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The second virus threatening India's economic growth

By T N C Rajagopalan
March 09, 2020 15:10 IST
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'Developing more sources of supplies to guard against disruptions may emerge as the next big trend.

'But that may not necessarily mean flow of more investments into India, unless investors are assured, besides important economic factors and impartiality of institutions, that social disharmony will not cause unexpected disruptions', says T N C Rajagopalan.

Economy

Illustration: Dominic Xavier/Rediff.com

Coronavirus (Covid-19) has spread to almost 50 countries, with as many as 80,000 confirmed cases and more than 2,800 deaths, a majority of them in China.

It is too early to assess its effect on global trade and economy as every day new strains of the virus emerge and more confirmed cases are found outside China, especially in Europe (Italy), West Asia (Iran) and East Asia (South Korea and Japan).

 

What is certain, however, is that the travel and tourism industry has been severely hit, with many people restricting non-essential travel and cancelling business, sports, cultural, religious, social, and other events.

Several businesses that get their finished products made in the affected countries, especially in China, are running down on their inventories.

Manufacturing activities of factories around the globe, which rely on supply of inputs or intermediates from China, are severely disrupted, leading to closures.

Lockdown of cities, quarantine of people suspected of infection, and precautionary self-quarantine by millions around the world is bound to depress the global demand for goods and services, other than medical care.

In India, the central and state governments have acted with great alacrity in quickly isolating and treating confirmed cases, restricting travel to and from China as well as other nations, and screening and testing thousands of travellers and suspected cases.

Thus, the spread of the virus within the country has been contained so far.

The Confederation of Indian Industry has termed the economic impact as moderate and given a sector-wise analysis to highlight possible impact of the disruptions and remedial measures.

Recognising the lurking threats to revival of growth, Finance Minister Nirmala Sitharaman discussed the situation with business leaders.

The commerce ministry banned export of personal protection equipment including clothing and masks on January 31, fearing they might be required within the country.

Eight days later, export of surgical/disposable masks and all (except NBR) gloves were allowed for export.

Last Tuesday, eight more items - breathing appliances, gas masks, surgical blades, etc - were added to the list, signaling, perhaps, lower threat perception.

The equity markets, however, did not buy into the optimism, as they followed the global markets and went on a sell-off spree.

In the meantime, a different sort of virus is eating into the vitals of our country, claiming scores of lives and injuring hundreds in communal riots.

Vested interests spread this virus without any concern for human rights or fear of law.

In the process, the perception about our country is taking a beating and that can drive away foreign investors, wanting to put up manufacturing facilities here.

Around the world, the coronavirus emergency has forced governments and businesses to rethink their strategy of depending on a single source for finished goods, inputs, and intermediates based on only the cost of production.

Voices are getting louder in the United States that its significant dependence on China for essential medicines will impair its ability to cope with the spread of the disease.

So, developing more sources of supplies to guard against serious disruptions may emerge as the next big trend.

But that may not necessarily mean flow of more investments into India, unless investors are assured, besides important economic factors and impartiality of institutions, that social disharmony will not cause unexpected disruptions.

Our leaders need to take note.

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T N C Rajagopalan
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