The outbreak of COVID-19 pandemic has shaken the collective
consciousness of the global community. Since WWII there have been many crises
that have impacted more than region of the world. But this novel coronavirus is
perhaps the most widespread and deep crisis that the humanity has faced in past
75years. The global financial crisis (GFC) of 2008-09 had impacted most global
markets, but the impact on human life was not this serious.
This crisis has occurred at a time when the global order was
resetting itself in the aftermath of the GFC. The central bankers were finding
the ways to exit the unsustainable monetary policies adopted to mitigate the impact
of GFC. The global trade imbalances that have persisted for almost 3 decades
were correcting as China, US, EU, Japan, Russia, OPEC etc were actively engaged
in aggressive trade (re)negotiations. Old trade and geopolitical blocks were
weakening and new blocks were being formed. China had accelerated the drive to
assume global leadership through mega initiatives like One Belt One Road (OBOR)
and China Pakistan Economic Corridor. UK exiting the common European Market
weakened the Europe to some extent. US tightened immigration rules, decided to
withdraw from conflict zones like Afghanistan, Iraq, Libya and refused to
engage in Syria signaling a paradigm shift in its policy towards globalization
and, free trade.
The outbreak of novel coronavirus has however significantly
changed the course of reset, in my view. I feel the following are some of the
issues that may define the contours of the new order in post COVID-19 world.
1. The China may be
regarded as an irresponsible power, and may not be accepted as a major global
leader. In particular, the mistrust between US and China may increase
manifolds. We may likely see a Sino-China cold war that may last for many
years, or may be decades.
2. The vulnerabilities of
US and Europe have been exposed by the coronavirus.
Post 9/11 incidence, we saw dramatic changes in the concept of
internal security in US and many other countries. The suspects were shot dead
without much provocation, disregarding all concerns for human rights and
liberties. The culprits were chased and killed in foreign jurisdictions often
disregarding sovereignty of these foreign lands. The diplomats, politicians and
prominent personalities arriving in US and UK were strip searched and denied
entry with impunity.
We shall see further rise in xenophobic tendencies of the
developed western countries. Another major impact could be concerted effort to
reverse the course of demography, especially in European countries that are
turning old at an alarming rate. This could be achieved by substantial incentives
for procreating aggressively or changes in the immigration policies to
encourage let young professionals from developing countries settle there.
3. I do not believe that
post COVID-19 world would be highly localized, nationalist and protectionist.
Nonetheless, it is entirely possible that new trade and geopolitical blocks get
formed. The new blocks thus formed will define the contours of new world order.
4. The global supply chain
presently relies heavily on China for components as well as manufacturing services.
Many developed countries get their fiscal gaps filled by China in lieu of using
Chinese manufacturing services and allowing China access to their markets.
The new world order may see a massive shift in this trend.
Countries may seek to limit their fiscal deficits and seek diversification of
their supply chains. This will present many opportunities & threats to the
emerging economies like India.
5. The dominance of USD as
world's only reserve currency will face serious challenges from more neutral
digital currencies.
6. The ideas like free
trade, personal liberties, etc face serious challenges from the rising
tendencies of government world over to exercise enhanced surveillance and
control over personal conduct and data.
7. The business models, valuation
models, risk assessment techniques, commercial contracts etc shall get
redefined to build in probability of prolonged shut downs.
8. The foreign travel
protocols may include vaccination as a pre requisite.
9. The business continuity
planning may become a mainstream subject for all businesses, not just the
mission critical processes and financial services.
10. A massive tsunami of
debt defaults/waiver may hit the global financial system. Handling of this
tsunami and subsequent recapitalization of the lenders will be a key challenge
for the governments and central banks.
Inappropriate handling of this challenge may eventually lead to
shortage of growth capital and thus rise in cost of capital. A sharp down leg
of deflation could lay the foundation of an inflationary world for next decade
or so.
Where India stands in this transition and what are the
opportunities and threats?
I shall share my thoughts on this next week.
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