On the other hand, value-added import dependence from China as per the percentage of country's sector output is 77 per cent as compared to the USA (24 per cent), Europe (14 per cent), Germany and Japan (11 per cent), South Korea (8 per cent) and DAE (9 per cent). The fall in Chinese demand has brought uncertainty in world GDP from the second quarter onwards in 2020 and if the epidemic spreads in entire Asia, the full-year impact would be 1.5 per cent on world GDP.
In the case of India, the impact of Coronavirus on Indian economy will be a hard hit as it will slow down economic growth by almost 1 per cent, though the real impact will be ascertained after the crisis is over. The RBI governor said that India has limited integration with global value chain which will insulate its economy from the impact of the Coronavirus epidemic.
Sectors such as tourism, aviation, hospitality and trade have faced the first shocks which will directly impact the economy. Moody's has downgraded India's growth to 5.3 per cent in 2020 due to adverse effect of COVID-19, whereas economic survey forecasted 6 per cent to 6.5 per cent rise in the FY 2021. If the impact of Coronavirus continues till May, then GDP growth in FY 2021 will dip to 4 per cent.
On the supply side, it will impact manufacturing, agriculture, pharmaceutical industry, automobiles and consumer items. When consumption will slow down, the production sector cannot afford to pile up inventories. If tourism, aviation, hospitality and trade shut down, it will adversely affect the recovery of loans, consequently, banks will accumulate non-performing assets (NPAs). India's health care system ranks 112 in the world and spends 1.4 per cent of GDP on public health which is much less than the global average of 6 per cent.
The fulcrum of the economy is trust, which is generally earned or lost in difficult and challenging times. In the present scenario, financial and fiscal assistance in the form of the economic package announced on March 24, 2020, flexibility and relaxations in statutory and regulatory compliances were needed to overcome challenges.
The writer is Director Finance (NHM), Ministry of Health & Family Welfare, Government of India. Views expressed are strictly personal
