1) There is gloom everywhere. Every morning I open the newspaper, I see that there has been a record number of new Coronavirus cases in the country. Every day surpasses the previous day in the numbers tally. Economists are predicting the worst recession of the century hitting the globe where millions of jobs will be lost and many more millions of people will be driven into poverty. So, is everything lost? Is there no hope for the economy moving forward? To investigate this issue, I started to look around and realized that in the midst of all this gloom, there are many silver linings. Many reasons to feel optimistic and cheer about; especially if you are an Indian. So, what are the positives that might emerge as the COVID pandemic begins to taper down and eventually leave us alone? There are several such positives. Let us take a look at them:
a) GDP Growth Rates: IMF is the global nodal agency that monitors all the economies of the world and undertakes fiscal interventions wherever these are required to bail out sinking economies. Economies are considered to be in recession whenever they show negative growth rates as compared to the previous two quarters. Almost all the major economies of the world shall get into major recessions after the COVID pandemic. IMF recently published the expected recessionary trends across major global economies. This table is as shown below:
b) The above table is an interesting one. Kindly note that, while all the major developed economies of the world shall shrink and show recessionary negative growth rate (USA -5.9, Spain -8.0, Italy -9.1 etc), only two major economies of the developing world shall continue to tread in positive territories. India & China. When there is economic gloom across the entire globe, the Indian economy is expected to expand by around 2% in 2020 as well. Recent announcements by the Niti Ayog show that the Agricultural output of the country is likely to show a 3% increase and this is likely to positively impact the GDP numbers for India further. So, what is the reason for the Indian economy to show this resilience when the rest of the world is crumbling around us?
c) According to CIA Factbook, sector-wise Indian GDP composition in 2017 was as follows: Agriculture (15.4%), Industry (23%) and Services (61.5%). Also, domestic household consumption forms 59.5% of the Indian economy. Thus, the Indian economy largely remains unaffected by global events impacting other world economies. It depends largely on the domestic consumption and domestic Agriculture, Industrial and Services output. As per Niti Ayog Agricultural output of India is expected to be 3% higher this year as compared to 2019. Indian industry is not exposed to vulnerable sectors like automobiles & heavy machinery like many other economies of the world (Japan, Germany, Korea). So, the Indian industry is largely expected to bounce back fairly quickly after the lockdown is over. A lot of economic activity is going to move on to the Digital superhighway, due to social distancing and restrictions on the physical movement of man and machine. This is where the Information technology edge for India shall come into the fore. The IT companies in India, which contribute largely to the services sector contribution to the GDP, shall see higher traction and shall start seeing smarter business in the later part of 2020. All the above reasons throw a lot of hope for the economic performance of India in 2020. While the numbers might come down, India shall sail through this Pandemic far more resiliently than almost every other country in the world.
d) Fundamentally there are no underlying economic factors that are dragging the economy down. So, the moment the lockdown is reversed and the Pandemic is brought under reasonable control, the economy shall bounce back. The only thing that is likely to be lost is 2 months of industrial output that shall drag the yearly GDP numbers down by a few percentage points.
2) Several sectors shall begin to show a lot of promise after the lockdown is over. Let us examine some of these:
a) Agriculture: Indian GDP continues to depend on Agriculture. Nearly 20% of India’s GDP comes from the Agriculture sector. The agricultural production has largely remained unaffected by the CORONA Pandemic. (Except for lack of manpower during the harvesting season of the Rabi crop). In fact, Rabi crop production in the country is likely to be 3% more than the last year. Thus, we shall see little disruption in the agriculture sector that shall contribute to stabilizing the GDP figures for India.
b) Health Care: Health care sector is obviously going to find a lot of traction in the weeks and months ahead. For all the negative publicity of poor health care services in India in the western media, the sector has done reasonably well in handling the current pandemic effectively. Whether it is testing the potential cases, or isolating the
suspects or treating the confirmed COVID patients, India has done quite well till now. Of course, the situation has been effectively supported by strong administrative action of the complete lockdown of the country, thereby keeping the number of people affected by the Pandemic relatively quite low. This effective management of the COVID pandemic is likely to show the Indian health care sector in the positive light across the world. It is expected that this shall result in a substantial increase in health tourism in India. The prices of simple procedures like angioplasty or bypass surgery are at least 20 times higher in the western world. India is already attracting a lot of patients from the middle east and South Asia region. Given the right impetus and proper communication and publicity, the Indian health care sector is capable of attracting many more health tourists from across the world. This is the right time for India to push for this.
c) Pharmaceutical: Indian Pharma industry has already made its mark on the global scene. Thanks to the demand for the Hydroxychloroquine from across the world, Indian Pharma industry is now been seen as robust and extremely cost-effective. Companies like the Serum Institute of India have tied up with Oxford to mass-produce the vaccine developed by them. This Vaccine is considered to be the first in line to effectively stem the COVID virus. Many other Indian Pharma majors are collaborating and investigating the COVID Vaccine. Soon multiple solutions shall emerge that shall herald the Indian pharma industry to the top of the global business.
d) Digital Platform based Economic Activities. Social Distancing and Work from Home is going to be the new normal. Going into crowded markets is increasingly going to be difficult. All this is going to move most of the economic activities across the world towards Digital Platforms. Ecommerce based activities shall gain much traction and many more activities that were done in the physical world shall find newer platforms for delivery. Take for example entertainment. Concept of going to Movie halls shall be a thing of the past. Most of the entertainment shall be delivered at the doorstep over the OTT platforms. All this shall require immense computing powers, Bandwidths and Computing professionals. This is where India has its strengths and the Indian IT industry should find more business in the changing digital economy.
e) E’ Commerce: Given the social distancing measures and lockdown of most of the crowded markets commercial activity is going to shift online. Thus, e-commerce business shall pickup. Companies like Amazon, Flipkart and others will see enhanced sales and contribute to the GST kitty of the central government.
f) Mines & Minerals: Mining activity in the country has remained unaffected by the global pandemic. Except for the disruption during the lockdown period, when the mining production stopped; the sector shall spring back to its original production capacities, once the lockdown is lifted. This sector shall continue to contribute to the GDP figures for 2020.
g) Education: The education sector in the country shall continue to grow. One positive impact of the loss of jobs will be that a large number of job seekers shall now decide to utilize the current slump in enhancing their skills and marketable education levels. Thus, all kinds of postgraduate studies in the country shall see higher rates of admission. Online education platforms shall see exponential growth and the sector will perform better after a few months of a slump.
h) Environment: Almost all large projects in India impact the environment adversely. It is now mandatory for all project appraisals to get environmental clearances before project implementations can begin. The complete lockdown has helped improve the environmental conditions in the country considerably. This is likely to impact future project implementations positively.
i) Stock Market Trading: All the global stock market indices have slumped over the last quarter. A lot of shareholder value has been eroded due to the stock market crashes. However, it also now presents an opportunity to make profits from the stock markets. After the lockdown is over and the normal economic activity begins, the only direction the slumped markets can go is upwards. There is an opportunity for smart investors to make money in the stock market now.
j) Bullion Business: As the stock market and the global crude prices slumped the bullion prices shot up. There is money to be made in the current market where the bullion (Especially Gold) prices have gone up.
3) So, we see that there are several sectors that shall spring back to their original levels of output quickly after the lockdown. There are other important factors that shall help rebuild Indian economy faster than most of the other major economies of the world. Some of these reasons include:
a) Strong Political Leadership at the centre: Indian political leadership has steered the handling of the Corona Pandemic most deftly. They have been praised for their deft handling by most of the global development organizations and the world leaders. The government headed by Shree Narendra Modi quickly took action and put the whole country under a complete lockdown. As per one estimate, millions of more people would have got infected by the virus and hundreds of thousands of more people would have lost their lives if the government of India had been any less decisive than it has been inputting the country under lockdown. Fortunately, the Government at the centre has a complete majority in the parliament and the next elections are not due for the next 4 years. This shall enable the strong central government to take necessary corrective fiscal actions and bring the economy back on track quickly.
b) The slump in the Global Oil Prices: Global energy demand and subsequently the oil prices have slumped to a historic low. This shall bring the central governments burden on gas subsidies substantially lower and also bring the household expenditure lower in the months to come. This is likely to help the economy to recover early.
c) Flight of capital and business from China: China has suffered the biggest setback in its brand image of being a global hub of manufacturing. Governments and corporations across the globe are contemplating to move their money and manufacturing away from China. If not fully move them then at least look for alternatives to move some eggs out of the only basket they had in China till now. Can India capture some of the fleeing capital and business from China? Till now countries like Vietnam, Singapore and Cambodia seem to be taking the most advantage of the fleeing capital. If the Central Government creates the right business environment, makes it easy to do business in India, removes and rationalizes the policies in regard to land, labour and taxation then it can capture a large part of the fleeing capital from China
4) It is not the purpose of this article to suggest that the Indian economy shall remain unscathed from the Corona Pandemic. It shall certainly take a big beating. However, if there is one economy in the world that will rebound quickly from the impact of the pandemic, then it is certainly the Indian economy. Indians can justifiably take some solace from this fact. While 2020 may go down in the history as the year of the “Corona Pandemic”, Indian economy may emerge as the most resilient to have faced the pandemic.
About the Author
Wg. Cdr. Pradeep Valsangkar is a postgraduate Engineer from the IAF. He completed his B.E in Electrical Engineering from MACT Bhopal, M.Tech in Computer Science from IIT Powai and MBA in Finance from FMS Delhi. He is also a graduate of Defence Services Staff College of India. After leaving service he has worked in various capacities across different IT services companies. He has been working as a senior consultant of the World Bank for last 15 years, a visiting faculty at Institute of Management technology and runs his consulting firm Global Consulting Solutions. He can be reached at pradeep@gcsindia.com or 9811202528
