POST COVID ERA ECONOMICS

Since the beginning of COVID 19 Pandemic, intellectuals world wide have been discussing about what immediate and long term impact it has caused on various aspect like Health infrastructure, technology, geopolitics and economies world wide. However after almost an year of the pandemic when vaccination drives have  been started to get life back to track similar to pre COVID times,  however this pandemic has changed certain economic aspect or at least have restructured them significantly. So let’s have a look at them how they are important from economic point of view.

When lockdowns were imposed economists predicted the forthcoming deep recession as a consequence. However it is to note that many economies like India itself were already experiencing slow growth before COVID due to global slowdown as well as due to some domestic factors and government policies. What COVID did was to worsen this scenario to the extent that government intervention was needed. Why this interest us is because the economic survey of 2019-20 laid heavy emphasis on the invisible hand of market that is the free functioning of market forces(demand and supply). Whereas the pandemic brought in the concept of Big Government, wherein the governments role were increased world wide. Governments have to intervene in almost every aspect, They paid wages, gave relief packages for the vulnerable, provided free food and health care services. And most importantly they even tracked and traced us. Due to such increased cost world’s government budget deficit added up to $11 trillion this year. Can anyone imagine how people could have been evacuated from abroad if Air India would have been privatized before COVID? Or how government would have been able to develop trust among people to get themselves tested if it was not provided for free in government hospitals. It’s very clear that though in future we need more privatization but COVID has taught us that there must be required public institutions that can be trusted upon in the times of emergency, role of government is important. Next important change is the Easy Money, as the very obvious response to recession in the economy, government and RBI focused on increasing the liquidity, to help business to run smoothly to create demand in the economy. Central banks were plunged back into printing money. Interest rates hit record lows. It is important to note that these changes in liquidity are not temporary, but they will be there for a longer time. As the deep recession triggered by pandemic is expected to leave lasting scars and history shows that pandemic depress interest rates for a long time. Because the damages caused are severe relief measures needed to be long lasting too. So we just said that liquidity will be high and interest rates will be low.From here only we can ascertain the next major impact that is the increased Corporate Debt. Various bailout packages have been announced by the government in which major focus was on providing easy credit to corporates, small and medium business houses as a lifeline and businesses grabbed it. One result was surge in corporate debt levels. The Bank for International Settlement calculated that non financial companies borrowed a net $3.36 trillion in the first half of 2020. This will help economy to achieve a speed recovery through increased business activity.

When the economies started to slip into recession next big question was how will the economy recover, various models were discussed, one of the most accepted model for India was K shaped recovery. In this model professionals are supposed to witness growth and others experience slowdown. This unique models comes with it’s own pros and cons. What matter to us is it’s impact, it increases the income gap in class, race or gender. COVID is a catastrophe not just because it led to loss of human lives but because it led to loss of employment. Many unskilled labor became unemployed overnight over the announcement of lockdown and gradually even the skilled workforce started loosing their livelihood. This created tremendous pressure on government to create employment, and government did addressed this issue by announcing huge employment generating infrastructure projects, by allocating bigger funds to MGNAREGA. But this is not the end, pandemic has triggered new concerns of need for social distancing, and a fear of happening of such an event in future again. Thus industries where social distancing is tough like retail, hospitality or warehousing, alternatives will be provided in the form of Robots, Yes robots will replace humans which will lead to loss of employment. In this pandemic technology already took the jobs of many, and it is no surprising that this will continue in coming decades also, as it is feasible and reliable but definitely not best when it comes to doing justice with livelihoods. 

Next and the last impact in this discussion is the Future of Globalization. When lockdown was imposed in the Chinese city Wuhan , which is a major industrial hub in China, it disrupted the supply chains and sent shock waves. This is what made businesses and governments to reconsider their reliance on China. The country become more inward looking, after all the disease transmitted at this speed due to this globalized world. But need not to be mistaken with the false assumption that globalization harmed us. Over all globalization has benefitted the world economy through increased trade and thus increased standard of living. However the economic policies of governments will definitely change after this once in a century event.

~SAMIKSHA