The Coronavirus pandemic has shined a light on the vulnerabilities of our economy. Relying on perpetual, infinite growth and increasing productivity, we’re more aware than ever before that we cannot adapt to disruptions in the market very well.
The virus itself hasn’t plagued the economy, rather, the social distancing measures in place have. But, without the measures, then the virus would have been the sole factor, making it a lose-lose situation.
India has been on the wrong end of public health specialist opinion several times throughout this crisis. Most notably, their emphasis on strict lockdowns as opposed to relying on better testing was challenged. The Public Health Association said back in September that lockdown should be discontinued.
In fact, India’s authoritarian reaction to close the country down stranded millions of migrant workers without food or work. All throughout spring, these workers had become so desperate that they jumped at the opportunity to get on the emergency trains that the government had organized – trains that spread the virus all across the country. In the end, many of the extreme measures become counterproductive.
Although lockdown measures have been gradually relaxed in many places towards the end of the year, it has not been enough to see business back to normal. In fact, many believe it won’t get back to normal for a long time.
Is the vaccination the end of business woes?
India has announced the go-ahead for a COVID-19 vaccine, though the actual one they will use is yet to be agreed upon. The health ministry claims that vaccination will go ahead in January, but we are yet to know how many orders will be placed, and who will be inoculated.
Officials claim that around 300 million Indians will receive the vaccination between the start of 2021 and August. 10 million health workers will be first to receive the vaccine, which will then be followed by policemen, soldiers, municipal and similar.
As we can see, though this is clearly evidence of progress, it seems that the better part of 2021 will only see vaccination for public workers. Whilst this should cut down on the spread of COVID-19, it doesn’t directly protect private-sector workers – the very sector that is most vulnerable.
Public sector workers are often safe in times of a crisis – protected with non-profit jobs and good pension plans. Entering a recession for the first time on record, India’s lack of productive output is struggling to pay the nation’s wages.
It’s estimated that 140 million Indians lost their job since lockdown began on March 25th. This skyrocketed unemployment from under 10% to 24%. In particular, those in jobs such as tech have really struggled regarding employment, given the drastic drop in productivity.
It’s not just fintech startups, of course. The Future Group was one of many multi-billion-dollar companies to struggle and almost enter bankruptcy. Their share price fell off a cliff in mid February, where it was at almost 400 INR. For the last 9 months, it has flatlined at around 77 INR and continues to struggle to gain any traction.
This is in spite of a climbing Sensex, too, which has seen stable growth since the March crash. Of course, this is hardly a reflection of India’s economy right now. In fact, it adds to the bleak reality of volatile prices in conjunction with the recession.
Which industries are struggling?
Banks are one of the most noteworthy industries that have struggled through coronavirus. This may be surprising at first because their revenue streams are usually diversified and long-term. However, they were already struggling with an abundance of bad loans before the pandemic struck, so this has made matters even worse. Defaults, miss repayments, and other disruptions have put banks in a difficult position.
A huge wave of debt has almost engulfed many high street banks, which has made room for alternative lenders. This leads us on to the construction industry and commercial property – two industries that rely on banks, loans, and stable markets.
It comes then as no surprise that they’ve had a difficult time getting loans, given that banks are already struggling with their current debtors. Construction and property is heavily dependent on leveraging, and with construction financing very short around the world right now, global development has slowed right down in 2020.
The other thing India is dependent on in construction is migrant workers, which as mentioned earlier, are either trapped away from home or have made it home but have contracted the virus. This slowdown in labour, along with strong lockdown measures, has disrupted revenue streams. On top of this, house prices are to fall by 6% in 2020 in India, further hurting margins.
Many developers will try and hold out for 2021 where prices will likely rise again and construction will be smoother, but making it that far is easier said than done. This is where alternative lending comes into play.
Alternative lenders have been an industry that hasn’t struggled as much as others. In some sense, their defaults have increased, along with mispayments and so on. However, they’re experiencing strong demand growth as an industry, setting them up for a stronger competitor to the banks.
Alternative lenders are, in many cases around the world, the only option for small businesses. Their benefits are speed and meritocracy. Unlike banks, they are not ruling out businesses based on average credit checks. Instead, they’re using automation to solve the conundrum of risk – by scanning recent financial records such as cash flow.
Applications are approved and funded in less than 2 days, which is convenient for the unpredictable times of Coronavirus. It’s no wonder their popularity has risen, though businesses are paying the price for it with higher interest rates.
Global supply issues
If we look at a more global example, Sony and Microsoft have launched their latest flagship console after 8 years of development, and they’re out of stock for the foreseeable future.
Whilst scalpers are one cause of this, it’s also because of supply issues that are brought on by the pandemic. There are hardware shortages for the assembly of the consoles, meaning that manufacturing is taking longer than usual. On top of this, there are also logistical issues in distributing them out to retailers.
Finally, when retailers do get a small amount of stock, they are forced to sell the consoles online due to lockdown restrictions. This has served more opportunities for scalpers to buy up what little stock makes it to retailers, meaning that even fewer customers can get their hands on them. This is a good example of how even when there is rife demand, the industry is still struggling at the peril of COVID-19.
Heading into 2021
There is a light at the end of the tunnel, for both India and the world at large. The combination of vaccines, better testing, and more understanding of the virus has meant we’re approaching the beginning of the end.
There will no doubt be a hangover of debt and unemployment, that is certain. But, 2021 may well be a year of bustling supply to keep up with the steady demand that we have seen in 2020.
Nomura projects India is projected to be the fastest growing economy in Asia during 2021. A 9.9% GDP is forecasted, suggesting that the derailed growth in 2020 will only be short-lived. The nature of this recession is vastly different from the collapse of 2008, which truly questioned the capitalist debt system we had become dependent on.
There is nothing truly broken in the economy right now, it can be argued. Or at least, no more than usual. Instead, we can see this as a blip. An empty year of stagnation and standing still. Economies have contracted, but the symptoms are obvious and addressable. Morgan Stanley goes as far as predicting that the economy will have recovered to pre-pandemic levels by 4Q 2020.
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