It’s depression, not recession

Steps to control spread of coronavirus give rise to inevitable financial hemorrhage
It’s depression, not recession

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

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

As of now, India accounts for a minuscule share ofcoronavirus cases globally. Its share of casualties is even lower. But givengaps in India's health system and already deteriorating economic scenario,any time seems trouble time. It's a tricky situation where the government iscaught between the  devil and the deepsea. On health front, count can change rapidly if any laxity is shown by thegovernment on mitigating steps. The preventive measures have a direct bearingon economic activities. So, on economic front, mitigating steps to preventspread of the disease necessarily means imposing partial lockdowns topreventing gatherings. These restrictions inevitably hit economic cycle, withdemand part getting major hit.

Such mitigating measures have already been put in place bythe government and now slowly scaling up such measures curbing the movement ofpeople and even their activities with every passing day. There is a hugesection 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 ofdaily wage earners who would struggle to get a job. Precisely, many peoplewould be out of job, as businesses would suffer in absence of demand.

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

This expert opinion is really a forecast of bad times aheadfor common masses. Notably, the Reserve Bank of India (RBI) governorShaktikanta Das during a hurriedly conducted press conference on Monday lookeda worried regulator. His poor body language while responding to questions frommedia persons was self-explanatory even as he announced measures to boostliquidity in the foreign exchange and domestic markets. By making a generalstatement that while India could be impacted due to the slowdown in globalgrowth which stands reduced to 0.4-1.5%, the quantum of impact will be assessedat the monetary policy committee (MPC) meeting next month, the apex bank chiefseemed clueless and a worried regulator.

By now, it's well understood that slowing growth over aperiod of time has considerably slowed down the revenue growth for mostbusinesses, and put additional stress on their cash flows. Here the country'sfinancial system, which is already reeling under a mountain of non-performingassets (bad loans), will be facing a crucial test. However, there is no doubtthat banks will face huge problem on repayment front in near future oncecoronavirus gets under control. By that time, the businesses would be leftincapacitated for the lack of demand and disruptions in supply chains owing tomitigation measures rolled out by the governments.

Now the point of all discussion is that all is not goingwell with the economy. Media headlines reveal that coronavirus-driven recessionlooms large over India. Remarkably, UN chief Antonio Guterres on Sunday urgedgovernments to work together to stop the coronavirus pandemic from plunging theglobal economy into recession.

In the context of J&K region, recession would meandeep-rooted depression. Here, particularly in Kashmir, economic activity isfacing a severe slump which is reflected in all forms of manufacturing,commerce and trade. Indicators like GSDP growth, unemployment rate and creditoff take are touching new lows. Despite the fact that the region has been goingthrough three decades of turmoil, most of the businesses in Kashmir havemastered the tactics of surviving the tides of the unrest. However, the ongoingslump faced by the businesses in Kashmir is taking a colossal form neverwitnessed before. The prevailing miserable situation that our economy &businesses are in is a result of exposure to sustained systemic risks andcallous policy responses from the respective governments over a period of time.

Starting with the great floods in September 2014, the valley'sbusinesses in particular are finding it very difficult to return to theirprevious turnover figures. Every time business community tried to put on aresilient face, something more lethal more devastating comes up. After floodsthe 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 andmanufacturing bodies). Contrary to the package of Rs.1 lakh crore announced byGoI, its real value amounted to few thousands of crores vis-à-vis floodrehabilitation. Even if the insurance claims are factored in along with thispaltry government package, it hardly covered 20 percent of the actual lossesincurred by the region's economy.

Year 2015 was entirely spent by valleyiets on reconstructionof lost assets with immense hopes from 2016. Many businesses went overboard inraising debt and returning to normal inventory levels. This over-leveragedposition turned out to be a nightmare when all the hell broke loose in July2016. Official estimates by GoJK pegged the losses caused due to the unrestfrom July 2016 to November 2016 at more than Rs 16,000 crore. It broke the verybases of already fragile businesses. All business assumptions were left in dustand all of a sudden focus shifted from businesses to survival of life. Andworst of all it didn't stop there.

Then we witnessed the mother of all monetary shocks when GoIannounced demonetization of 86% of its currency notes. The vast unorganizedsector that Kashmir's economy has, runs mostly outside the banking system oncash. The impact resulted in the demand for goods and services drasticallycoming down pushing the economy into deep dark hole.

One more entry to this mayhem has been the introduction ofGoods and Services Tax. The unprepared implementation resulted in extremenegative market sentiment which in turn impacted the decision on inventorylevels, movement of goods, consumer demands and investment decisions. Costs ofcompliance to the new tax regime coupled with transitional challenges turnedout to be a perfect recipe for killing Kashmir's numerous small businesseswhich derive their income from the massive unorganized sector that the regionhas. Then came the unforgettable day of August 5, 2019 when the government ofIndia scrapped Article 370 and 35A, which brought the region under lockdown forrest of the year 2019 and political implications apart, razed even establishedbusinesses down to ground.

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

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

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