Various academic discourses have viewed the pandemic of COVID-19 in their own ways. For economists it has more to deal with the ensuing global slump. By all means, what we will be witnessing at least in the short run, are insulating economies. This tendency is already prevalent with some of the major global economic powers getting into a shell; as evidenced in United State’s withdrawal from the TPP (in short, Trans-Pacific Partnership ; a proposed free trade agreement among 11 Pacific Rim economies), prolonged US-China trade war, and Brexit’(withdrawal of the United Kingdom from the European Union). At this juncture, the phenomenon of insulating nations gets reinforced by COVID-19 pandemic, the global common that has pushed the entire world into a spate of uncertainty. There is no doubt that that the dynamics of global economic system will change post Corona but the moot question remains; will India be a loser or a winner under this new order of global economic system?
Digital economy to set in
The impacts in the short-run will be worrysome. This is because one very critical factor of economic production process, i.e. human capital is taking a massive beating due to the pandemic. However, it may be expected that newer forms of institutions will emerge over time to combat with this crisis phase, and the growth drivers will change. Already as far as the service sector is concerned, a large part of it has been moving to the digital world thereby creating virtual workspaces replacing the physical workstations. This trend is already visible in India. Moreover, the world is already witnessing a heavy reliance of digital connectivity, way away from their goals of physical connectivity. Hence, there remains the possibility that growth may be spurred from this digital space mostly from services, but this will also witness simultaneous slump and closures of traditional manufacturing.
Inequalities to rise in India
One needs to note here that though the growth driver will be services (as it has been for the developing world for the last two decades), a large part of the services sector in a developing nation like India is unorganised, informal, and has limited reach. They do not feature in the digital space – neither it will be easy to place them there as almost all of it requires physical presence. This inability of being accommodated in digital space will lead to more poverty, more hunger, and more inequalities thereby hampering achievements of Sustainable Development Goals (SDG) 1, 2, and 10; respectively ‘no poverty’, ‘zero hunger’ and ‘reduced inequality’. Clearly, post COVID-19, there will be challenge to equity vis-à-vis holistic development.
Opportunity for eastern states
For long, regional and inter-regional connectivities through various forms have been associated with regional development. However, as nations get more insulated, the efforts towards establishing linkages through development of physical infrastructure, tourism, human capital movement or trade and investment connectivity will be affected. Foreign Direct Investment (FDI) is considered as a critical driver to future growth in India, and PM’s flagship programme “Make in India” was thought to be an important institutional mechanism to facilitate investment. On the other hand, FDI gives other nations an avenue to exploit the global value chains (GVCs). Considering China being no more a trusted trade and investment partner, the question remains whether India will be seen as a favoured destination in the post-COVID world. This will depend on how India projects itself.
It needs to be noted not only with movement of goods and investment; the labour movement will take a beating in changed scenario hampering production. Therefore, with stricter immigration rules to prevail across the world, a nation like India that has always boasted about providing “skilled human capital” to the developed world; may turn out to be a loser.
On the other hand, a critical need for India will be concentrate on the eastern states that present itself with all four factors of business in abundance: namely, human capital, social capital, natural capital and an improving physical capital. This part is relatively less explored, and can be the fulcrum of development of the region in the post-COVID world.
So, while the global economic system is slated to go to a slump, there will be both opportunities and challenges for India. Whether India will gain or lose, depends on the sensitivities of the coefficients of the economic variables, the dynamics of the global order, and the “soft power” that the nation can wield in the international domain.
( NILANJAN GHOSH IS DIRECTOR OF WEST BENGAL OFFICE OF OBSERVER RESEARCH FOUNDATION AND A WELL KNOWN ECONOMIST)