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 9th 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.