COVID-19 may push us into recession

COVID-19 may push us into recession

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Construction sector, one of the largest employers in the economy is also likely to be affected by pandemic. Unfortunately, this is one sector where ‘work from home’ concept cannot work. Real estate sector which is in the midst of one of the worst and longest slowdowns may further go into trouble and defaults, affecting thousands of home-seekers

COVID-19 has now covered almost the whole world though in China its intensity has come down. If the situation continues like this for long where each country/region/locality is quarantining itself from the rest, we may be in for a global recession soon. In a way, situation today is worse than the one that was prevailing in 2008 as we do not know the solution yet and just pumping in money through quantitative easing method may not suffice. This time problem is two-faced – on the one hand, you have to find a medical solution to Coronavirus and on the other hand, find a way out of possible recession.

Longer term, better anti-viral treatments for those infected could also reduce mortality rates and, while a global effort to produce effective vaccines may take longer than we would all hope, history suggests that it will ultimately be successful. The spread of the disease may also be impeded by the onset of warmer weather in the Northern Hemisphere and, in a sobering worst-case scenario, a growing share of the world’s population should develop an immunity to the virus by virtue of having contracted and then recovered from it.

Still, while we can hope that both the spread of the disease and the mortality rate fall over time, it is, as of right now, sufficiently contagious and dangerous to warrant and cause significant lifestyle changes either by government edict or private decisions.

Construction sector, one of the largest employers in the economy is also likely to be affected by pandemic. Unfortunately, this is one sector where ‘work from home’ concept cannot work. Also, in India, the degree of automation and mechanisation in the sector is negligible and thus, workers involvement in the construction activity will be the highest. Some reports suggest that on many construction sites workers have not returned after the Holi festival leave. This will impact the construction activity in the country and unfortunately it has happened when the economy was showing the signs of revival.

Real estate sector which is in the midst of one of the worst and longest slowdowns may further go into trouble and defaults, affecting thousands of home-seekers. Real estate sector is one such sector that on which health of many other industries depend. Rs 25,000 crore fund which the government has created to help the ailing sector to complete the incomplete affordable housing projects may not be enough due to latest developments. Defaults may also take place on demand side due to the possible job losses by the home-seekers. So, the government has to be lenient towards them too as the situation is unprecedented and beyond control of the common man.

The government will be facing an uphill task – on the one hand its revenue collections will be hit due to reduced tax collections and on the other, it will have to arrange funds for higher spending to create more job opportunities and push up the economic activity.

There will be some political squabbling, a sizable package is needed to help the small businesses and individuals ride out the storm and, presumably, aiding a healthcare system that is likely to see huge strains in the months ahead.

Longer-term the economy will recover, as the effects of the virus fade and the economy adapts, to some extent, to a new more socially distant reality. And it may foster a new, broader commitment to public health as we come to the realization that the health of any one of us depends, to some extent, on the health of all of us, both in India and around the world.

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