Coronavirus is the most devastating medical crisis and global economic global catastrophe of 2020. India cannot escape the greatest medical-cum-economic crisis this fiscal. Covid19 has already created a severe global recession. Even earlier, Europe and Japan verged on recession while India’s GDP growth had halved from its peak.

This leaves little resilience to meet the coming hurricane. The world economy will go into recession due to the pandemic, with the exception of India and China, according to the latest United Nations report on trade. Two-thirds of the world living in developing countries are contending with unprecedented economic damage.

The United Nations Conference on Trade and Development has called for a $2.5 trillion rescue package for these nations. According to UNCTAD’s analysis, commodity-rich exporting countries will face a $2-$3 trillion drop in investments from abroad in the next two years. Advanced economies and China have put together massive government packages which, according to the G-20, will extend a $5 trillion lifeline to their economies.

“This represents an unprecedented response to an unprecedented crisis, which will attenuate the extent of the shock physically, economically and psychologically,” UNCTAD said. While the full details of these stimulus packages are yet to be unveiled, an initial assessment by UNCTAD estimates that these will translate to $1-2 trillion injection of demand into major G-20 economies and a two percentage point turnaround in global output.

“Even so, the world economy will go into recession this year with a predicted loss of global income in trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India,” UNCTAD said. The report, however, did not give a detailed explanation as to why and how India and China will be the exceptions.

Further, given the deteriorating global conditions, fiscal and forex constraints are bound to tighten further over the course of the year. UNCTAD has estimated a $2-$3 trillion financing gap facing developing countries over the next two years. To mitigate Covid-19’s economic fallout, UNCTAD has proposed the following steps: 1) A $1 trillion liquidity injection for those being left behind through reallocating existing special drawing rights at the International Monetary Fund. 2)A debt jubilee for distressed economies under which another $1 trillion dollars of debts owed by developing countries should be cancelled this year. 3) A $500 billion Marshall Plan for health recovery funded from some of the missing official development.

The speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 financial crisis, UNCTAD said. “The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” UNCTAD Secretary- General Mukhisa Kituyi said.

Advanced economies are discovering the challenges of dealing with a growing informal workforce, amplifying their difficulties in responding to the crisis. “Advanced economies have promised to do ‘whatever it takes’ to stop their firms and households from taking a heavy loss of income,” Richard Kozul-Wright, director of globalisation and development strategies at UNCTAD, said.

“But if G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity’, there must be commensurate action for the six billion people living outside the core G20 economies,” he added. Let us hope that coronavirus will not be as bad as the Spanish flu that infected 200 million and killed 50 million in 1918-19- more than all-combat deaths in World War I.

No vaccine or cure existed for Spanish flu, just as there is none for coronavirus though active research is being conducted with positive results. It will keep spreading till it naturally dies out like other epidemics. In the best-case scenario, the virus may last one quarter. Lakhs of individuals and businesses will die, but many economies could revive by the end of 2020. In this best-case scenario, the world and India will suffer a short, serious but not catastrophic recession. In the worstcase scenario, the virus will spread havoc for a year.

In that event, billions might get infected and tens of millions might die. However, most experts predict just 0.5 million deaths. Still, the economic disruption will be enormous, possibly as bad as in 2008. Most analysts have focused, rightly, on the human tragedy. But the economic consequences may be as bad. The first-round effects are already clear.

When China locked down Hubei province, the source of the virus, this disrupted global value chains in industrial production, especially electronics and pharma. The world prepared for a trade shock. India restricted the export of some medicines to avert shortages. The OPEC agreement fell apart and the price of oil crashed, threatening the oil and associated industries including automobile, especially small players. Then came the massive strangulation of activity by governments to quell the virus.

Movement was slashed or banned in entire countries starting with Italy. The US banned visitors from 26 European countries, and will surely expand the list. India stopped visas to tourists and automatic clearance for NRIs. Country after country is enforcing isolation. Mass meetings ~ the Tokyo Olympic Games, IPL in India, football World Cup, National Basketball in the USA and other sports spectaculars have been or will soon be cancelled. Entertainment and restaurants have been vivisected: New York has closed the Broadway shows.

In many countries, the assembly of over 100 people is being limited or forbidden. This may look like panicky overkill, but no government wants to be accused of letting people die. India teems with festivals and pilgrimage sites where lakhs participate. Vaishno Devi, Triveni, Tirupati and other sites get millions of pilgrims every year.

Will the government close them all, or let them become hubs of a killer infection? What about Durga Puja, Diwali, Ganesh Chaturthi and other mass festivals? Official bans will be politically difficult, and impossible to implement. The lesson to be drawn is that India is a major global risk centre. Hopes that the high Indian temperature in summer will kill the virus look exaggerated. Tropical Singapore and Philippines are already victims.

Shutdowns and lockdowns will wreck industries ~ airlines, road and rail transport, films, music, sports, advertising, media (which depend on advertising), shopkeepers and hawkers, tourism, and many more. If consumers cut consumption by no more than 5 per cent to avoid infection, that will suffice for a world recession.

Consumer durables are highly vulnerable since people can easily put off their purchases. For safety, people will go out less, shop less, and stay home watching TV and video. This crash in activity will affect every nook and corner of the economy. The recession that follows can cause thousands of bankruptcies (oil-related sectors are particularly vulnerable) that may make recent years look like a picnic.

Corporate debts have stayed high after 2008, so the global and Indian financial systems are again in danger, even as they struggle to throw off the bad loans and mega-losses of the past. Millions will avoid going to work because of fear, bad health or lack of transport. This labour shortage will hit the supply of services and goods. Conventional recessions can be tackled by loose fiscal and monetary policy.

These will not work when fear drives the slowdown. In many countries interest rates are already close to zero, so central banks have lost their power to stimulate through big rate cuts. The RBI could cut interest rates by as much as two per cent, but will that revive lending when recession and fear are killing businesses? The moribund financial system will blunt all fiscal and monetary initiatives.

(The writer is author of World Trade Organisation: Implications for Indian Economy (Pearson Education) and is retired senior professor of International Trade. He may be reached at vasu022@gmail.com)