Economic Highlight

New Delhi, 30 March 2020

Lockdown Crisis

GLOBAL CONTOURS TO CHANGE

By Shivaji Sarkar

India, like the rest of the world, faces a deep crisis aCs shipping charges reach critical highs and lows amid the less known impact of coronavirus and government revenues slump. It may impact both trading and governance costs.

So far, the world is gearing up to fight the predicted downturn with G-20’s $5 trillion package, the US Congress’ $2.2 trillion domestic package, Australian $189 billion rescue offer, Indian package of Rs 1.7 trillion (lakh crore), UK’s self-employed pound 2500 a month income support scheme and much more. The announcements come amid 21000 covid-19 deaths and over millions of people locked down in the West, in addition to India’s over a billion.

The US plan to ensure $1200 each direct payment to those who earn up to $75,000 with an additional $500 per child is likely to benefit 90 per cent of Americans. UK’s scheme is stated to cover 95 per cent, whereas the Indian about 55 per cent population or 80 crore people -- largest in the world. It is varied as it covers women, registered labourers, MNREGA wagers, self-help groups and farmers and is laced with free 5 kg wheat and rice for three months.

Meanwhile, the Reserve Bank of India has infused Rs 1 lakh crore liquidity through short-term variable repo-auction. It would infuse funds to the banks as well cuts repo rate. The Finance Ministry and RBI together give out about Rs 2.7 lakh crore or about 1.5 per cent of the GDP and together different schemes aim at sustaining the most vulnerable people of the world.

A significant aspect of the relief packages, unlike the 2008 Lehman sub-prime crash incentivisation, is it excludes the corporate so far. Even Finance Minister Sitharaman’s package is silent on the corporate, though the Rs 15,000 crore health package, may help industries producing various medical aids.

So far the packages indicate that overall poverty or problems of the working classes have increased over the past decade. Their savings are at stake and the cost of living has risen manifold, as various UN and World Bank reports indicate. In fact, France and many other European countries had been facing people’s ire against severe and harmful bankisation of the economies and the lowering of interest rate on saving, rising fees and taxes have led to growing discontent.

In India, even the Economic Survey 2019-20 speaks about such problems. The lockdown is hitting both the public and private sector companies hard. Transporters are severely hit. Most airlines in India have announced 15 per cent wage cut. And while the government has come out with advisories to employers to pay wages, it may not be easy for many to meet the commitment as the lockdown hits their own income. At best, the finance minister’s package may take care of that for the most vulnerable sections for three months.

The global and domestic Indian packages are aimed at boosting sustenance as well as expenditure by people by consuming more. The manufacturers are expected to benefit through higher consumption and rise in sales.

The question how India will benefit from the G-20 stimulus is yet to be ascertained. And even as leaders are quick to meet online, it will take time for the situation to normalise. On March 26, the rating agency Moody’s estimates the G-20 GDP to contract by 0.5 per cent, the US by 2 per cent and the Eurozone by 2.2 per cent. It revises India’s growth from 5.4 to 5.3 per cent in 2020, while S&P predicts it at 5.2 per cent.

However, there is a silver lining i.e. even as the pandemic was hitting the world, the current account deficit reduced to 0.2 per cent of GDP or $1.4 billion as the trade deficit comes down to $9.8 billion in February, according to the RBI data on March 12. Of the 30 major items, 16 export items and 14 imported goods expanded in February and imports rose by 2.5 per cent but petroleum imports have come down.

However, the scenario may change as the world is in lockdown uncertainty. The airlines are grounded and ships anchored. The shipping industry has approached the government for relief as ports are hit by the steep drop in volumes owing to the global slowdown. Maritime industry is further hit by rising freight rates and overall weak demand. Shipping charges have increased since January as the new International Maritime Organisation (IMO) 2020 low sulphur regulation and higher charges came into vogue. This, it is feared, will impact world trade even beyond corona.

Commodity prices are to rise as selling prices include FOB (free on board) in most cases. It may spike oil prices too despite the silver lining of a 30-year-low of around $30 a barrel. Even inland or coastal shipping charges may go up, which now the Indian shipping companies are pining for their survival.

World Trade Organisation statistics show merchandise trade slumped by 0.2 per cent in the third quarter of 2019 and growth may fall further in 2020. The drop in the WTO barometer since November has been driven by additional declines in indices for container shipping (94.8) and agricultural raw materials (90.9), as well as the plateauing of the automotive products index (100.0). However, the goods trade barometer will be influenced by the economic impact of COVID-19.

Different government packages have their economic and social costs. Corporate packages that ruined the post 2008 economies may follow and problems are to mount in a world of production holiday. Remember, nobody gives wages or packages for free. The G-20 or individual nations are facing revenue contraction.

Those enjoying working from home or suffering wage losses may have a grimmer future. Strangely enough India’s rich except a few exceptions, corporate, movie or sport heroes have not offered a bit from their pocket, suggesting there is nothing like a freebie. Interest and some wage cuts have already been announced, in the backdrop of some national governments finding it difficult to pay or delaying salaries.

Most governments have not announced any cut or relief in taxation. Despite this revenue realizations are to slump and hit health and other welfare measures. People of the world would face lower interest earnings, higher commodity prices, bank charges, rail and transport fares, taxes, tolls, physician’s fees, tuition fees and much more. And as the people and governments are likely to lose, the large companies would want to extract their pound of flesh.

Amidst the rise in world poverty, fall in government revenues, corona coming as a great leveler, both economy and politics may change contours. India would not be an exception. A re-look at lockdown is needed. –INFA

(Copyright, India News & Feature Alliance)