India – A long, winding, and uncertain road to recovery
In the last seven quarters before the pandemic hit India and the rest of the world, India’s economy had developed more slowly, since investment and exports were declining, and public spending boosted growth to compensate for declining private sector demand. To reduce the impact of the pandemic, the government intensified its efforts and announced its economic stimulus packages, which resulted in the government’s total expenditure increasing by 16.4 percent as they incurred unplanned expenditures.
A time span for recovery of the economy will depend on how long the pandemic will last and depend on when there will be a useful vaccine against COVID-19, the accessibility to this vaccine and the treatment of the disease. That it is considered that precisely these areas are important in relation to improving India’s economy is due to the fact that COVID-19 not only infects people with physical illness, but that COVID-19 has the mental side effect that the citizens are infected with caution and anxiety. Citizens, who are also consumers, experience anxiety that targets health, employment and the economy. This anxiety can affect and change their consumption patterns and consumer behaviours while companies can change their practices, leading to faster automation or business models such as reshoring.
However, a prolonged pandemic and the possibilities of several outbreaks (as seen in several countries recently) will have implications on the intensity of the supply-chain disruptions (due to intermittent lockdowns), business transformations, productivity, capacity building across industries, and the financial fragility sector. These will determine the pace at which industrial production and investment return to normal. With adversity come new opportunities in terms of thinking in new creative and automated solutions. When politicians and companies respond to this crisis, one of their demands will be thinking ahead and working towards companies gaining greater resilience in order to prepare for the insecurity that the pandemic has brought with it, and which will affect the world in the months to come. These expectations and requirements for companies are considered necessary for them to recover and then thrive. It is important to understand the new norms and take advantage of the opportunities that these trends provide.
To meet some of these challenges India needs to upgrade its physical and social infrastructure significantly to compete with its global peers. Expenditure on infrastructure and healthcare is likely to tackle the demand insecurity challenge, thereby creating employment for low-skilled workers, improving the performance of the private sector and increasing the activity of small and medium-sized enterprises.
The greatest uncertainty relates to private demand. The modest global growth, lack of coordination between countries to limit the infection from spreading and the fact that different countries are in different pandemic stages, will affect trade and mobility and therefore demand. Within India itself, rural demand may stop for a while due to a good monsoon with good opportunities for local crops and government support to provide employment opportunities in rural areas. In contrast, the increasing levels of infection may keep demand subdued. That said, the upcoming festival months in India could generate enough demand to keep the wheels of the economy moving until the end of the year. At the same time, the pandemic’s impact on the economic situation in India could be the time for timely care for companies in improving their skills base and uncovering new opportunities such as digitization and consolidation to improve productivity and address new markets. This could also be a well-chosen time to reconsider sourcing plans and reorganize supply chains for many industries to de-risk their business. India can build on its reputation in service exports as cost rationalization and diversification into risk-taking business decisions between multinational companies can lead to greater opportunities for the Global In-house Center (GIC). Within some sectors and industries, such as pharma and auto, there are opportunities for GICs to move the maturation curve through higher research and innovation and by exploring opportunities to be in line with politicians’ vision of self-confidence for the country. India has in the past handled trying situations with caution, but the government has the necessary mandate to initiate challenging and difficult reforms that could put the economy back on track. Thriving in a challenging and difficult time will require decision makers, companies and investors to demonstrate resilience and the ability to convert challenges into opportunities, and it is time to do so now.