As the year 2020 has come to an end, everyone heaved a sigh of relief as though the worst — the challenges of the Covid-19 pandemic and the resultant woes of the economy, the pain, incivility and grief of communal isolation, the economic deprivation of the marginalized wrought by the lockdowns/slowdown of economy, a kind of helplessness that ran unchecked amidst the death of over 1.8 million people around the world that shook the last 12 months — is over. And the glimmer of hope is the arrival of Covid-19 vaccines with around 95% effectiveness. The unflappable optimists are therefore hoping for a return to normality soon.
But the reality appears to be otherwise, for there is a clear uncertainty encasing this hope. Health experts say that all that we know about vaccines is that “rather than preventing a person from getting infected”, they “appear to keep people from getting dangerously sick”. It is still not known if the vaccinated people who do not exhibit symptoms can still spread the virus to others. There is also the threat of mutants to the vaccines. Then comes the challenge of manufacturing of vaccines meeting the demand. Even the distribution of two-dose vaccine across the geography of India is in itself a big challenge. So, in all likelihood, vaccinating the whole population and achieving ‘herd-immunity’ may as well extend into 2022. It means, we still cannot abandon wearing masks, social distancing and avoiding indoor gathering in the immediate future.
Now, turning to the economic crisis inflicted by the pandemic, we witness an upward trajectory: Indian economy that declined by 23.9% in the first quarter of 2020-21 could limit its contraction to 7.5% in Q2. It is the 3.4% growth in agriculture that buoyed the economy as a whole. Similar improvement is seen in manufacturing sector that entered the positive territory in Q2 in tune with a simultaneous improvement in core sectors such as electricity consumption growing at 0.6% as against –39.3% in Q1. There is an appreciable narrowing of investment slump from –98% in Q1 to –7.2% in Q2. But the continuing slump in consumption expenditure (–11.3% vis-à-vis –25% in Q1) reveals paucity of incomes, uncertainty-sentiment and none-too-happy job scenario. Amidst these green shoots what is disturbing is the squeeze in government spending by 22% y-o-y as against a rise of 16% in Q1 and yet the rising fiscal deficit owing to revenue contraction.
No doubt, there is a fall in growth in almost all the countries that mattered, but what is more disturbing with our economy is that the fall in our growth rate did not start with the pandemic: right from 2017-18 there is a continuous fall in our growth rate — each year’s growth rate being lower than the previous year right up to 2020-21. Therefore, a section of economists strongly advocate that a fiscal deficit policy with a focus on investment spending rather than putting money in the hands of people be adopted to not only lift the growth rate to 8-9% in the new year but also to sustain it on a long-term basis. And, there is also a concern about the already widened fiscal deficit, which is estimated to be around 7% GDP. So, reconciling the demand for stimulus and containing fiscal deficit is going to be a big challenge. Again, all this depends on how we manage the Covid-19 pandemic.
Interestingly, the pandemic has hastened the usage of digital tools significantly: online shopping, video-conferencing, online-teaching and remote working have become the new-normal. Remote working for knowledge workers bestowed many benefits for companies: it reduces real estate costs, enables them to hire globally without the hassles of immigration issues and ensures enhanced productivity besides offering employees geographic-flexibility. There are however risks embedded in it such as communicating with workers in different time-zones, security risk of customer data, etc. Pandemic has also given a boost to the use of robots not only in the industry but also for carrying out house-hold chores. Indeed, with the advances made in AI and machine learning technologies, it is becoming increasingly evident that usage of digital tools is going to be the in-thing in the near future and it will be up to companies how they gear up to benefit under this emerging new norm. No wonder if e-learning and e-health emerge as new drivers of growth. And the real challenge would be: it creates disruption in employment, while making fresh demand for reskilling the existing employees.
Turning to geo-political scenario of the globe, it is yet not clear how much the new incumbent in the White House will be able to restore the crumbling rule-based international order. So is the case of its trade war with China: Mr. Biden may, by fostering healthy relationships with the allies, continue it rather more effectively. Amidst these global tensions, we have our own border tension with China: as the reports indicate, China may not restore the status quo ante of April 2020 in Ladakh soon, calling for dexterous handling of it by India, for it will have an economic-fallout too.
So, given the yet to be controlled pandemic, unknown prospects of economic recovery in the wake of widening fiscal deficit, and the border tensions, the year 2021 appears to be unpredictable. But optimism is the greatest trait of mankind and science and scientists are always there to kindle hope and steer us out of uncertainty.