GS Paper: GS2

Context

As COVID-19 spreads exponentially across the world, profound uncertainty and extreme volatility are wreaking havoc of a kind seldom encountered previously. It might, hence, be wise to start thinking of what next, if at least to try and handle a situation created by the most serious pandemic in recent centuries.

China’s important role

• No previous experience: The problem with the novel coronavirus is that with the exception of China, which battled another coronavirus epidemic in 2003 — SARS epidemic — there is little available for most nations on which to base their assessment of what next.
• Further drop in China’s growth rate: What is known is that China’s growth rate has further plummeted, even as it was confronting an economic slowdown which had been in the works for some time.
• Economic downturn internationally: The consequences for the global economy of China ceasing to be the world’s biggest exporter of manufactured goods are considerable.
• And with no country in a position to replace it, this development will precipitate a further economic downturn internationally.

Uncertainties before epidemic

• The COVID-19 pandemic could not have come at a more difficult time.
• Uncertain economic environment: The world was already having to contend with an uncertain economic environment, with industries in turn facing newer challenges such as having to adjust to a shift from cost efficiencies to innovation and breakthrough improvements.
• Added to this were: a global slowdown, increasing political and policy uncertainties, alterations in social behaviour, new environmental norms, etc.
• India’s position: Newly emerging economies, such as India, were even more affected by all this, than some of the older established ones.

Impact on India and what lies ahead?

• Estimate of cost by ADB: An early estimate by the Asian Development Bank, soon after the epidemic was declared, was that it would cost the Indian economy $29.9 billion.
• A recent industry estimate pegs the cost of the lockdown at around $120 billion or 4% of India’s GDP.
• May require six months to recover after epidemic: The Confederation of Indian Industry (CII) had at one point warned that the COVID-19 impact, and the existing stress in the financial sector, meant that India would require up to six months even after the entire course of the COVID-19 epidemic is over to restore normalcy and business continuity.
• The COVID-19 Taskforce under the Finance Minister come up with measures to mitigate the economic hardship engendered by the pandemic, and finally a three-week-long lockdown.
• Several precautionary measures based on guidelines in vogue elsewhere in the world for preventing pandemics of this kind, have also been introduced including ‘home isolation’, ‘home quarantine’, etc.
• The prognosis as to what lies ahead is indeed bleak.
• On the economic plane, according to most experts, a global recession seems inevitable.
• The decline in demand: Uncertainty, panic and lockdown policies are expected to cause demand worldwide to decline in a precipitous way.
• Start of downward cycle: Decline in demand will inevitably lead to a vicious downward cycle, where companies close down, resulting in more lay-offs and a further drop in consumption.
• A precipitous decline in GDP would follow.
• Massive funds would be needed: To compensate for this loss, massive inflows of government funds would be needed, but most governments, India included, might find it difficult to find adequate resources for this purpose.
• Right time for fund: Equally important, if not more so, is that such massive inflows of funds (if they are to be effective) should be here and now, and not later, by which time the situation may well have spiralled out of control. Global coordination was a must in the extant situation.

Disruption in the global order- Implications for the position of the US

• COVID-19 is, in turn, expected to bring about major changes in the global order.
• Changes would get accelerated: Some of these changes have, no doubt, been in the making for some time, but would get accelerated.
• As of now, though the U.S. is no longer the global power that it once was, it is hardly in retreat.
• Retreat from Afghanistan, not the end: The US is, without doubt, increasingly disinclined to act as the world’s gendarme, as instanced by its retreat from Afghanistan after a dubious accord with the Afghan Taliban,
• But this was not the end of the road as far as U.S. power was concerned.
• The US would step back further: Post COVID-19, however, and given that the U.S. is among the countries badly affected by this pandemic, together with existing uncertainties affecting its financial markets, the U.S. can be expected to step back even further — from one of assertion to neutrality in global affairs.
• Already, U.S. command of the global commons has weakened. Meantime, China and Russia have strengthened their relationship and improved their asymmetric capabilities.
• US not the largest economy by PPP: The challenge from China is becoming more obvious by the day — measured by purchasing power parity, the S. is not the largest economy in the world as of now.
• Russian challenge: Even more daunting from a U.S. standpoint, and also representing a sea-change from the recent past, Russia has become far more economically and politically stable and an important power broker in West Asia.
• Impact on liberal international order: These shifts cannot but, and are likely to, have a direct impact on the liberal international order. It could, in turn, give a boost to authoritarian regimes and authoritarian trends.

Impact on social behaviour

• Moving away from the political and economic consequences of COVID-19 are other concerns arising from an extended lockdown, social distancing and isolation.
• The epidemic of despair: Psychologists are even talking of an ‘epidemic of despair’ arising from a fear of unknown causes, resulting in serious anxiety and mental problems.
• Problems due to extended isolation: Extended isolation, according to psychologists, can trigger a different kind of pandemic even leading to possible suicidal tendencies, fits of anger, depression, alcoholism and eccentric behavioural patterns.

Inequality and impact

• The impact is not the same for all: Another fallout from the current epidemic might well be the extent to which inequality in incomes impact segments of the population, facing a common malaise.
• Countries lacking a comprehensive nation-wide health system would find this an even more difficult situation to handle.
• Meantime, as the economy weakens, accompanied by job losses, those without high levels of skills would fall further behind.
• This is evident to some extent already given recent reports of mass migration across the Indian landmass.
• Out of work migrant labour, unable to find new jobs since they lack the necessary skills, are attempting to return to their normal habitat, bringing in their wake untold suffering and, perhaps even the spread of the virus.
• This has all the makings of a huge human tragedy. Existing curbs on their movement would further exacerbate the problem, and could even lead to a major law and order situation.

Possibility of the rise of digital authoritarianism

• One possible, and unexpected, aspect of the COVID-19 epidemic could be the thrust it could provide to ‘digital authoritarianism’.
• China’s authoritarian methods seem to have helped it to contain the spread of the virus — at least for the time being.
• Somewhat similar tactics are being employed by some other countries as well.
• In turn, leaders across many nations may find China’s methods, and the embracing of technology to refashion authoritarianism for the modern age irresistible, and a standard to be adapted, even if they profess to be democratic.
• The rise of digital autocracies could lead to digital repression, and in the age of AI-powered surveillance, create a capacity for predictive control, or what is often referred to as ‘social management’.

Conclusion

The pandemic even after it’s over could change the world in more than one ways and we must be cautious in our approach in accepting or rejecting these changes brought about by the epidemic.