The whole world is in a synchronised lockdown. Both advanced and developing economies are grappling with recession precipitated by the Covid-19 crisis.
The IMF World Economic Outlook growth projections present a grim reality in terms of the annual percentage change in the real GDP. The Eurozone leading the projected de-growth estimates in the year 2020 at minus 7.5 per cent and modest projected growth of 4.7 per cent next year, assuming that global recovery starts in the second half of the year 2020.
In India’s context, there is some light at the end of the tunnel with growth projected at 1.9 per cent in 2020 and 7.4 per cent in 2021, as against a contraction of the global economy projected at least minus 3 per cent in 2020 and 5.8 per cent growth in 2021.
While there is hope for a quick recovery in India, we have to make concerted efforts to realise this including an integrated multi-pronged approach through public policy support, private sector participation and citizens’ support.
RBI has already stepped up announcing measures to infuse much-needed liquidity apart from incentivising banks to encourage credit flows via NBFCs, HFCs and MFIs to the MSME and consumer segments (auto and housing) to counter the severe impact on MSME cash flows and sustainability.
In addition, the government needs to step in decisively and lead the turnaround through focused public policy and public spending.
Unlike the 2008 financial crisis, this time the crisis has hit harder as the lockdown has jammed all production and operational activities, in particular the Business to Company (B2C) channel with severe impact on labour, employment, supply chain, capacity utilisation, overheads and cost of capital.
Moratorium on loans provided relief to some extent, but much more will be needed to preserve the production capacities, which can help kickstart the economy post lockdown.
The developed countries are pumping in enormous amounts of money in shoring up the household incomes and such measures need to be evaluated by the Indian government.
There is an urgent need to support not only lives but livelihoods as well. Preservation of livelihood requires us to resume production and operations as soon as possible.
The government should consider the resumption of work on infrastructure and construction projects all over the country that was abruptly halted due to the lockdown. This will have the immediate effect of creating employment and ensure wages to labourers.
Supply chain disruption globally has driven multinational companies to look at diversifying their supply chains. Japan recently announced setting up of a $2.2-billion fund to help its manufacturers shift production out of China. US, too, has indicated a strong intent to diversify manufacturing away from China. I
India needs to step up as a viable alternative. For manufacturing a strong infrastructure base is crucial. The government should consider:
1. A task force to provide single clearance window as a point of approval, common application and approval forms for licenses, warehousing and easy compliances.
2. Easy availability of land and power through land acquisition reforms and impetus to renewable energy capacity building.
3. Fiscal incentives could be linked to job creation like income tax relief to companies employing more than 1,000 labourers in the manufacturing sector.
4. Robust dispute resolution mechanism that exhibits a strong commitment to align with International arbitration decisions.
However, the entire value chain should be scrutinised to be mindful of the possible impact of both the upstream and downstream activities with particular emphasis on diversification of the supply chain.
This will prevent over-dependence on any one source or distribution channel to subsequently reduce piling up of inventories in the near term on account of the serious slowdown in exports.
Opportunity for India
This anti-China sentiment should be viewed as an opportunity for India that could be monetised by positioning India as an able contender to service the value chains and attract FDI.
This will bring about a global realignment depending on how the geopolitics plays out in the post-Covid world.
The job losses due to the economic fallout originating from Covid-19 pandemic also presents a unique opportunity for India — the availability of skilled and trained labour to anyone looking to manufacture in India.
The government and Indian companies could partner to ensure that the people that lose their jobs are available to MNCs looking to shift base into India and thus provide Indian companies and labour immediately relief.
To emerge as a leader in the global supply chain in the post-Covid-19 era, India needs to act fast, as here too China has the first-mover advantage; its economy is up and running and the rest of the world is still reeling under the impact of Covid-19.
While China may retain a chunk of the market share in the global supply space, India is well-positioned to step in as an alternative global manufacturing hub for the world, given its emergence as a credible economy and the support it has provided to the global community during the pandemic. Will we step up?
(The author of the article is Ritika Agarwal, who is an experienced chartered accountant and Senior Director at Rajeshree Sabnavis & Associates. All views expressed are personal.)