Thu, April 18, 2024

Economy in the Aftermath of Covid 19: Points To Ponder

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The global economy is in crisis, everywhere you look, there seems to be doom and gloom. COVID 19 is causing havoc. Perhaps it is leveling the world and treating everybody equally. The richest of the rich Saudi Royals are not spared. The only superpower is brought down to its knees. The world capital of everything from international finance to international diplomacy, from international travel to international fashion, New York has turned into the world capital of Corona. SARS-CoV-2, is perhaps the true leveler proving that ‘the world is indeed flat’.

There was thinking among China-baiters that the virus shall lead to factory jobs returning from China, the factory of the world. But that logic has since evaporated as everybody seems to rely on China for their N95 masks and protective overalls. China remains the factory of the world although their credibility has taken a severe beating. Only time will tell whether the China-baiters or China-admirers will have an upper hand in shaping the national policy.

Most - if not all - nations seemingly have put human life over economy and gone for severe lockdowns. They are telling people to remain inside their homes, maintain social distancing, wash hands every hour, wear masks however uncomfortable, and get wrapped in plastic if you are going near people who have the virus.

Factories are closed, cranes at stand still, most manufacturing has stopped, shutters are down, buses, planes and cars have halted, the hotels, stadiums, party venues and eateries are shut, and most of all, workers both employed and self-employed are idle. But the poorest of the poor cannot stay idle for long. It will not be long before hunger takes over the virus in terms of cause of death.

The poorest of the poor whether they are in city slums or village huts do not possess any dwelling worth mentioning which can keep them inside for long. Their dwellings resemble cans and can become sauna chambers in summer. The social distancing has no meaning for those who live like sardines - ten persons sharing a room. It is middle class people like us who live inside houses or apartments and perform our jobs inside office buildings for whom the social distancing or remaining inside is an option. The poor live, eat, work and socialise outside and that too mostly in close proximity. They simply cannot follow the social distancing dictat of our governments. The richest of the rich will have their bungalows and farmhouses, and would not need to remain inside for social distancing.

There may not have been any fatality (at least officially) in Nepal but Nepalese around the globe are suffering and dying.

Every crisis comes not only with misery but also with opportunity. The virus will leave us sooner or later, but we have to be clear because with the end of virus the opportunity will also cease to exist and as such we have to act now to seize it.

The main sectors to lose most from pandemic are hospitality and tourism related, passenger transport, travel, restaurants and eateries, large retail outlets, events and entertainment (cinema halls, sporting events), manufacturing with large employment (sweatshops), automobiles, aviation (planes manufacturing) and parts, traditional banks and financial services, and foreign trade.

Sectors that are likely to gain are online retail, delivery, personal care (soap, sanitizers, etc), food processing targeted on home consumption (people need to eat whether lockdown or not), specific pharmaceutical and personal security equipment making, TV based entertainment, financial services based on new technology, AI based manufacturing and services, IT enabled services.

Sectors likely to have lesser of impact (no gain no loss) are agriculture/food and vegetable production, food processing, mining/quarrying, textile and clothing, general pharma, gadgets making

What will the future hold

• Travels (international and national) will take a big hit.
• Border controls/ quarantine will once again gain eminence
• Countries will turn more protectionist both in terms of allowing migrant workers and importing products
• There may be need to produce health certificate including proof of vaccination for entry into countries
• China as emerging power will attract much more negativity if not open hostility
• Xenophobia if not open jingoism will be much more common

Likely impact for Nepal

• Foreign employment will lose its sheen
• There will be pressure on foreign exchange earnings
• There will be surge of unemployment (my rough estimate is that about 500 k Nepalis will lose jobs in receiving market and will come back to Nepal)
• There will be huge shortfall in government revenue
• Prices will escalate, inflation will rise
• The tourism and foreign employment sectors will be the biggest losers.
• The NRN community will not be of much help in bringing investment as most of them will be struggling themselves
• Tourism Industry will take will take at least three years to regain the last year’s status.

What needs to be done for easing economic impact

• Give breather space for businesses especially for those who have suffered most
• Increase capital expenditure
• If investment leads to a little more budget deficit, so be it to some extent
• Focus on commercialisation of agriculture, introduce the long term lease concept for use of land
• Focused extension services for enhancement of productivity
• Inputs provision / internal production or mechanisation of production processes in agriculture
• Encourage investment in food processing
• Introduce strict hygienic norms for food Industry and also in agriculture use
• Provide protection based on the magnitude of value addition (higher the level of internal value addition, higher the amount of protection)
• Focus on investment in FMCG and textile and clothing? (encourage new technology)
• Seamless execution of infrastructure projects ( do not allow disturbances on smallest of pretexts)
• Allow breathing space to tourism and passenger transport industry)
• Make staying back in villages attractive for village folks
• Make towns and cities more hygienic spend on cleanliness
• Focus more on meeting and creating internal consumption
• Foreign employment in higher skill higher earning (mid level personnel like operators, trained care givers, specialised security professionals, skill trades, teachers, chefs) rather than manual workers.

Suggestion for government

• Institute a type of war room/think tank with core professional management, not a bureaucratic set up
• Do mathematical modeling and orient policies accordingly
• Cut back on bureaucratic processes
• Provide breathing space for businesses
• Encourage investment in industries with short waiting time for returns
• Spend in infrastructure, create employment
• Do not indulge too much in redistribution, encourage people to work; no income guarantee but employment guarantee direction
• Introduce facilitating system

Dr Hemant Dabadi is Senior Fellow at Samriddhi Foundation and the former Director General of FNCCI.

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MARCH 2024

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