There is a drastic change in our living style in a very short span, from the way we look at people to the way we breathe. More than 2.2 million human beings around the world got positive by the most negative word called “CORONA” in more than 185 countries (As on April 18, 2020) and around 147 thousand humans lost their life. Most importantly millions of people got affected by the most deadly disease called fear. “The fear of Uncertainty”. The Uncertainty is not only among common man but also among Doctors, Investors, Economists, and most of the governments. It’s because we have not seen such a serious epidemics outbreak in the known past. Apart from that, this will also lead to lots of financial and economical Uncertainty. Sometimes it’s important to refer history to come up with a solution but unfortunately, now we don’t have such references in the past.
Is it different from the “Other crises”?
We can’t compare this with the Great depression or stock market crash. Now we are living in the Globalised Economy, change in business models, increased in size of the economy. The Great Depression began in the US after a significant fall in stock prices which started around September 4, 1929. Between 1929 and 1932 the entire world GDP fell by around 15%. This shows that the impact is for at least 3-4 years. The Great Depression had devastating effects on both rich and poor countries. There are a few countries that had negative impacts until World War II. During the 1987 stock market crash, all the major world markets experienced a similar crash and lost around 1.7 trillion USD. The 2008 financial crisis is the only economic crisis we have faced after globalization. Even during the 2008 financial crisis, India had a GDP growth of 3.8%. But now before the corona crisis, we had a growth of around 4.2 %( 2019). Already our growth rate fell from 8% to 4.2% in the past three years.
Is it something new?
Of course YES, it’s an epidemic coupled with economic crisis and uncertainty. This is a new combo that we are facing and so it is difficult to predict the impact now. In the past during the crisis governments and central banks worked together and reduced interest rates, few policy changes, tax cut and increased liquidity in the economic system to boost the economic growth but today doing the same may not be sufficient and even it is very difficult to pump too much liquidity into the system that’s because almost all the governments spent their reserve on controlling the epidemic and providing health care facilities. Almost all the developed countries are struggling to control the spread of the virus and trying their best to save the life of their citizens. Developing and under-developing, economies are forced to provide welfare schemes for their citizens during the lockdown period, unlike the developed countries. It is going to be very difficult for developing and under-developing countries to raise further capital to boost the economy when they already have lots of debts and budget deficits. Finally, in this situation there will be lots of constraints in raising human capital also, people are scared to come out of their houses and it's going to continue until we find a proper medicine for the virus. This is one of the major differences from the past.
Certainly uncertain
At present it's very difficult for authorities to predict the real economic impact; moreover, they are busy with flattening the epidemic, which should be the actual first step to approach this uncertainty. The problem is we don’t know when are we going to control this virus's spread? And if such viruses are coming again how we are going to handle? This will be the two primary questions in every individual's mind. So controlling the spread as soon as possible and giving confidence to every human being should be the priority. Because most of the developed counties like the US, Italy, France, Germany have failed to control in the beginning stage just because it is unexpected and underestimated. It is not possible to say that a developing economy like India can control the spread because we are still trying to reduce the spread but did not control the spread completely.
Parallelly it is very important to come up with a great plan to handle this great Lockdown. Even for India, it’s going to be very difficult to raise capital to boost our economy. IMF recently released a forecasted growth for the current year at 1.9%. This is good news and this number is much better than other big economies and it also forecasted that the entire world’s GDP will go down by 3%. Though India is in a better position today than other countries it is impotent to keep in mind that we did not completely control the spread and no improvements in finding the medicine too.
Is it difficult to raise Human Recourses?
The unemployment rate is a key indicator for any developing country. Especially when we running towards number one in population. It is evident that there is going to be a fall in our growth rate. This lockdown played a very crucial role in small businesses, for them, the regular cash flow is the only key to run the business and the people employed in these businesses will also face difficulties and there will be a sharp increase in the Unemployment rate. CMIE data says that the unemployment rate is above 7% for the past year. During the lockdown, it has increased to around 25% and expected to rise further. It is acceptable that after the lockdown people will move back to their job, but that is not possible in all the sectors.
By
Krishnan L
Second-year student of IFMR GSB,Krea University