by Showkat Hussain
Circulation of money in modern economies is like the circulation of blood in a living being. And the natural way of its circulation is through trade. Any restriction on trade, therefore, has serious consequences for any economy.
The disaster unleashed by the Covid19 pandemic and its consequent rippling effects has made it clear that this virus is not just a health challenge. It is equally, if not more, fatal when viewed from the perspective of economic costs involved.
The pandemic has proved disastrous to the survival and well being of millions of people across the globe. The speed at which this creature travels across all physical and political barriers has crippled international and domestic trade. Disruption in global, domestic and local trade has inter alia led to the closure and slowing down of economic activities, loss of employment opportunities, rising food prices and steep inflation across all countries.
Its impact on some sections of people especially women, children and on other vulnerable sections of humanity is equally grave. Data from some reputed organizations like World Bank, UN organizations and World Health Organisation (WHO) may help us understand this side of the pandemic. The data may be useful in devising policies in dealing with what awaits us in near future.
Although everyone had to bear the brunt one way or the other, but it is the people in lower and middle-income groups, in particular, that were severely affected. The crippling of economic activity in the past two years has pushed people in lower and middle-income groups to the poor category and those in the poor category to the extreme poor category.
As per a recent report published by the World Bank in December 2021 The Inequality Pandemic, due to the Covid-19 pandemic, extreme poverty rose in 2020 for the first time in over 20 years and around 100 million more people are living on less than USD 1.90 a day. As per another report published by the WHO in March 2021, Covid-19 is estimated to have pushed 119-124 million people into extreme poverty in 2020.
According to a November 2021 publication Global Economic Effects of Covid 19 by Congressional Research Service of USA, since its declaration as a pandemic by the WHO in March 2020, Covid19 has affected USD 90 trillion worth global economy which is beyond anything experienced in nearly a century.
The impact of the onslaught of the pandemic has been felt across industries and sectors particularly those that depend upon the movement of people and goods like tourism and hospitality industry, land transport and aviation industry, etc. As per an estimate published by United Nations Conference on Trade and Development (UNCTAD) in June 2021, the coronavirus pandemic could cause a loss of more than 4 trillion USD to the global GDP for the years 2020 and 2021 due to a crash in international tourism alone. This is despite the subsequent easing of travel restrictions and consequent economic recovery in the second half of 2021.
One of the sectors worst hit by the pandemic and which has a bearing on future generations is the education sector. This sector has suffered huge losses both from a business and employment points of view and also from the perspective of children’s inability to have access to education owing to the closure of schools.
The Inequality Pandemic Report highlights that in low- and middle-income countries due to prolonged school closures and poor learning outcomes, 70 per cent of 10-year-olds cannot read a basic text. This, as per the report leads to a risk of this generation of students losing USD 17 trillion in their lifetime earnings. According to World Economic Situation and Prospects 2022 (a report produced by the United Nations Department of Economic and Social Affairs), ‘the pandemic has worsened prospects for a dramatic loss in human capital and the direst education crisis in a century for developing countries. This is due to prolonged school closures, lasting up to 250 days, or in some cases, with schools yet to reopen.”
In immediate future also the economic scenario seems to be full of challenges. World Economic Situation and Prospects 2022 cautions that “global economic recovery hinges on a delicate balance amid new waves of Covid19 infections… With new waves of infections spreading quickly, the human and economic tolls are expected to increase.” The report adds that the “New Covid19 variants and the reintroduction of quarantine and mobility restrictions could significantly restrain economic activities. Although the actual impact is impossible to assess in advance, new variants could severely impair market confidence and derail economic recoveries.”
It is expected that due to the rapid spread of the Omnicron variant, the Covid19 pandemic will continue to disrupt economic activity. Global Economic Prospects published by World Bank Group for January 2022 projects that “the global economy is set to experience its sharpest slow down after an initial rebound from a global recession since at least the 1970s”. What is true at the global level is equally true at the national and local levels, all markets being closely connected.
Impact on Banking
Due to the slowdown of the economic activity banking industry is also struggling to recover loans from small and medium-size businesses that were forced to shut down due to lockdown. This has impacted the recovery of loans and maintenance of asset quality by the Banks.
As per a report dated July 1, 2021, published by the Reserve Bank of India on Macrofinancial Risks, ‘the most immediate challenge for banks worldwide is a possible rise in corporate insolvencies and non-performing Assets’ whereby money is held in bad assets for years. Circulation of money in modern economies is like the circulation of blood in a living being. And the natural way of its circulation is through trade. Any restriction on trade, therefore, has serious consequences for any economy.
Situation Back Home
The scenario in Jammu and Kashmir is no different. As per estimates (reported in The Economic Times dated June 3, 2021), the trade and commerce bodies in Jammu and Kashmir assessed the business losses of around Rs10,000 crore during the month-long Covid-19 lockdown during the second wave.
In a recent statement in December 2021 to Kashmir Observer, on December 23, 2021, the President of Kashmir Chamber of Commerce and Industries has assessed that from August 2020 Kashmir’s economy has suffered a loss of Rs 40,000 crore and one lakh people lost employment. All this has to be seen from the perspective of the series of lockdowns since the year 2016 in the valley in particular.
Can We Afford?
Amidst all this, the question that arises is whether we can afford another lockdown or that given the costs involved, it can be avoided. There is a need to have a holistic approach to the situation wherein views of health experts, economic experts and those of other stakeholders is taken into account. The events need to be looked into objectively for preparing strategies and plans in order to prevent further damage.
Our response must be directed at the rationalization of competing for economic interests and preventing a health catastrophe. It needs to be understood that we cannot sit back and wait for the pandemic to pass. We shall have to live with it and sail through it.
Our response therefore must be in sync with this reality. Both our social and economic activities need to go on alongside the measures to deal with the pandemic. Therefore, the imposition of lockdown must be the last resort. Just as one medicine cannot be a treatment for every ill, shutting down businesses, suspending services and imposing lockdowns cannot be one solution for all problems. There has to be a proper plan, some comprehensive arrangements instead of the attempted straight jacket formulas.
Germane to mention that many countries including UK and Spain are considering treating Covid as the normal flu and resumption and continuation of normal economic and other activities. We must remember that This Too Shall Pass but the manner in which we deal with it will someday also be part of history. Our past experience has proved that shutting down every other activity of life and locking up people or restricting their movement may not be wholly helpful. This strategy has caused more damage than any good. We need to realize that people first need to earn their bread in order to survive. They need to live before attempting to keep death at bay. After all, Covid19 alone is not after one’s life.
(Author holds a masters degree in Commercial Law and works for a bank. The opinions expressed in this article are those of the author’s and do not purport to reflect the opinions or views of Kashmir Life.)