This article is being written in the month of April 2020, when 39% of the world is under severe lockdown that can be compared to World war III or a scenario equivalent to it. The only difference is that this war is being fought against an enemy so small that it is invisible to the naked human eye, but a potential threat so disastrous that it has already infected 8.5 million people world around and has caused more than 44,256 deaths as on April 2020.
The COVID-19 Pandemic and on Going effects on World Economy
The sheer human loss faced is unparalleled in the history of mankind, especially since this virus is affecting the rich affluent west far worse than the developing countries where the contagion is still to make a large-scale impact on human lives.
The huge loss of human lives is attributed to China’s delay on sharing details about COVID19 along with its contagion effects up until January 2020, i.e. China (including WHO) maintained that COVID 19 did not spread through human proximity or by human touch. This grave error was enough for the virus spread across the globe, which eventually engulfed the death rate around the world.
Undoubtedly this chain reaction of the event will lead to massive hate and revulsion against the Chinese Government (as well as its companies and maybe against its people), which no one would be able to deny as all the deaths can be directly attributed to the Chinese system that regards business and its global image over any other kind of loss including human lives (Considering that its own people suffered a huge loss of lives during this period).
The Second reason for this hatred is that whilst the rest of the world started to go into lockdown mode by the end of March, China opened up Wuhan by the same time to a normal life. The epicenter of COVID 19 pandemic hadn’t affected its neighboring cities – Beijing and Shanghai but has created havoc in distant countries.
Current world scenario of world dependence on China for its supply chain
We refer to an old article By John Kemp, which was published in Reuters 2019 August. “Whilst China has replaced the United States as the engine of the global economy, providing by far the largest contribution to growth in recent years and pulling along the world’s smaller economies in its train. The Asian country accounted for 28% of all growth worldwide in the five years from 2013 to 2018, more than twice the share of the United States, according to the International Monetary Fund. The Fund predicts China will account for a similar share of growth over the next five years between 2019 and 2024 (World economic outlook, IMF, October 2019)”.
China, India, Indonesia, Russia and Brazil collectively will account for more than half of all global growth through 2024, There is no scenario in which the global economy can achieve healthy growth unless these five economies, especially China, see their output and incomes rise strongly, Or an Alternate economy covers up for the growth specifically shown by China in these decades.
Resolving the economic conflict between the United States and China, or at least managing it better, will be critical if global growth is to accelerate again over the next few years. Considering the COVID-19 pandemic it may become very difficult especially after the worst phase is over (expected by mid of July till the end of September 2020), to reconcile the business interests of USA and Western European countries along with those of China.
Don’t put all eggs in one Chinese Basket
There will be a mad rush post-Covid-19 impact to reallocate the supply chain to alternate geographies with similar engineering bases and cost structure similar to China. Leading economies, which already benefitted from such previous efforts were: Vietnam, Thailand, Bangladesh, Indonesia and to some extent Philippines and Myanmar.
Post COVID-19, this effort is going to see far more renewed efforts as the West (not only the USA) and good friends of China like Italy, Spain and Iran, would like to widen their base in trading partners and their economic supply base.
Chinese companies too looking to broaden their supply chain beyond China mainland
Like all hardnosed decisions of corporates are driven with the prime motive of profitability and cash flow, even Chinese firms realize that broadening their supply chain would be a critical requirement for the future. The country or group of countries, that would be looking to capitalize on this newfound opportunity arising out of consumer demand non-China based imports are Southeast Asia, Russia, and other countries with certain proven engineering bases.
Can India play a significant role?
This needs to be a single focused activity for an entire decade with massive thrust on MSME, automation products, innovation development and sharp focus on cost outputs of the Indian industry. We cannot afford to leave it to the dictums of few large industrialists or big corporate houses, rather a sharp focus on how and where we can address the gap in the intermediaries supplied by China, which can be mass-produced in India.
What the Indian government needs to address immediately:
- Address the high rate of interest regime for funds and credits to export-based MSME’s and ease the norms quickly
- Address the glaring anomaly of inverted GST taxation and rationalization of GST taxation to address the exportability of Indian products. Inputs to this manufacturing should be at international cost and scale.
- Release and refund of genuine export GST (this needs to be a time-bound affair rather than a delayed affair by GST department)
- Indian supply chain innovations and factories need to be funded in a war mode (rather than wait for traditional valuation method).
- It may be India’s last chance to address this huge business opportunity before our neighbors in the east simply run away with this opportunity.
I will continue this article, and will look at is Indian Government ready to take this opportunity, or Make in India initiative is mere lip service? Stay Tuned!