2021: RED, GREY and GREEN Zones
January 24, 2021
Year 2021 is mired in uncertainties as far as the World,and Indian, Economy, Polity, and Society are concerned. — KK Srivastava
Indubitably the pandemic was the most historic and consequential global event in recent times. It led to an economic response in the form of fiscal and monetary stimulus of $20 trillion. It precipitated a global health emergency infecting nearly 81 million people worldwide, claiming about 1.8 million lives. It also led to a loss of trillions of dollar worth of wealth. Cumulative damage could be nearly $30 trillion over 5 years compared with pre pandemic trend. At 10.2 million, India has had second largest number of cases in the world. India has to face its first economic recession in 59 years. The virus spread spared none, including those with wealth and power. Lockdowns and social distancing crippled the world economy.
As a sideshow, the geopolitical rivalry between the two behemoths – US and China – got accentuated. While China has been targeting global democracies since previous times, hegemonistic designs of China have now come out in the open. Again, while the trends were already emerging, globalization as we know, is almost dead. We will witness narrower groupings of the like minded collaborations, based on geographies, political thinking, or even economic interest. Challenges are plenty, however. New identities are difficult to forge, certain issues like climate change, control of pandemics, etc. need global collaboration and compromise. But will geopolitical rivalries provide room to face common challenges? One wonders. Though the world economy has recovered from the initial shock, the fact remains that this year has been that of the second or third worst downturn in the last one hundred years. GDP, employment, productivity, health, all of these and more, suffered huge losses. Returning to normal will be neither easy nor prompt, Hope it will, but.
How much damage will be incurred will be dependent on the measures undertaken by the major economies. The balance sheets of households and businesses need to be made healthy again; this can not happen overnight. It is indeed difficult to predict near term outlook. Partly, because China is a major contributory to world economic growth. Post 2008, China had recovered very rapidly .This time, however, recovery is rather mild. Besides, Chinese focus has turned inward providing less support to the rest of the world. To add to this, the less developed regions have no means to loosen their purse strings – India being a prime example – partly due to lack of resources but part also because the economy itself may not have the capacity to squeeze production and productivity out of the finances without inviting inflationary forces. Will these countries get support from US and EU? Who knows? They have to put their own economies in order first. Their governments have to vote on the stimulus package. All in all, a scenario fraught with uncertainties.
Till date worldwide a fiscal stimulus of $12 trillion plus liquidity infusion (over Rs. 8 lakh crore by RBI) has been undertaken. This will need a calibrated tapering now so as to stabilize emerging debt, equity and currency markets on one hand and avoinding too much austerity on the other. Recall that the latter had slowed the post 2008 recovery. This therefore means that 2021 onwards, there is likely to be a paradigm shift in policy making in many areas.
One, private consumption and investment both being in downward mode, fiscal frugality may not be a virtue, though being spendthrift may neither be possible nor desirable. Two, in view of both disruption and distrust as far as Chinese supplies are concerned, new supply chains are likely to be more automated and shifted to their destinations of consumption. China is not likely to cede space so easily, however, nor for that matter other nations have immediate prowess to supplant China. Three, the whole world will spend increased percentage of its public expenditure on maintaining and growing health. Lastly, hybrid models of work place (work from home plus office together) will come into focus. This in turn will lead to altered mobility pattern and more and more reliance on digital mode adoption in our everyday life.
For India, it has been a year of churn on all fronts – political, strategic and of course economic. Pandemic and consequent lockdown brought tremendous economic upheaval in the Indian economy. India is one of the worst hit economies among global majors. The protracted lockdown and the freezing of industrial activity hurt the economy badly; a recession resulted. Private consumption and investment went down, and so did the GDP and its growth. Tax collections went down which put a check on govt. spending. Nearly 100 million jobs were lost during the lockdown months. While exports are growing, they are yet to recover to prepandemic levels. Recovery in manufacturing, industry and servies has not been satisfactory as of date. On the brighter side, however, agriculture, e-commerce and retail, digital economy and stock markets have delivered.
On the political front India faced a very belligerent Chinese incursion into Ladakh. For sure, China has hegemonistic designs all over the world, but especially in its neighbourhood including India with which it has had a record of long standing uneasy existence. While the year began with protests against the controversial citizen amendment bill, the unrest has failed to ebb due to ongoing farmers’ agitation right on the borders of Delhi. Ruling BJP is strengthening its grip in areas hitherto unruled by it; it looks comfortable to do well in West Bengal elections. It has already captured power in MP.
Due to a constraint of space if we focus only on economy, then if a recovery, which is rapid and certain and all encompassing, is to be ushered in, then more and more reforms will have to be effected, including reduction in regulatory clutches, promotion of (ease of doing) business, providing adequate finance to the varies sectors of the economy, especially MSME, and build infrastructure to build a robust foundation to facilitate economic activities are steps that are repeated ad-nauseum but need to be emphasized more time. The production linked incentive schemes across 10 sectors have created positive sentiments around large industry. This should lead to a capex pick up in the new financial year. This is turn should promote long term economic growth. Atmanirbhar Bharat is a fact of life, an integral part of our economic policy.
The ironic fact is that economic liberalization, since 1991, notwithstanding there is a long way to unleash the animal spirits, the entrepreneurial energy. Statism and sarkari patronage is integral for survival of business in India still. Ease of doing business is still largely a phrase. Govt. controls policies, regulations, and CBI, ED and other investigating agencies. State has stymied industry; netas can always overwhelm industrialists. This has led to a very adverse outcome. Due to inadequate growth in manufacturing, people have failed to move out of agriculture even if it is a low productivity and low return area for a larger majority of farmers with small holding. Till the time the political class will continue to subordinate entrepreneurial spirit to their political interests, the vilification of capitalism will continue. Industrialists will perpetually be labeled as profiteers and rent seekers. Larger units will be acused of cartelization. All this combined with the fact that there is not much reason for cheer in the immediate future. To add fuel to the fire, inflation – food and commodity both – is rearing its ugly head, fiscal stimulus has not been enough, supply chains have been disrupted, both domestically and globally. All these and other factors signals towards a larger but catalytic role of Indian state. How does the Govt. act is to be seen, however.
The author is Associate Professor, PDGAV Collage, University of Delhi.