In recent history, the world has seen pandemics as deadly as the Black Death and the Bubonic Plague. It has also witnessed the Great Depression and the two unfortunate World Wars. They all had their respective impacts and shaped the world to what it is today – much advanced and much more ready for anything and still, this pandemic brought the world to a standstill. We will recover, no doubt but just like other great crises, this too will leave behind some permanent marks, a lot of learning (hopefully) and some unlearning as well.
Different nations across the world are beginning to apply their learnings into action. They are acting and reacting every day to a catastrophe that they had never prepared for. There was never a playbook that governments could refer to when dealing with a pandemic with such strong humanitarian and economic consequences.
- Countrywide lockdowns and social distancing are currently the only measures in the absence of a vaccine and it comes with its own set of critical consequences.
- Resulting unemployment, bankruptcies, supply chain disruptions and fall in demand will lead to a supply-&-demand shock that will stay around for quarters to years.
- India, so far, has been able to restrict the number of COVID-19 cases to some extent with strict social distancing guidelines and proactive policing but that has also created an acute crisis for some of the poorest sections of the society, including especially on migrant labourers.
- The Indian government will have to come up with a quick yet well-thought plan to deal with the economic challenges of these preventive measures.
Either way, this crisis is paving the way for a new era for the whole world and India will have to take some really long strides in the right direction if it wants to remain in an advantageous position in the coming years. Assuming that the spread within 2020 is contained and a vaccine is found by early 2021, this is how the future may evolve for India:
- Economy: Bouncing back to normal will not be easy for the Indian economy (or any other country for that matter) primarily because the “economic cycle” once stopped in lockdown for months shall need lot of doing to get the government, corporates, and consumers, to start spending again despite of having lesser money (if any). This “economic shutdown” can take years to recover from.
In the short term 2020-21 (which will seem longer during the lockdown),
Major Losses across industries: Industries like travel & tourism, hospitality, aviation along with exports will experience the most serious setbacks that will prolong well into the next year 2021 and at best will start picking up slowly after. Many businesses under debt are likely to go bankrupt due to continued loss of business and charging of heavy interest that they will have to manage somehow.
Unemployment: Bankrupt companies (due to cashflow issues or debt crisis or falling demand), surviving corporates cutting costs, governments having lesser budgets to spend shall lead to mass unemployment in 2020 across all sectors.
End of Globalization, Welcome back to Localization: Globalization (arguably) never really helped anyone other than a handful of large corporations and countries. This recession will push all nations, including India, to introspect and look more inwards. In my view, this Utopian dream of global ‘free markets’ will take a backseat for some time as new economic bubbles will emerge based on geographies rather than diplomatic ties.
It’s likely that India will try to do away with its dependence on global supply chains. But for this India will have to move most of its manufacturing to its local makers and this will have to be achieved by:
– Creating local buying incentives and tax breaks.
– Creating barriers for external imports from countries like China by creating more custom duties
– Going to WTO and moving many base import products like API salts for pharma, healthcare, even automotive parts etc. under ‘national interest’ and discouraging import economics.
China will not stay as the world’s factory any more, due to this localisation theme of each country as well as possible retaliation by several countries against China due to their apparent actions / inactions in the Covid-19 crisis. This may help India step up as an alternate for all those countries.
This shall lead to Make-in-India grow stronger: Although, manufacturing is expected to struggle due to debt and economic slowdown in 2020 and part of 2021, there is one way India reap some vital returns. India would need to cash on its ‘Make in India’ movement in the right way.
- Foreign companies will not be shy to look to Indian market due to its massive purchasing power of 1.3 billion people.
- If India is able to enforce ‘Make in India to Sell in India’ strategy correctly, the tide could turn in India’s favour.
- Indian demographics can easily help achieve this. Being a massive consumption market also will favour India’s economic growth over the next decade.
For example, Apple will have to set a local manufacturing unit if it wants to benefit from India’s huge market.
Apart from that local industries (both industrial and handloom) could see substantial growth. Overall, it will be very helpful for India’s economy to manufacture more locally as it will also address the unemployment issue by creating more jobs.
Real Estate: The economic slowdown will lead to a drop in real estate valuations by at least 20% for around 2 years, if not for much longer. This shall be a result of the following major reasons,
- Faltering people’s obsession with properties in big & crowded cities.
- Change in corporate habits of having everyone come to work, since work from home / remotely shall lead to decentralised offices and drop the obsession for prime crowded area properties in urban cities.
- Debt crisis will stall / bankrupt several real estate projects leading to dramatic drop in their value for times to come.
- Buying trend will see a detour from metros and other big cities to less polluted sub-urban areas.
- A regained appreciation for quality of life and greater acceptance for work-from-home will lead many people to move out of cities.
IT Services: As the world would try to recover from the crisis, IT services will slow down and new IT outsourcing projects would likely go on hold. That would mean layoffs may be observed in the Indian IT sector since much of it is catering foreign ‘outsourcing’ clients.
Startups: Startups will have the toughest phase, many will shut down, due to lack of stable base business.
– Remote work is expected to become a bigger trend especially in the IT and other service sectors.
– International VC funding for startups will see a significant drop.
– Aspiring entrepreneurs would need to have a different strategy since they’d be dealing with a more restricted non growing market.
– Priority for startups focussed on domestic/regional markets will increase considerably.
– Food delivery businesses could stabilize itself over time by expanding its range in delivery options and reinventing their delivery systems.
– E-commerce businesses would try to reinvent themselves with implementation of technologies such as UAVs (drones) for deliveries.
– As global supply chains would continue to impair, the industry will have to adapt and re-strategize to focus on domestic supply needs. Some vital imports and exports (such as medicines, medical equipment) will still continue to function.
– Indian pharma sector is heavily dependent on China for its APIs and any disruption in the import of that could affect Indian pharma’s productivity negatively. India will have to begin work on re-creating API infrastructure if it wants to retain the sturdiness of its pharma sector.
– Business travels would decrease significantly as would personal travels in mid and long term (after almost no travel in short term)
2. Agriculture: The agriculture industry will be less affected as the demand for food grains and products are expected to remain similar to before.
-As people (and the government) realize the importance of the farming community, farmers might (and should) get further assistance from the government to deal with their debts.
– As a part of the essential industries agriculture and food manufacturing will remain almost fully-functional.
– The coming time should be utilized as an opportunity for innovators to come introduce better agricultural practices.
- Civil Concerns: When it comes to civil concerns such as public health, education and public safety, there will still be huge gaps to cover. While the prominent regions/cities and institutions are able to navigate through the crises, those catering to remote/rural populations would need a significant upgrade in facilities and technology. This should be seen as the perfect time to make these sectors more tech savvy.
– Public Administration: Government services could become much faster and efficient by going online (e.g. e-services for courts, approvals, paperwork, passports/visas could replace physical paperwork). Similar tech innovations could be introduced in other public sectors.
– Healthcare: Budget for healthcare is expected to increase dramatically (and the defence budget would possibly be cut back). Healthcare industry would benefit from the introduction of technology (e.g. telemedicine, remote doctor apps).
More startups could come up in the healthcare field post-corona pandemic. Healthcare or medicine delivery services could see a possible boost.
– Education: Education sector is expected to experience major tech interventions to keep up with changing times. Online education would see a consistent growth and even a massive boost.Government (educational) institutions would benefit greatly if technology is incorporated (remote classes, online content, customised learning). Also, online examinations may become the norm sooner than expected.
– Public Safety: Police has emerged as a very crucial force in fighting the coronavirus pandemic by maintaining the national lockdown strictly. Role of the Police could extend beyond conventional roles. People’s trust in police may improve if the latter continues to act responsibly in time.
- Govt spending and policies While the Indian citizens are adjusting to the new work from home lifestyle and many are trying to get to their homes, Government policies during and after the crisis will determine the fate of many.
- Policies around austerity measures for some / all sections of society and industries shall be highly anticipated
- Debt forgiveness schemes may be applicable to many needy ones, and possibly to few greedy ones as well.
- Govt spending reduction and austerity measures will slow down the economy
- Printing and borrowing money, allocating it across the country and economy, and evolving taxation shall lead to some wealth redistribution which hopefully should be fair.
- India’s role in the world: India is expected to emerge as a strong ally due to factors like a young working population as well as purchasing power of its billion-plus consumers. And as India can produce a lot, and consume the same, its economy will become very high growth from 2022 onwards.
In conclusion, I’d say overall India will have some tough next couple of years ahead that will challenge it economically but will also seal its place in the world as a major force to reckon with. It could very well be a rollercoaster ride that could, potentially, bring India on top, in the years to come.