Facing The Pandemic
⊲⊲ Introduction
In order to check the spread of the novel
coronavirus, world governments called for
partial or national lockdowns which invited
unprecedented economic disruptions. The
nature and scope of these challenges are so typical
that governments are completely overwhelmed
by them. Across the world, the machines
stopped, streets went empty and offices were
shut for many months before staggered unlock
downs could start. The deadly virus had brought
the world to a grinding halt on a scale that has
no historical precedent. World had seen the
disruptions brought by the world wars also but
even then, machines were humming barring
the war zones. But the post-corona times will be
unique in nature to understand and move on.
⊲⊲ Assessing the Impact
Nowhere in the world any economy has by
far (till late June 2020) been able to assess the
economic impact of the novel virus what to ask of
a future projection. But by now, most of the UN
institutions (such as the IMF, UNCTAD, WTO,
FAO) have given their opinions or released
* A fortnightly feature authored by Ramesh Singh on contemporary socio-economic burning issues.
special reports on the possible economic
impact of it on the global economy— the major
inputs from them revolve around the following
concerns:
1. Global economy is already hit with
recession, which will be more painful
than the great recession of 2008 (IMF
and UNO).
2. High chances of disruption in the global
value chain (UNCTAD).
3. Developing countries to face
mismatches in requirements and
availability of funds in post- pandemic
period (UNCTAD).
4. World has enough food stocks but
due to disruptions in supply chain at
global and local levels (caused by global
lockdowns) there are possibilities of
scarcity of food in many developing and
sub-Saharan countries (FAO).
5. The panic of lockdowns will hamper
harvesting of crops across many
countries and if lockdowns are not
regulated by the national governments
wisely it may lead to less sowing by
farmers in the upcoming crop seasons
due to apprehensions of shortages
2  ⊲  Indian Economy
related to agricultural inputs and labour
force (FAO).
6. The global and national production chain
needs restarting to prevent shortages of
essential items of daily use— lockdowns
have disrupted upward movements of
raw materials, production as well as
the downward movement of the final
products across the world (FAO, WTO).
7. Developing nations have been pledged
higher funds by the UN agencies to
2.
fight out the post- pandemic challenges
(World Bank).
8. Moratorium on sovereign debts have
been advised under the joint action of
the global community (UNCTAD).
Though, it is still difficult to assess the
economic impact numerically, major challenges
which global economy is supposed to face,
are being summarised below (based on some
international reports and opinions of the
experts):
1. Disruption in value chain: The global
value chain got badly disrupted together
with the national supply chains –
countries with nationwide lockdowns
facing even bigger challenge in this
regard (as in case of India). Availability
of not only medical supplies but other
essential items also dwindled. Even
after a strong resistance shown by the
developed economies to globalisation
in recent years, the world is much more
inter-connected and inter-dependent
3.
today than any time in the past. Today,
a small disruption in production or
supply chain in any of the production
hubs of the world has crippling impact
on the global economy. As this time
round, world’s biggest production hub
(i.e., China) got disrupted the impact
has to be the biggest ever! We can
imagine the inter-dependence of world
today by the simple fact that over 90
per cent of the PPE (personal protective
equipment) were outsourced by the
USA from one country China— in the
wake of lockdowns and disruption
of production lines in China the USA
was faced with unprecedented scarcity
of the PPEs. Even if production lines
are coming back to normal in China,
till international trade resumes back
to ‘normal’ the global value chain will
keep facing the disruptions.
Demand and supply side shocks: In
the aftermath of the coronavirus the
situation will be quite different which
will emerge from a combination of a
supply as well as a demand shocks
unlike previous crises in recent past.
On the supply side there is a sudden
disruption in the availability of ‘labour’
due to the lockdowns and quarantines
that have been put into place in almost
all countries around the world (around
3 billion people across the world were
under it in its peak time by May 2020).
Moreover, since supply chains have
been disrupted, firms have lost access
to suppliers for the inputs, which are
crucial for production. On the demand
side, the loss of income during this
period and the rise in uncertainty will
disincentivise people from spending.
Both of these dampening forces are
bound to render the world into a full-
blown recession that was long coming.
Global debt load: Aimed at providing
comfort to the stakeholders,
governments across the world have
launched various relief and stimulus
packages. How long and how much
such relief measures are going to be
was still not clear by late June 2020. But
one thing was clear that such economic
relaxations will have high costs and
hit national exchequers in a big way –
increasing sovereign debt burdens in
unprecedented way. The World Bank

noted in December 2019, that the world
economy has been witnessing a steady
build-up of debt over the last decade
that could be seen as the fourth wave# of
debt accumulation in the last fifty years.
The three debt waves before the current
one had all culminated in a financial
crisis across the world or in major parts
of it.
This way, once the health emergency is
addressed, the world will be left to deal with
the inevitable economic threat. The global
economy stands upon a mountain of debt in
a time when economic growth is nowhere in
sight to service them – innovative solutions
will be required to pull the world out of it. The
crisis of 2008 was managed by the high-growth
years that preceded it. But this time round the
world economy does not have the same luxury.
Countries could agree upon a ‘coordinated debt-
resolution strategy’ that postpones repayment
of the debt over a period of time in the future
(as the latest UNCTAD report of March 31, 2020
advised). But the scope and viability of such
ideas need be chalked out while there is still time
for the global economies to arrive at a common
understanding. Naturally enough, the world
economy is faced with strange situation and to
overcome it world may need stranger ideas!
⊲⊲ The Case of India
We don’t find any comment on the possible
socio-economic impact of the coronavirus on
India either in the Economic Survey 2019-20
or the Union Budget 2020-21. May be, it was
too early for the official documents to figure
it out as the first positive case of the virus got
confirmed from Kerala on January 30, 2020
only. The spate of spread, though slow, went
on increasing since then, followed by a Janata
Curfew, partial lockdowns in few states, several
phases of nationwide lockdown – and the phase
of staggered exit (Unlock 1.0 during June 2020).
The speed and fatality of the deadly virus
Facing The Pandemic   ⊲  3
had been overwhelming forcing the world
governments pushing the panic button! Turning
to economy, while announcing the decision of
the nationwide lockdown, the PM clearly told
the nation that the country will pay an economic
cost of it. Like all of the countries, India will
also have the short- and long-term impacts of
the pandemic – major ones are being outlined
below:
1. Supplies of essential items got hit
across the country, especially, in the
cities (which have highly concentrated
demand in comparison to the rural
counterparts). With companies shut
and labourers asked to maintain social
distancing during lockdown, the supply
chain is badly disrupted. Governments
are trying to supply the essential items
to the poor population but the people
who depend on supplies from the
market are now facing scarcity across
the country.
  In short-term, the country
needs ways of maintaining essential
production and other services, such as
food supply chains (from harvesting
standing rabi crops to transporting
these to markets, to households and to
the hungry and homeless); production
supply chains for protective gear,
ventilators, masks, medicines; delivery
services; government employees
maintaining public utilities, and so on.
2. The farmers involved in the sectors
like dairy, poultry, fishing, vegetables,
fruits and other perishables are stuck
with their stocks in absence of the
buyers. This forced the economy to face
unprecedented livelihood crisis.
3. Though late, but the Governments
responded to the issue of the harvesting
of the ‘rabi’ crops followed back to back
by the sowing of the ‘kharif’ season –
farm activities were allowed with social
distancing norms.
4  ⊲  Indian Economy
4. Governments were faced with
unforeseen challenge to track and
quarantine the labourers who migrated
in panic back to their villages. This has
created a typical kind of administrative
challenge in front of the nation.
India has spent a majority of the previous
decade dealing with the overleveraged (i.e.,
under high debt burdens) positions of its
businesses and banks that had not been able
to recover from the post-2008 slowdown. The
growth scenario was also slowing down in the
months leading up to 2020. India’s growth had
been falling for six consecutive quarters until the
second quarter of the 2019-20 when it clocked
4.5 per cent— a six year low. The figure was only
marginally beginning to improve in the third
quarter (4.7 per cent) of the year – but the final
quarter got impacted by the COVID-19 in an
unprecedented manner (RBI and SBI estimated
negative growth rate for 2020-21). The continuous
fall in growth numbers (although worrisome
in themselves) has also limited the capacity of
the government to stimulate the economy once
the situation returns to normalcy— will be the
biggest challenge in long-term.
Meanwhile, the Government of India has
announced various relief and financial measures
to lessen the socio-economic hardships faced
by the businesses, industries, daily wagers,
homeless and common citizens at large – major
ones (till late June 2020) are being briefed below:
(i) The Government of India commenced
a campaign towards self-reliance by
launching the Atmanirbhar Bharat
Abhiyan with a relief-cum-financial
package of ` 20 lakh crores (around
10 per cent of the GDP) – aimed at
‘converting the crisis into opportunity’
[for details of the measures taken under
the campaign, see the main book as
they have been included in almost every
Chapter].
(ii) A relief package (under the Pradhan
Mantri Garib Kalyan Yojana) was
announced by the Government of India
for the poor population with a total
outlay of ` 1.70 lakh crores.
(iii) A special employment scheme (Garib
Kalyan Rojgar Abhiyan) was launched
to provide 125 days employment to the
migrant labourers (back home during
COVID-19 pandemic) in 116 districts
of the states of Bihar, Uttar Pradesh,
Madhya Pradesh, Odisha, Rajasthan
and Jharkhand – by combining the
funds (` 50,000 crores) of the 25 exiting
schemes (such as PM Awas Yojana,
Gram Sadak Yojana, Jal Jeevan Yojana
and PM Gram Sadak Yojana among
others).
(iv) The RBI announced various monetary
measures to provide extra liquidity in
the financial system, namely— pumping
extra liquidity of ` 3.74 lakh crores in
the system (by cutting CRR, long term
repo operation, marginal standing
facility); encouraging banks to not
hoard fund via reverse repo route (by
increasing the gap between the repo and
reverse repo); encouraging lending and
providing interest comfort on existing
loans (by cutting repo rate); deferment
of loan repayments by three months;
easier working capital financing; etc.
(v) Deferment of tax payments (income
tax, corporate tax, GST mainly) and tax
breaks were announced together with
employees related monetary help given
to industries and businesses; etc.
(vi) Centre increased its market borrowing
plan to revised sum of ` 12 lakh crore in
place of the Budget target of ` 7.80 lakh
crore (showing a hopping 53 per cent
jump), in the wake of falling revenues
and rising expenses. This will push
Centre’s fiscal deficit to 5.5 per cent of
GDP (against the Budgetary target of
3.5 per cent).

(vii) The Centre raised the borrowing limit of
states from 3 per cent of gross state
domestic product (GSDP) to 5 per cent
in 2020-21, to make available an extra
of ` 4.28 lakh crore. Net borrowing
ceiling of states for 2020-21 was
` 6.41 lakh crore (3 per cent of GSDP)
of which states had borrowed just 14
per cent till April 2020, but they had
been demanding for special increase in
borrowing limit from 3 per cent to 5 per
cent of their SGDPs.
Facing The Pandemic   ⊲  5
⊲⊲ Concluding Remarks
As cases of the coronavirus kept on rising, the
governments were in the process of bringing back
economic activities to normal, however, till the
pandemic halts the staggered exit does not seem
giving enough confidence to the stakeholders.
Experts believe that even after countries are out
of lockdowns, economic activities will not be
back to pre-pandemic times till there is either
a good vaccine or risk-free curative medicine
not available to masses – naturally, normalcy is
going to take more time!

# The  first wave occurred in the decade of the 1970s when developing economies in the Latin America and sub-Saharan
Africa borrowed heavily (due to low real interest rates) throughout the decade. When the interest rates finally began
to rise, the countries were left with no option but to default on their repayments. A second wave of debt accumulation
began when interest rates were low in the 1990s, which eventually resulted in the Asian financial crisis of 1997. The third
wave impacted the developed world as well when with regulatory easing, the private sector borrowing accelerated caus-
ing a collapse of the banking system in 2007-08 which was followed by the biggest recession in recent past.
The most recent wave (i.e., the fourth wave) of debt accumulation began in 2010 and has witnessed the most rapid and
largest increase in debt among the emerging markets and developing economies in the last five decades. As of 2018,
the global debt stood at an all-time high of 230 per cent of the global GDP. The total debt for the developing countries
in the same year was almost equal to twice their combined GDP— the highest ever. So, an economic crisis has long been
in the making. The question was when. But the sudden shock in global production caused by the coronavirus looks
accelerating the timeline for the world.