A new dawn

Few years in recent times have been as cataclysmic as 2020, thanks to the ravages of Covid-19. The pandemic has claimed 18 lakh lives worldwide and 1.5 lakh in India. For India, it has been a year of churn on all fronts — economic, political and strategic. If the pandemic and the serial lockdowns induced by it battered the economy in the first and second quarters, India was forced to contend with an audacious Chinese incursion into its territory in Ladakh in the summer months. A year that began with the protests against the controversial Citizens’ Amendment Bill has now ended with lakhs of farmers’ camping at the doorsteps of the Capital. Meanwhile, the ruling BJP looks comfortable to do well in West Bengal in elections early this year. In a sign perhaps, of the changing tide of political turbulence, the farmers and the Centre have mellowed somewhat. That could set the tone for what should ideally be a more normal year. Covid-19 will trigger a paradigm shift in policymaking from 2021 onwards in at least four areas.

First, with private investment and consumption in a downward spiral, fiscal austerity is no longer in vogue. Second, if US-China trade war had induced a search for new sourcing destinations such as Vietnam and Indonesia, this acquired a new urgency in the wake of the pandemic, as supplies of essentials such as medicines from China were disrupted. The pandemic is likely to spur more automation and possibly a limited shift of production bases to regions closer to their respective markets. However, the supremacy of China as the factory of the world will not disappear in a hurry. Third, the emphasis on public health will be a central feature of future national Budgets, including India’s in 2021. Fourth, lockdowns are likely to have altered working and mobility patterns for ever. This will lead to an increased consumption of digital technologies, especially in India.

The world has injected a fiscal stimulus of $12 trillion in 2020, besides liquidity infusion (over ₹8 lakh crore by Reserve Bank of India) by central banks. A calibrated taper on both counts will bring stability to emerging debt, equity and currency markets while ensuring that the pitfalls of ‘austerity’ (which slowed the recovery after the 2008-09 crisis) are avoided. We may see a policy taper towards the later months of 2021. In India’s case, there are indications that production-linked incentive schemes across 10 sectors have created a buzz around large industry. This could lead to a pick up in capex in 2021-22, creating conditions for long-term industrial growth. The Atmanirbhar accent of economic policy is much more than a mere slogan. Its imprint will be seen in Budgets and policy statements. The world — governments and citizenry alike — has changed irreversibly after 2020. One daresay, for the better.

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