The Coronavirus Epidemic: Some Economic Considerations for India

There are several ways in which the coronavirus outbreak in China has consequences for the Indian economy, directly and indirectly.

One, the lockdowns in Chinese cities – many of which are economic hubs with populations and GDPs equivalent to small countries – affects production and supply worldwide given how integrated China is into the global economy. India is likely to suffer, too – more than half of India’s imports in 19 categories come from China according to a State Bank of India report[1] and 14% of its overall imports.[2] One of India’s top export sectors, pharmaceuticals, for example, depends heavily for key starting material, intermediates and active pharma ingredients from China.[3]

Both the pharma sector and the Indian economy in general have faced a tough year and were only just beginning to show signs of recovery which are now likely to be delayed due to the outbreak in China.[4] The spread of the coronavirus is pushing the world economy toward its worst performance since the 2008 financial crisis. And while the Indian government has declared itself ready with steps to ameliorate the effects on domestic industry,[5] its record so far is not encouraging.

Two, there are doubts also about the capacity of the country’s public health infrastructure to deal with an epidemic as the virus spreads in India’s near neighbourhood. The successful management of the risk from infected citizens traveling from China by the state government of Kerala, this past month, is the exception rather than the rule in India. There are serious doubts about the capabilities of public health systems in the more populous states to manage a health crisis.[6]

Much economic activity in India runs on the backs of migrant labour, who also live in makeshift and crowded accommodation and are not supported by adequate health or employment insurance systems. Diseases are both more likely and quick to spread in such situations. Meanwhile, attempts to quarantine or lockdown whole localities or cities as in China are going to come with high, even unacceptable, political and economic costs in India.

Three, the coronavirus epidemic and its fallout globally must also remind us of the economic opportunities that India has not been able to exploit in its undeclared competition with China. When the US launched a trade war against China in 2018, most foreign manufacturers already struggling with rising costs as well as unfair and predatory Chinese state policies, were quick to realize that it was time to find fresh pastures. But while, India might have been a natural choice for them to shift to as an alternative with its equivalent market size and fairer and more transparent regulatory practices, very little has actually moved here in practice. India’s central government and state governments have proven themselves less than adequately prepared to take advantage; it is Bangladesh next door[7] and Vietnam[8] and that seem to be benefitting most from relocation away from China.

Look at also how the Chinese economy is actually coping with the epidemic, of how the Chinese are turning the crisis into an economic opportunity. ‘Thermometer guns’ to check people’s temperatures are merely the low end of the technology being deployed by Chinese industry to combat the virus. Robots and drones are being used for communication, cleaning up and deliveries of medications and other supplies both in hospitals and outside them as well as for street patrols and other forms of surveillance. Efficient logistics systems are one of the major advantages of the Chinese economy and a weakness of the Indian one. Meanwhile, artificial intelligence is being used both to study patterns in disease spread as well as in diagnosis and finding treatments.[9]

The fact that China is able to quickly adapt to using these technologies, even if some of these are being imported, is because, its government has pushed Chinese industry to seek leadership in cutting-edge fields such as robotics, medical equipment, electrical equipment and information technology among others through its Made in China 2025 industrial programme.

China is already a heavily digitized economy – in 2017, over 75% of the country preferred digital payments to cash with the figure in rural areas a significant 66.5%.[10] With the virus outbreak, cash transactions – a potential source of bacterial infections – are likely to go down even further. By contrast, in India, even shocks to the system like demonetisation have failed to induce a shift to digital payments – cash continues to rule[11] due to structural factors ranging from illiteracy to economic underdevelopment.

It remains to be seen if the Indian economy can deal with the shock of an outbreak of COVID-19 at home. Even if we were to escape such an eventuality, there also appears to be less wherewithal compared to China to ride out the economic effects of a global pandemic, let alone to seek and take advantage of opportunities.

This is a longer version of an article originally published as Jabin T. Jacob, How Will Indian Economy Survive Impact of Coronavirus Pandemic?’, The Quint, 12 March 2020.

REFERENCES

[1] https://www.livemint.com/market/mark-to-market/q3-gdp-may-be-a-relief-but-a-virus-hit-is-brewing-for-india-s-economy-11582825386753.html

[2] https://www.bloombergquint.com/business/extended-china-factory-shutdowns-to-hurt-indian-production-lines

[3] https://www.livemint.com/market/mark-to-market/indian-pharmaceutical-companies-faces-challenges-at-home-and-abroad-11582823833621.html

[4] https://www.bloombergquint.com/economy-finance/india-s-fragile-economic-rebound-faces-new-risk-from-coronavirus

[5] https://www.bloombergquint.com/economy-finance/india-s-fragile-economic-rebound-faces-new-risk-from-coronavirus

[6] https://economictimes.indiatimes.com/news/politics-and-nation/coronavirus-spread-puts-densely-populated-india-on-high-alert/articleshow/74371845.cms

[7] https://economictimes.indiatimes.com/news/international/business/trumps-trade-war-is-turning-out-to-be-a-boon-for-bangladesh/articleshow/70137811.cms

[8] https://economictimes.indiatimes.com/markets/stocks/news/why-factories-leaving-china-arent-going-to-india/articleshow/71462428.cms

[9] https://www.vox.com/recode/2020/2/27/21156358/surveillance-tech-coronavirus-china-facial-recognition

[10] https://www.straitstimes.com/asia/east-asia/chinas-march-to-be-the-worlds-first-cashless-society-china-daily-contributor

[11] https://indianexpress.com/article/business/economy/demonetisation-three-years-later-cash-in-circulation-up-25-6-to-record-high-of-22-57l-cr-6110842/

Published by Jabin T. Jacob

China analysis from an Indian perspective

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