Vijay Kumar Gaba

The present trends indicate that the Second wave of Covid19 pandemic in India may have peaked in most of the states. In the rest of the country, it is expected to peak in next 4-6 weeks. This should ease the pressure on healthcare ecosystem and bring some relief to the panicked citizens.

The government sources have indicated that India will have enough supply of Covid19 vaccines by end of 2021, and most of the population will be inoculated by the end of FY22. Various scientists have cautioned that we may see another wave of pandemic. However, the global experience so far is that any further spurts in the intensity of the pandemic may not be as devastating as the second wave due to better immunity and preparation of citizens against the virus; and improved healthcare ecosystem. This immunity could develop due to vaccination, infection in earlier waves and/or life style improvements induced by pandemic itself. The greater awareness amongst citizens and healthcare professionals may also help in containing the impact of futures spurts in the intensity of pandemic.

Notwithstanding the uncertainties and skepticism (or cynicism in many cases) witnessed in past 15 months, the thought of a victory over pandemic is definitely comforting.

However, this by no means implies that impact of first couple of waves will be fully mitigated by end of this financial year. I feel the devastation caused by pandemic will take many years, may be a decade, to mitigate. The damage caused to businesses, families, personal finances & health is overwhelming and would require mammoth effort at government, community and personal levels to heal. In particular, the rehabilitation of the impacted families may require mission level effort.

Loss of livelihood

Many families have lost their livelihood. Most of these families are from the bottom half of the pyramid who have lost jobs or their self-owned enterprises are no longer relevant. However, a significant part of these families could be from lower half of the middle class. Some families have lost their single bread earner. Some businesses have become redundant for good. Some families had to incur substantial debt for Covid19 treatment. Some families are left with members with severe disabilities or complications that will take long time and/or significant money to manage/cure.

It is pertinent to note that the pandemic has happened when the economy was already stressed for some years. Numerous smaller businesses were becoming redundant due to twin shocks of demonetization & GST. Bank credit had squeezed and margins dwindled. The larger businesses were gaining market share from them. Banks were reluctant to lend money to them. Besides, growth of ecommerce also led to consolidation of markets and hence lower margins for smaller players. Pandemic just hit the final nail for many of them.

Many street vendors, tutors, trainers, mechanics, etc have permanently lost their jobs as customers have shifted to digital platform for delivery of goods and services. Of course some smarter once have adapted digital methods for delivery, but a large number is facing redundancy for now.

Damage to psyche

The pandemic has caused psychological disorders to a large number of people. Severe illness, loss of close family member, prolonged lockdown, loss of livelihood etc are causing a variety of disorders like anxiety, depression etc., amongst children, young and old alike.

Many unprivileged children who were brought to schools with great effort are out of school again because either their parents have been displaced or cannot afford digital access. Many of these children are showing behavioral changes.

A number of health workers who have worked tirelessly for past one year are also mostly stressed and seen suffering from behavioral issues.

Cynicism and disbelief in system

The behavior of some unscrupulous elements during the pandemic has raised the level of cynicism and disbelief in system in common man. The viral news of people hoarding and black marketing lifesaving drugs, medical appliances and apparatus is broken the confidence of many hardcore nationalists. Exponential propagation of few instances of overcharging by ambulance operators and cremation priests etc has further dented the confidence of people.

The murky war of words between various politicians and their supporters on social media and mainstream media to safeguard their political turf during this extremely sensitive period is further strengthening the cynicism and disbelief.

Covid has indeed triggered a strong community bonding. Exemplary community effort is being made to help fellow citizens. Millions of volunteers and health workers working tirelessly and selflessly. Unfortunately have not received prominent coverage in media and damage has been caused to the social belief system.

Not comparable situation, but post 1984 riots similar conditions had developed for about 1500-2000 Sikh families in Delhi. It took more than two decades to bring their life to near normalization, though many scare still remain.

Given the pan India impact of the pandemic, it would definitely require a decade of mammoth mission scale effort to bring life to near normal.

For investors, discretionary consumption and financial are the sectors that need to be watched carefully.

It would be fair expect that the rehabilitation effort (a) will keep fiscal pressures high and will not let yields fall much from these levels; (b) will not let tax rates ease (could rise) anytime soon.

 I had an opportunity to e-meet the promoter of a decent sized enterprise yesterday. His company manufactures some auto parts mostly for replacement market. The business of this company had been doing extremely well for past more than a decade, before it hit a small bump last year. It recovered from the fumble in two quarters and was about to regain its pre Covid trajectory in 1QFY22. The intense second wave has however derailed the business from recovery path. The promoter now expects the business to normalize not before summer of 2022. Even for that he is not very confident. I have known this gentleman for past 17years. It was for the first time I found the gleam in his eyes missing. A driblet of sweat on the temple was also rather conspicuous.

He is not only worried about his business. The worries are in fact emanating from a variety of factors. For example,

·         Having lost couple of senior family members to Covid, the family is terribly shaken. They are insisting they the family migrates to a “better place” to live. He has faced this situation earlier also and was able to manage it well. But this time his resistance is weak. He is finding it hard to convince his US educated children to stay back and work for the betterment of the country.

·         His working capital requirements have increased materially, as many of his customers (mostly traders) have failed to pay in time. He is staring at significant losses from irrecoverable debts. His raw material cost has also increased and he is in no position to pass it on completely. Therefore, he has to cut production. He is contemplating retrenching at least 20% workers in two weeks.

·         He faces serious threat from the larger peers who mostly produce for OEMs. Some of them have already started servicing the replacement market due to slowdown in OEM demand.

·         Many of his workers are turning violent generally. Many of them have faced hardship in treating their family members. He finds that workers’ belief in system is materially diminished. Some of them have turned cynical and get easily provoked. Their chances of becoming non-compliant are far higher now.

·         He expects his bankers to soon downgrade his credit facilities, which will further raise his credit cost. Though he has the wherewithal to withstand tough conditions for next 3-4years, a prolonged phase of uncertainty could precipitate the fall.

This gentleman is quite convinced that any hopes of normalization in 2021 are terribly misplaced. He feels it will be at least 15-18 months process to normalization. From his workers he understands that unlike the first wave which spared the hinterlands, the impact of this second wave is deep and wide. It has seriously damaged socio-economic fabric of the country. Many households’ finances have been damaged structurally, pushing them into vicious cycle of debt and poverty.

He agrees that the pandemic has fully exposed the inadequacies of our social infrastructure and disaster management capabilities and significant improvements must be expected in next few years. Nonetheless, surviving these next few years could be quite challenging for a significant proportion of the population.

 With each passing day, the realization is growing that it will “years” not months or quarters before the normalcy returns to the global economy. Regardless of the statistics on global trade, national income and corporate earnings, the impact of pandemic on humanity, especially poverty, inequality, and suppression is overwhelmingly devastating. The pandemic has indubitably undone the decades of efforts in poverty alleviation and public health in numerous developing and underdeveloped countries.

As per a recent Bloomberg report based on a study conducted by the World Bank and Philippine’s local agencies, “almost half of shuttered businesses were unsure when they could reopen”. As per the report, “in emerging parts of Southeast Asia, where a wave of job losses and weak social safety nets mean millions are at risk of losing their rung on the social mobility ladder. The region is likely to come in second behind the Indian subcontinent in charting the number of new poor in Asia this year.” This points to a long, drawn-out recovery. Southeast Asia’s GDP is estimated to be to be 2% below the pre-Covid baseline even in 2022.

As per last year’s projections, South Asia was expected to add more than 50million people with $300bn in disposable income to middle class strata. This attracted many global corporations to invest huge amounts in building capacities in this region. With the poverty levels rising and prospects of growth acceleration fading, the viability of these capacities is now questionable.

As per the Bloomberg report, “As many as 347.4 million people in Asia-Pacific could fall below the $5.5 a day poverty line because of the pandemic, according to the United Nations University World Institute for Development Economics Research.  That’s about two-thirds of its worst-case global estimate, and underscores the World Bank’s forecast of the first net increase in worldwide poverty in more than two decades.”

As per HSBC research, The magnitude of the economic free fall in Southeast Asia’s five biggest economies was severe in the second quarter. Indonesia shrank 5.3% year-on-year, Malaysia 17.1%, Philippines 16.5%, Singapore 13.3% and Thailand 12.2%, data compiled by Bloomberg show. Vietnam, which was among the few trade-war winners, will see its three-decade economic ascent grind to a near halt this year. Contractions could persist through early next year.” That’s signalling a prolonged financial squeeze for Southeast Asians.