It's depression, not recession

Even as coronavirus outbreak has put the medical scientists and global human saving institutes to crucial test, policymakers and financial regulatory bodies too are equally confronted with litmus test. The deadly virus has grossly turned into a disruptive financial contagion tearing apart global economic supply chains. For the last couple of years, analysis from different quarters was pouring in about the economic slowdown hitting even strong global economies and experts were expressing worries about an imminent global recession. But no one had even imagined that a deadly coronavirus breed in a pandemic mode would bring financial shock to the global economy, bringing economic activities of all nature almost to a grinding halt.

Measures taken to combat economic slowdown in pre-coronavirus outbreak period have gone down the drain as the novel coronavirus is impacting the free flow of economic cycle across the nations. Now the economic slowdown in the post-coronavirus scenario is fast graduating into a recession. The efforts of governments and central banks to limit the shock seems is turning out a cumbersome task as the outbreak is spreading fast across geographical boundaries. Precisely, in the context of India, containing the spread of the disease and limiting its impact on the already ailing economy is an uphill task given the level of policymakers controlling the economic decisions of the country.

As of now, India accounts for a minuscule share of coronavirus cases globally. Its share of casualties is even lower. But given gaps in India’s health system and already deteriorating economic scenario, any time seems trouble time. It’s a tricky situation where the government is caught between the  devil and the deep sea. On health front, count can change rapidly if any laxity is shown by the government on mitigating steps. The preventive measures have a direct bearing on economic activities. So, on economic front, mitigating steps to prevent spread of the disease necessarily means imposing partial lockdowns to preventing gatherings. These restrictions inevitably hit economic cycle, with demand part getting major hit.

Such mitigating measures have already been put in place by the government and now slowly scaling up such measures curbing the movement of people and even their activities with every passing day. There is a huge section of people who will get a direct hit on their livelihood. For example, many small businesses would suffer on revenue front. There is a huge army of daily wage earners who would struggle to get a job. Precisely, many people would be out of job, as businesses would suffer in absence of demand.

Economic experts have already warned of the severe slowdown in the country. They say even if India manages to contain the spread of Covid-19 and escapes the worst of the outbreak, it would still have to deal with the effects of financial hemorrhage and trade disruptions across the world.

This expert opinion is really a forecast of bad times ahead for common masses. Notably, the Reserve Bank of India (RBI) governor Shaktikanta Das during a hurriedly conducted press conference on Monday looked a worried regulator. His poor body language while responding to questions from media persons was self-explanatory even as he announced measures to boost liquidity in the foreign exchange and domestic markets. By making a general statement that while India could be impacted due to the slowdown in global growth which stands reduced to 0.4-1.5%, the quantum of impact will be assessed at the monetary policy committee (MPC) meeting next month, the apex bank chief seemed clueless and a worried regulator.

By now, it’s well understood that slowing growth over a period of time has considerably slowed down the revenue growth for most businesses, and put additional stress on their cash flows. Here the country’s financial system, which is already reeling under a mountain of non-performing assets (bad loans), will be facing a crucial test. However, there is no doubt that banks will face huge problem on repayment front in near future once coronavirus gets under control. By that time, the businesses would be left incapacitated for the lack of demand and disruptions in supply chains owing to mitigation measures rolled out by the governments.

Now the point of all discussion is that all is not going well with the economy. Media headlines reveal that coronavirus-driven recession looms large over India. Remarkably, UN chief Antonio Guterres on Sunday urged governments to work together to stop the coronavirus pandemic from plunging the global economy into recession.

In the context of J&K region, recession would mean deep-rooted depression. Here, particularly in Kashmir, economic activity is facing a severe slump which is reflected in all forms of manufacturing, commerce and trade. Indicators like GSDP growth, unemployment rate and credit off take are touching new lows. Despite the fact that the region has been going through three decades of turmoil, most of the businesses in Kashmir have mastered the tactics of surviving the tides of the unrest. However, the ongoing slump faced by the businesses in Kashmir is taking a colossal form never witnessed before. The prevailing miserable situation that our economy & businesses are in is a result of exposure to sustained systemic risks and callous policy responses from the respective governments over a period of time.

Starting with the great floods in September 2014, the valley’s businesses in particular are finding it very difficult to return to their previous turnover figures. Every time business community tried to put on a resilient face, something more lethal more devastating comes up. After floods the economy suffered a mammoth loss with estimates ranging from Rs.40,000 Crore (by the then State Govt) to over Rs.1 Lakh crore (by different trade and manufacturing bodies). Contrary to the package of Rs.1 lakh crore announced by GoI, its real value amounted to few thousands of crores vis-à-vis flood rehabilitation. Even if the insurance claims are factored in along with this paltry government package, it hardly covered 20 percent of the actual losses incurred by the region’s economy.

Year 2015 was entirely spent by valleyiets on reconstruction of lost assets with immense hopes from 2016. Many businesses went overboard in raising debt and returning to normal inventory levels. This over-leveraged position turned out to be a nightmare when all the hell broke loose in July 2016. Official estimates by GoJK pegged the losses caused due to the unrest from July 2016 to November 2016 at more than Rs 16,000 crore. It broke the very bases of already fragile businesses. All business assumptions were left in dust and all of a sudden focus shifted from businesses to survival of life. And worst of all it didn’t stop there.

Then we witnessed the mother of all monetary shocks when GoI announced demonetization of 86% of its currency notes. The vast unorganized sector that Kashmir’s economy has, runs mostly outside the banking system on cash. The impact resulted in the demand for goods and services drastically coming down pushing the economy into deep dark hole.

One more entry to this mayhem has been the introduction of Goods and Services Tax. The unprepared implementation resulted in extreme negative market sentiment which in turn impacted the decision on inventory levels, movement of goods, consumer demands and investment decisions. Costs of compliance to the new tax regime coupled with transitional challenges turned out to be a perfect recipe for killing Kashmir’s numerous small businesses which derive their income from the massive unorganized sector that the region has. Then came the unforgettable day of August 5, 2019 when the government of India scrapped Article 370 and 35A, which brought the region under lockdown for rest of the year 2019 and political implications apart, razed even established businesses down to ground.

Precisely, it’s not economic slowdown or recession which has remained companion of Kashmir, but it’s depression which this region has been facing for long now. Impact of coronavirus will only be deepening this depression leaving the J&K’s economy in deep dark hole.

(The views are of the author & not that of the institution he works for)