Vijay Kumar Gaba

In the recent Global Competitiveness Report, the World Economic Forum examined how different countries are traversing on the road to recovery from the health and economic shock of Covid-19 pandemic, which “impacted the livelihoods of millions of households, disrupted business activities, and exposed the fault lines in today’s social protection and healthcare systems”. On the positive side, the shock is believed to have accelerated “Fourth Industrial Revolution on trade, skills, digitization, competition and employment”.

There is large section of observers who reject World Economic Forum in general and its research in particular, as mostly elitist and prejudiced against developing economies. I do not have any strong objection to the views of this section of people. However, I do occasionally study the work done under the aegis of WEF and find it useful for identifying the problem areas and directions for further study. I read the Global Competitiveness Report 2020 also with this perspective. The following are some of the points that I find mostly incontrovertible and useful in making a reasonable assessment of the present situation.

·         Before pandemic high levels of debt in selected economies as well as widening inequalities was a major area of concern. The emergency and stimulus measures have pushed already high public debt to unprecedented levels, while tax bases have continued eroding or shifting. Now, the priority should be on preparing support measures for highly indebted low-income countries and plan for future public debt deleveraging. In the longer run (transformation phase) countries should focus on shifting to more progressive taxation, rethinking how corporations, wealth and labour are taxed.

·         The COVID-19 crisis has accelerated digitalization in advanced economies and made catching up more difficult for countries or regions that were lagging even before the crisis. In the revival phase, countries should upgrade utilities and other infrastructure as well as closing the digital divide within and across countries for both firms and households.

·         Skills mismatches, talent shortages and increasing misalignment between incentives and rewards for workers had been a major problem for advancing productivity, prosperity and inclusion for many decades. The focus should now turn to new labour market opportunities, scaling up reskilling and upskilling programmes and rethinking active labour market policies. The leaders should work to update education curricula and expand investment in the skills needed for jobs in “markets of tomorrow”.

·         The pandemic has highlighted how healthcare systems’ capacity has lagged behind increasing populations in the developing world and ageing populations in the developed world. Now, the health system capacity needs to be expanded to manage the dual burden of current pandemic and future healthcare needs. Especially, there should be an effort to expand eldercare, childcare and healthcare infrastructure and innovation.

·         Over the past decade, while financial systems have become sounder compared to the pre-financial crisis situation, they continued to display some fragility, including increased corporate debt risks and liquidity mismatches. The countries now prioritize reinforcing financial markets stability, while starting to introduce financial incentives for companies to engage in sustainable and inclusive investments.

·         Pre-crisis, there was increasing market concentration, with large productivity and profitability gaps between the top companies in each sector and all others; and the fallout from the pandemic and associated recession is likely to exacerbate these trends. In the revival phase, therefore, the effort should be to strike a balance between continuing measures to support firms and prevent excessive industry consolidation with sufficient flexibility to avoid keeping “zombie firms” in the system.

·         Post global financial crisis, a trend was seen emerging against globalization. In revival strategies, countries should lay the foundations for better balancing the international movement of goods and people with local prosperity and strategic local resilience in supply chains.

It is emphasized that “The global economic outlook for 2021 is highly dependent both on the evolution of the pandemic and on the effectiveness of the recovery strategies of governments”. It is critical to assimilate that the governments across the globe have deployed US$12trn to support households and businesses with emergency income and cash flows. This support shall begin to expire as the process of “unlocking” progresses. The recent economic recovery with the support of these support measures may not be a guidepost for the future economic trends. “Instead, the road towards economic recovery will be long, asymmetric and asynchronous across different economies”.

Where does India stand on the road to recovery?

1.    Amongst G-20 countries, India is a dismal and distant last in terms of percentage change in the skills of graduates during 2016-2020. Suadi Arab, China and South Korea share the podium positions in this area.

2.    India with 9.5% NPA level (2018 data) has the lowest score of soundness of banks amongst selected countries and ranks at the bottom (only better than South Africa) in terms of finance access to SME.

3.    India is placed close to the bottom in terms of share of global patent applications.

4.    Global business leaders see no significant improvement in the globalization of India’s value chain in future.

5.    India ranks much below the global average on workforce upgrade (law and social protection), investment in of skills and upgrading education curricula, digital access, rethink on competition and antitrust framework, creating markets of tomorrow, investment in R&D and innovation, diversity & inclusion,

6.    India is placed in the 9^th declie (bottom 20%) in terms of readiness for economic transformation post pandemic.

In view this gives a fair idea of areas where we are lacking and need to work hard. As an investor, this also allows me to upgrade my matrix of key factors that I focus on for identifying major risks and opportunities.