How will 2020 shape 2021 ?

In the year 2020, the whole world is fighting with a virus, which changed the way we live and work at least temporarily. COVID-19 took many lives and made many people jobless. The impact this pandemic created will be there at least for the next few years. No one knows when this pandemic will end, but it is evident that the year 2021 will be different because of the year 2020.

“Sometimes even to live is an act of courage.” Those words are as true today as when they were written two millennia ago by the Roman Stoic philosopher, Seneca. The coronavirus pandemic is affecting millions and it is imperative to understand the unprecedented shockwave it has created – shattering social structures and disrupting economies and markets, with the ripples felt by almost every individual, business and nation.  

The Covid-19 outbreak in India has severely impacted the economy in myriad ways, with the lockdown halting the entire nation. It came at a time when the Indian economy was already slowing due to weaknesses in the financial sector and falling consumer demand for goods. Sectors already suffering, including logistics, aviation, transport, and tourism, are struggling to absorb the impact on the economy of the coronavirus pandemic.  

There are parallels between the emerging economic crisis and the financial crash of 2008. Like then, investment institutions and banks, including the IMF and Goldman Sachs, as well as the global rating’s agencies, such as Moody’s and S&P, have slashed growth projections, with India and other countries forecast to enter a ‘deep recession’. But the scale of the 2020 downturn is likely to be far greater than what followed 2008.

Efforts by the Indian government to flatten the virus curve through stringent lockdown measures will result in a steep economic contraction. In its April 2020 policy review, the Reserve Bank of India, warned: “The macroeconomic and financial landscape has deteriorated, precipitously in some areas.” 

Like other countries around the world, India too is grappling with the conundrum of reopening the economy – protecting and restoring activity this year to help shape a return to growth in 2021 – while containing the spread of the virus, and potentially further lockdowns.

The effect of 2020 on 2021:

  • During COVID-19 pandemic, imports and exports were affected adversely. And it affected many countries. For example, the Automobile industry in India imports components from China. When China was fighting with coronavirus, factories were shut down and as a result, India’s automobile industry had to halt the production. Not just India, but many countries are depending on the imports for many products such as electronics, pharmaceutical ingredients etc. So, in the year 2021, companies will work on diversifying supply chains and countries will work on achieving self-sufficiency. This may lead to protectionist tendencies.
  • COVID-19 came when the world is least expecting it. No country is fully ready to face it. Many developing countries have a shortage of healthcare professionals and medical equipment. Even developed countries have a shortage of medicines. So, in 2021, countries may work to fill this gap.
  • As coronavirus forced people to sit at homes, the demand for telemedicine facilities increased drastically. In 2021, hospitals and governments may work to make telemedicine facilities more accessible.
  • 2021 may bring more work from home jobs, as more and more companies are thinking of it as a win-win situation for them and for the employees.
  • Virtual meetings will become more common. In 2021, people may not travel on flights just to attend official meetings. This will result in less carbon emissions.
  • We have been fighting with climate change for a long time. United Nations member countries started working on the common goal of making affordable and clean energy accessible to all. But coronavirus pandemic affected the world economy badly, and every country is working a lot to uplift the economy. So, the transition to clean energy may take a backseat in 2021.
  • As many people are now scared to eat out and are preferring healthy food to boost immunity, restaurants and food delivery apps may continue to struggle in 2021 as well. There will be more investments in the companies the manufactures hygiene-related products and raw foods.
  • There will be more e-learning opportunities.
  • People may save more money by avoiding unnecessary expenses because COVID-19 pandemic taught people that anything can happen at any time and so savings are important to protect ourselves in tough times.
  • We have witnessed people stuck in other countries or in other states within the country due to lockdown throughout the world. After going through difficult times in 2020, people may want to stay close to their families. If it happens, it will alter the demography of many regions.
  • As people may not be ready to go to theatres at least for the next few months, OTT (Over-the-top media services ) platforms such as Netflix & Amazon Prime may take over the traditional film industry in 2021.
  • With an increase in work from home jobs, 2021 may see an increase in cybersecurity threats.

How will 2020 impact 2021?  

The pandemic is undoubtedly redrawing the landscape, but it is difficult to develop an economic blueprint for the post Covid-19 future because we have never before experienced the measures put in place to stem the spread, such as suspended transport, inoperative plants and stalled projects. Effects will differ to some extent across the Indian states as they follow specific economic strategies. Tourism has been severely hit, and will continue to suffer, no more so than in Goa where tourism is the mainstay of the state’s economic development strategy. The consequences for small firms, labour and for investment in tourist and transport infrastructure will be harsh. 

Even the high-performing districts in India have been badly impacted by the lockdown – 130 districts classified as red zones account for 41% of national economic activity, 38% of industrial output and are the most industrialised regions. Lower economic activity in these areas has spread to suppliers and revenues have slumped. The collective consequence of disruptions to supply chains, operations and travel are reverberating across almost all sectors of the economy, leading to:

Higher unemployment – further reducing demand and impacting production and capacity utilisation, and damaging corporate results 

Shortage of labour – migrant labourers have suffered greatly during the lockdown. The Government of India has increased the money going into the Mahatma Gandhi National Rural Employment Guarantee Scheme, which provides livelihood security in rural areas through 100 days of paid employment for adults who volunteer to do unskilled manual work. Under Covid-19 migrant labour obviously feels safer working closer to home rather than moving across states, but this will reduce the availability of workers for other sectors and regions. 

Severe liquidity crunch – working capital issues/solvency risk for sustained periods could lead to defaults on loans and may increase stranded assets in the banking sector.

Potential losses will vary by sector, but some industries that are suffering, such as airlines, hotels, automotive, construction and real estate, are likely to continue to bear the brunt into 2021. 

Covid-19 is unprecedented, so it is difficult to accurately make projections for economic growth, but it is possible to highlight some of the issues that will have an impact on Indian economy going forward.   

It will take months, possibly years for migrant labours to return to work in other states, so the financial stress on rural households will increase, and will be exacerbated by a weak job market.  

Demand has fallen significantly since the introduction of the lockdown. AIIMS Director Randeep Guleria has said cases of Covid-19 in India will peak in June and July, though others say this may not happen until September. This will impact tourism, aviation, retail and many other economic activities, leading to job losses that will further reduce demand. Given the uncertainties, it is unlikely we will see a return to full-scale operations in many sectors this year. This will impact the financial health of many enterprises and many will reduce Capital investment in 2021.   

Remittances to India are projected to fall due to travel restrictions. The World Bank estimates these could decline by as much as 23%.  

Rising unemployment, falling corporate revenue and profit is bound to impact tax revenues. Already the government has announced a series of support measures. Falling tax income and rising expenditure to support many social and employment schemes will increase the government’s fiscal deficit in 2021.  

There are glimmers of hope, however. The Indian economy may benefit from falling fuel oil prices, potentially halving the import bill if current crude oil prices hold, and many foreign firms are looking at India as alternate manufacturing destinations in many sectors, such as pharmaceuticals, chemicals and electronic component manufacturing. India needs to capitalise on this potential opportunity and provide all necessary policy assistance to attract foreign investment in 2021. 

Covid-19 has adversely impacted the entire global economy and India is not spared. Looking at the current trend India is expected to enter recession. Recovery should focus on creating a more sustainable and resilience economy, pursuing opportunities to build back better and improve the life chances of all Indians.

Conclusion:

Coronavirus pandemic affected everyone and changed our daily lives. The world will create 2021 based on these changes and also with the lessons we learned while fighting with the pandemic.

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