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COVID-19 Has Demolished The Economy, Exposed Several Fault Lines

The Prime Minister must now focus on the immediate future and act to mitigate the knock-on effects that include credit default, shuttering businesses, capricious markets and the endangered financial system

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We are at the cusp of an exponential explosion. Covid-19 has brought in seismic disruptions and an unsurmountable economic crisis.

Our slowing economy is likely to go into a tailspin, even snowball. We will experience increasing unemployment, dwindling assets, and diminished savings, rendering many economically scarred for life.

Public confidence is drained away and beginning to shatter.

Dark today, uncertain tomorrow
The poor will pay with their health and livelihood. Social cohesion will be another victim.

Financial deprivation initiates instability causes social unrest. Despondency and hopelessness erode confidence in society. The political cost is even more staggering. Delusion threatens internal peace, conviction in institutions and democracy.

The curse has demolished the economy and exposed several fault lines. 80% of businesses are vulnerable to liquidity shock, and fragile. Our agrarian health is more fragile. These chokes supply.

Consumer spending is about two thirds of our economy. The lockdown will rob the consumers a third of their income, delaying 70% of discretionary spent, eroding 20% altogether; and plug demand.

GDP growth will fall to sub 3%.

Near term focus necessary. Future critical
The Prime minister facing Sophie's choice has led in an exemplary fashion, prioritizing lives. The business leaders diligently delivered employee safety and business-continuity plans. The civil society organized and delivered.  The media played a stellar role too.

There is value in ‘deliberate calm’ accompanied by ‘bounced optimism’.

Rebuilding the business and returning to the ‘normal’ will be protracted and strung out because of severe, abrupt, and prolonged hibernation. It will need reengineering processes, integrating supply chains, developing new templates and reactivating soft assets.  

In a state of liquidity crunch and in times of lower demand hoping for a shallower downturn will be misplaced and dangerous. Quick recovery, a pipedream. Being realistic is better prepared.
Under crisis and on a mind-numbing scale suppressing the virus was critical, even vital. However, that needs to be broadened and addressed holistically; shortening the recovery cycle is more critical, resilience of that recovery paramount.

Re imagination
Even if the government can put food on the table and transfer cash for other necessities it will still fall short. The key to revival will be creating productive assets and demand which kicks in the virtuous growth cycle.

The Prime Minister must now focus on the immediate future and act to mitigate the knock-on effects that include credit default, shuttering businesses, capricious markets, and endangered financial system. He must shield vulnerable businesses, safeguard the ‘most affected’ sectors and ensure continuance liquidity for unorganized, and income for the fragile. Protecting the financial system should be a priority.

The mid-term goal must be to prevent recurrence, ahead of vaccines or cure.

The next rung of leaders must draw from their experience, embrace the reality as they unfold, imbibe the insights as they emerge, and act with resolve and decisiveness to find innovative policy and sustainable solution centric delivery.

Looking beyond 
The government must also think through the second-order effects (every consequence has its' own consequence) of its policies.

Policy making in India is scattershot i.e. random and indiscriminate. The policymakers need to abandon their silos and ‘timebox’ this calamity.

But Delhi doesn’t need to do everything. Because it can’t.

It needs to take a backseat and cede to the experts, analytical thinkers, implementation entrepreneurs, instigators of constructive social outcome, and several worthy others.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Tags assigned to this article:
Lockdown situation COVID-19 economy

Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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