Global economy 2.0

Venky Vembu | Updated on March 27, 2020

Game changer: The economic costs of a global shutdown will be incalculable   -  AADESH CHOUDHARY

Businesses and governments across the world will have to face up to a new normal when they emerge from the Covid-19 pandemic

Playwright and political activist George Bernard Shaw famously noted that newspapers of his time had seemingly lost their ability to distinguish between a bicycle accident and the collapse of a civilisation. A similar affliction is manifest in contemporary times, and its influence extends beyond the media world. The nocturnal fulminations of frothing-at-the-mouth television anchors, and the hourly outrages we witness on social media forums, have so deadened our capacity to discriminate that even the imminent prospect of a pandemic-induced collapse of a civilisation leaves us cold.

Symptoms of a wholesale abandonment of reason already abound — in India and around the world. Even the enforcement of extreme lockdown measures, and the real risk of being infected by or of transmitting a killer virus, appear not to have inhibited the perambulatory urges of many among us. Those high up on the ladder of social success — including globe-trotting celebrity singers — have, in particular, flouted well-established protocols for self-isolation. Elected members of legislative bodies, who hold forth on the merits of social distancing for us plebeians, have themselves been in wilful violation of those norms. India may have in the early days been spared the outbreak of a more widespread epidemic, or an explosion in the number of deaths, but such high-risk behaviour jeopardises that fortuitous record and tempts providence. It is a risk that India, with its strained healthcare systems, can ill afford, as is evident from the experience of countries with highly advanced tertiary medicare systems, which are collapsing under the weight of the pandemic-induced burden.

In these other geographies, and particularly in Italy, healthcare providers have been called upon to take heart-rending decisions about who will qualify for medical attention — and who will be forced off the map. More morbidly, over in the US, the president has actively advanced the idea that the rigorous lockdowns in cities should be eased soon — even at the risk of losing hundreds of thousands of lives — in the interest of arresting an economic collapse.

The economic costs of a shutdown of the global economy, on the scale that we are witnessing, will of course be incalculable. And it doesn’t help that leaders around the world are scraping the bottom of the barrel of fiscal and monetary policies. Indebtedness born of the build-up of profligate excesses in recent years limits the range of weaponry they can deploy. Even so, the very fact that we have a notional leader of the free world weighing the merits of allowing his countrymen to die in the cause of arresting the downslide in the economy marks, at the very least, the collapse of civilisational norms.


India’s record of containing the spread of the virus in the immediate weeks since the first case counts as a gift of time for frontline healthcare professionals. It is also a measure of the responsiveness of governments and authorities at many levels. But the alacrity that they exhibited, for the most part, on the health front, which commanded a higher priority, has not been manifest in addressing the perils to the economy. The pandemic, and the enforced shutdown, are almost certain to slow down the economy by a lot and will likely heighten the credit and fiscal risks to which the system was already susceptible. Unlike Western governments and central banks, which announced fiscal and monetary lifelines in double-quick time, the Centre appeared slightly behind the curve: It wasn’t until earlier this week that finance minister Nirmala Sitharaman, who heads the Economic Task Force constituted to respond to the pandemic, felt compelled to address the economic impact.

Cumulatively, however, the government’s policy responses thus far don’t quite go far enough in addressing the pain points in an economy that was, even prior to the Covid-19 outbreak, facing headwinds from strains in the financial system. Some of this is born of the fiscal constraints that the government faces. Somewhat uniquely, this time around the shocks emanate from both the supply side (because producers of goods find their supply chains choked up owing to disruptions) and the demand side (because of imminent job losses, wage cuts and a general loss of consumer demand). The sharp fall in the stock market, to which a larger slice of the middle class is today exposed, will also limit any quick return of spending impulses. More worryingly, the banking system, which is yet to recover from the toxicity of previous NPA excesses, is at risk from fresh defaults by enterprises.

Over the longer term, the tectonic plate of globalisation will likely shift in definitive terms, not just for India, but also the rest of the world. Up until now, companies thought nothing of their excessive dependence on China-centred manufacturing supply chains. But the disruption of the past few months, particularly given that the virus first struck China, will compel them to rework their cost-benefit calculations.

At another level, labour mobility across borders is likely to face higher barriers, as countries factor in the hidden costs of low-cost labour. Additionally, workplaces around the world will almost certainly look to build and expand on their experience of having implemented work-from-home provisions for employees.

The virus that began its journey from a wet market in Wuhan will, before it is vanquished, have profoundly changed the way we work and live.

Venky Vembu   -  BUSINESS LINE


Venky Vembu is Associate Editor, BusinessLine; E-mail:

Published on March 27, 2020

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