NEW DELHI: As the Wuhan coronavirus continues its bloody sweep through the world, there are fears of an economic bloodbath that has not been seen since the 2008 recession. From record stock market crashes to the latest estimate by the United Nations of a $2 trillion loss to the global economy, many believe the economic impact could be as catastrophic as the Great Depression of the last century.
No predictions, please
However, some economists argue that such predictions are misplaced. Rakesh Mohan, professor and chairperson (research) at the Indian Institute of Foreign Trade (IIFT) says:
“Figures or predictions make no sense at this time because it all depends on how quickly we can contain COV-19. Also, no economic data can account for or predict the state of the economy where there is a “fear psychosis” amongst the population. What we can say for sure is that if the virus were to last six months, the economic impact will be far beyond the 2008 global recession and put us into unchartered territory.”
The China Story
Rakesh Mohan believes China has an advantage given that the virus has passed its peak there, and the government is pushing hard to get the wheels of the economy moving. But more than that, China is integral to the global supply chain accounting for 20% of global gross output today (it was 4% in 1995). It is one of the world’s highest exporters with 13% of market share and is the largest importing partner for many developing nations.
If the virus was to continue, China will benefit from increased sales of computers and other devices as people continue to work-from-home. Important to note that China (and Southeast Asia) are major exporters of computers and telecommunications related equipment. Add to that electrical machinery, plastics, vehicles and even furniture. Estimates show that China produces or was in direct control of 50 per cent of the world’s masks, even before the virus set in, and since then production has expanded 12-fold to take advantage of worldwide shortages.
“If China decides to turn the calamity into an opportunity it could mean chaos for the rest of the world,” says Mohan, hinting that Beijing could leverage its sole supplier position to demand trade concessions, market access or even use it for political blackmail. It underscores the need for alternative supply lines but these will take time to build and will add to cost.
The India Story
While the scenario is uncertain economists remain positive about India retaining its growth. India contributes 1.6-1.7 per cent of world exports which is just above the global average – this trend has remained constant for the past eight to nine years – and looks likely to continue.
Another good news for the government is on oil. “The crash in the market of global oil prices to below $30 a barrel is a bonanza for the government. The government can reduce its import bill, pass on lower prices to the consumer, and help rescue the beleaguered aviation and tourism industry – who have been hit by COV-19,” says Mohan. This could be especially useful given the government has already been considering a change on GST on aviation turbine fuel – a high cost component for airlines.
The crash in oil prices benefits India domestically but it can also help New Delhi abroad given India is one of the top ten exporters of refined petroleum products with markets in the US, UK, Australia, Iraq and even the UAE
“Our refined oil exports will continue if global demand for the automotive and other related industries continues. If the global automotive industry market goes down that could affect demand,” says Mohan
However, the government’s prompt action in dealing with the Chinese virus at home along with the oil bonanza suggest that the Indian economy is not likely, as of now, to be as impacted by the Wuhan virus as is being seen in other parts of the world. However, given the global uncertainty, the government – in conjunction with industry leaders – must continue to put more emphasis on ‘Make in India,’ boost consumer spending and ensure that SME, that are the backbone of its industry and employ large numbers of people, are given the support they need to ensure the economy grows. It is the only shield from the economic tsunami unleashed by the Wuhan virus.