Economy in a post Covid-19 world

Venky Vembu | Updated on April 04, 2020

Painful closure: Long after the lung-infecting Covid-19 virus threat has been overcome, the informal economy will be left gasping for air   -  SHIV KUMAR PUSHPAKAR

As the world ponders the shape that a post-Covid-19 world will take, there is little doubt that much pain lies ahead for the global economy. Fears for collective safety, as the virus hurtles across borders, are leaving little room for nuance in decision-making, pushing policymakers to choose between saving human lives and saving the economy

Some 10 years ago, when the word ‘coronavirus’ didn’t quite trip lightly off a billion (and more) tongues, the Rockefeller Foundation, in collaboration with the Global Business Network, ran a “scenario planning” routine to envision the world of the future. It was, as the foundation’s then president Judith Rodin noted, an effort at “creating narratives about the future based on factors likely to affect a particular set of challenges and opportunities”. Sort of a ‘what if’ parlour game for rich people and moneyed institutions.

This exercise in ‘crystal ball gazing’ was arguably middling-mediocre, lacking in the kind of rigour that typically goes into such modelling. As the outcome report explained it, at a ‘scenario creation workshop’, participants — “who represented a range of regional and international perspectives” — selected two “critical uncertainties” from a longer list. One of these was related to “global political and economic alignment” — namely, the extent of global cooperation (or lack thereof). You know: Whether the global economy would become more integrated, with high trade volumes, or give in to protectionism and trade fragmentation, along with a weakening of governance regimes, which would hinder implementation of interconnected solutions to global challenges. The other uncertainty related to “adaptive capacity” — that is, the ability, at different levels of society, to cope with change and adapt effectively.

At the intersection of those two considerations, the participants conceptualised four plausible scenarios — two of them rosy, and two grim. One of the grim ones, which the participants termed ‘Lock Step’, envisaged an “extremely virulent and deadly” pandemic that streaks around the world, infects nearly a fifth of the global population, kills 8 million in just a few months, and causes economies to grind to a halt.

The striking verisimilitude of that scenario to the situation today, as the Covid-19 virus conquers yet more turf and claims many more lives with each passing day, has predictably spawned conspiracy theories in fevered minds: That today’s calamity is, in fact, the diabolical work of global moneybags working to tighten their hold on the political and economic levers of power.

There is, of course, no ready cure for paranoia on overdrive. Yet, ironically, the responses by governments around the world to the Covid-19 pandemic, alongside the visible collapse of ethical governance among leading members of the developed world, have only served to reinforce some of the darkest apprehensions. In many countries, considerations of collective safety have been given a certain paramountcy, leaving little room for nuance in the discourse around policy-making and disaster preparedness. Tragically, that cause has been ill-served by some of the more hysterical predictions for the number of expected fatalities, and the unwise framing of policy options as a binary choice between saving human lives and saving the economy.


It may be impossible to predict precisely how the virus vector will play out, but the economic contours of a post-Covid-19 world are somewhat more starkly drawn. In the near term, the global economy will almost certainly hurtle into a recession that will be somewhat more painful than during the 2008 global financial crisis. Given the acceleration in the virulence in recent days, estimates of the extent of anticipated economic decline have had to be scaled down twice in just the past fortnight. That is the economic price of the wholesale lockdown of entire countries (in the most extreme cases, as in India) or in select cities.

In material terms, that’s the measure of all those wings-clipped planes parked in airport bays; the perishing agriculture produce that can’t make it to the mandis; the empty malls; the idling factory assembly lines; the shuttered-down restaurants; and the blackout in the lives of the many street vendors of goods and services. As much as it may justifiably lay claim to saving human lives through enforced social distancing norms, the lockdown is not, in some ways, unlike the demonetisation exercise of 2016, which momentarily withdrew 86 per cent of the currency notes in circulation with malefic effects to the economy. Long after the lung-infecting Covid-19 virus threat has been overcome, the informal economy will, somewhat ironically, be left gasping for lungsful of air — and require the mechanical life-support of a respirator.

In every conceivable scenario, and particularly given that the number of infections has still not peaked, the first half of Financial Year 2021 is pretty much a washout for the Indian economy. And although a rebound is likely during the second half, particularly if the spread of the virus is contained and the world recovers reasonably well, the economy will likely finish flat for the whole year. In the worst-case scenario, however, if cash-strapped companies keel over, and the financial system comes under greater strain, or if weariness over prolonged lockdowns and more general misery creeps in, we could well see an epidemic of social unrest as well.

Much has been made of India’s potential to leverage the current crisis to its advantage, given the felt need among global manufacturers to diversify concentration risk away from China and establish alternative supply chains. That possibility doubtless exists, the more so given the geopolitical backlash building up against China over its mishandling of the health crisis it ‘exported’ to the world. However, India’s worthiness as a manufacturing hub will be judged on many counts, including its own intrinsic merits: The scale it offers and the presence of other elements of the supply chain network, such as a proximate cluster of ancillary industries. India’s record on these counts is far from impeccable; its fractious political framework, too, is something of an impediment. And given India’s propensity to score spectacular self-goals, both with policy and with implementation, that aspiration will likely remain unfulfilled for now.


Businesses in India and around the world will be severely tested in the new ‘normal’ of a post-Covid-19 world. They may have momentarily learnt to embrace the compelling reality of work-from-home provisions for employees, which they were chary of in an earlier time, but implementing those protocols on a permanent basis will require a more sustained mind-bend — and, in some sectors, the artful negotiation of the minefield of client-confidentiality considerations. Such a transition is, however, not without corporate merits, and given the congruence of interests with employees who appear, for the most part, to have savoured the experience of a more balanced worklife and the opportunity to stop and smell the roses (so to speak), it may well be possible to reimagine the world of work.

Indeed, the crisis may have given cause for more fundamental philosophical reflections — on redrawing the contours of the ‘new normal’ of life itself. Many cities around the world bore witness to how, with the streets emptied of automobiles, pollution levels fell to rather more liveable levels. More amazingly, Nature reclaimed what was rightfully hers: Animals ventured out and occupied city streets, to the wonderment of confirmed city slickers. Of course, the inconveniences of enforced isolation may get amplified over longer periods — and, in any case, these are luxuries that, for the most part, only white-collar employees can afford. Even so, the fact that the planes that never ceased to take off even as a concession to scientifically validated climate-change concerns are now forcibly grounded (albeit at an economic cost) suggests that nothing, really, is inconceivable. And that another world is possible.

Not all elements of a likely post-Covid-19 scenario are quite as soul-nourishing. In India and around the world, the crisis has rendered it necessary for civilians to accept encroachments on their civil liberties that would be unconscionable in ‘normal’ times. The plight of tens of thousands of migrant workers, who were caught in a political tug-of-war and had to walk hundreds of miles home after the 21-day lockdown was abruptly announced, was particularly heart-rending. In Taiwan and Hong Kong, wearable devices have been deployed to keep active track of persons required to be in quarantine. Restrictions on travel have been imposed, and freedoms of mobility and assembly have been curtailed — although these appear not to have been enforced with the same rigour for elected members of Indian legislatures. Of course, it didn’t help the libertarian cause that even common-sense protocols were flouted owing to religious orthodoxy — and a general cussedness about submitting to any authority.

Such restrictions may be justifiable in times of crises — and there is no doubt that we are in the middle of one — but human experience suggests that it is in the nature of such encroachments on civil liberties to get more entrenched. Indeed, the 2010 report of the Rockefeller Foundation and the Global Business Network envisaged just such a scenario — of national leaders around the world using the pandemic as a weapon to get a firmer grip on power, and flex their authority and impose restrictions, long after the crisis retreats. The first stirrings of such an authoritarian impulse are already visible in Hungary, where Prime Minister Viktor Orban has been given the right to rule by decree, and where emergency measures have been enforced, ostensibly to contain the spread of the epidemic.

In such a repressive environment, as people are compelled to retreat more and more into private spaces, even a grandmotherly hug, or a more general public display of affection, may be perceived as a breach of law. To some, that soulless existence may represent a fate just as bad as death, tragic as it is.

Venky Vembu is Associate Editor, BusinessLine

Published on April 03, 2020

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