Covid-19 lockdown: May take two or three quarters for normalcy to return

The markets are bound to react negatively following the extension of the lockdown till May 3, as it could exert further pressure on the economy pushing back the recovery. As of now, most economists had predicted a low single-digit growth, but with an extension in lockdown, de-growth can become a reality.

The local economy needs to restart. This is extremely critical as we get into the Rabi crop harvesting season. Secondly, the smaller businesses are the ones severely affected and it would give them a chance to bounce back. Cities like Mumbai and Delhi can still afford to have a partial lockdown with hotspot locations being cordoned off. If we are able to exit Covid-19 without much damage and multiple future lockdowns, the markets could see fresh highs before the end of 12 months as we would have got attuned to the new normal.

Covid-19 pandemic will become a major turning point for the world. The fear of becoming a Covid-19 victim and an extended quarantining of more than half the global population will leave a lasting imprint on the human psyche.

That said, the lockdown in India, though initially considered a harsh measure from the economic viewpoint, seems to be the most appropriate action for saving the citizens from a pandemic in a country with high density of population with comparatively low levels of hygiene despite efforts of Swachh Bharat mission. The big lesson of this lockdown is that our fundamental rights and liberties can’t be taken for granted. We may even have a third lockdown in case the Covid-19 curve looks up again.

So at the end of it all, where will India be in the pecking order?

The world’s leading economies, other than China, would be in recession for a long time to come. Fortunately, India continues to be a domestic consumption economy. With crude falling to multi-decade low, we would be net gainers. Though the slowdown would be visible for the next couple of quarters, the savings in terms of crude import bill, which currently stands at about $120 billion, may be huge as the bill would come down by nearly 30 per cent.

India could be an oasis of growth along with China. However, there has been a buzz on deglobalisation in the last few years. Post the Covid-19 outbreak, we may see this gathering pace as many countries especially those who have been worst affected by Covid-19 would look at China as the perpetrator. Most of the supply chains have a link to China, thus many would look to shift or de-risk this supply chain.

Though it may not be possible to move immediately due to China’s strategic position as a global supplier, but the shift would definitely commence. And India could be among the major beneficiaries of this shift, assuming we are able to come out of this crisis largely unscathed. We would have scored big on how we have successfully handled the situation where many others had failed. We may also have global companies looking to set up a manufacturing base in India due to the stability it provides both in terms of political leadership as well as the business climate.

Job loss and pay cuts

However, everything will not be hunky-dory even after a couple of months. There could be huge job losses in sectors related to travel & tourism, hotels, fashion, sports, leisure & entertainment, whereas other sectors including IT, SMEs, manufacturing, retail etc may resort to pay cuts as well pink slips.

How much of this would be absorbed by e-tailers, online services and logistics is anybody’s guess. The working capital cycle of most of the businesses will go haywire. Some debtors will default, many will delay payments and this would have a cascading effect on the rest of the eco-system. Many businesses may fold up. And this would include many start-ups that were running low on oxygen. Lenders could again be staring at a fresh set of non-performing assets (NPAs) and investors would have “side-pocketed” a large part of their portfolio.

So, is India staring at gloom and doom now?

I doubt that. I expect the government to be proactive in supporting various industries, which would be bearing the brunt of the post Covid-19 slowdown. Every such catastrophe shutters many businesses, which further slows down the economy. It could take about two-three quarters to get some semblance of normalcy.

Global flows into India may also pick up pace as the world comes to terms with the aftermath of Covid-19. We need to get used to the “new normal” now and calibrate our expectations accordingly, besides re-skilling ourselves. Do not worry about how much we have fallen, but see how much we can rise from here – and be a part of the new India that could be a better and safer place for businesses going ahead.

Ambareesh Baliga is an independent market expert. Views are his own.