Normally, during stresses as severe as these, a large number of nations, economies, political systems and institutions fail and give rise to new structures for the better or worse.
The COVID-19 pandemic has unleashed a wave of upheaval across the globe, unseen in living memory. Even World War II did not affect so many countries simultaneously.
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On medical front, the remedy--curative or preventive--is still illusive. On the political and economic front, the crisis is likely to leave a trail of destruction similar to the ones seen after World War I, The Great Depression, and World War II. These historical events of the last century were the global stress tests which exposed several fault lines in the political systems running the world back then.
The COVID-19 pandemic may turn out to be a stress test of similar gravity. Normally, during stresses as severe as these, a large number of nations, economies, political systems and institutions fail and give rise to new structures for the better or worse. Rise of communist Russia, Nazi Germany, decline of Britain and emergence of USA as superpower, liberation of several colonies, and formation of the United Nations some of the developments triggered by the stresses of the above major events of the last century. COVID too will extract its toll on the political and economic hierarchy of the globe. Political commentators have already begun terming it as WW III or the onset of a second Cold War.
History shows that the competition amongst the powerful nations have eventually culminated in a war.
The rise of China at an unprecedented speed in the last four decades and its ambition of becoming No.1 superpower have given rise to speculation for some time that USA, the incumbent superpower, and China, the aspiring superpower are going to get involved in some kind of serious ‘tussle’, which may have global ramifications.
The tussle had been avoided so far because of unique symbiotic relationship both the countries had developed in last few decades. Historian Niall Ferguson, in his ‘Ascent of Money’ in 2008 termed this unique relationship as ‘Chimerica’ – taking analogy from a mythological beast - half lion, half goat – meaning thereby that the two economies may be considered a single economy where Chinese savings were funding American consumption through huge parking of dollar reserves by China in US Treasury Bonds and American consumption, in turn, was powering China s export led growth through excessive purchases of Chinese goods by American consumers.
Ferguson, however, believed that if this relationship breaks it will harm both countries and the world. The relationship has definitely come under stress in the last few years. The ‘tariff’ and COVID issues have worsened the matters.
Conspiracy theories have already started circulating and so has the blame. As it happens always, after major global disruptions there will be few winners and few losers. Winners will be those who will be able to convert the crisis into opportunity.
The distrust developed amongst major powers such as US and Japan for China and the fragility of the highly China-centric global supply chain exposed during the crisis are preparing the major economies to diversify the global supply chain.
The escalating geopolitical tensions especially in South China Sea may also accentuate this shift. Japan has openly announced incentives for its companies to shift base from China. There is also growing resentment amongst various countries towards China for taking advantage of this crisis by acquiring the shares of stressed companies. In this background, where a large number of developed economies are becoming uncomfortable with China which is contributing almost a third of global manufacturing, India is having an opportunity of its lifetime to emerge as one of the winners from the crisis.
For attracting global manufacturers, India has certain inherent advantages such as a large, cheap and diversified work force; a developed capital market; large domestic consumption and above all a democratic set up with rule of law. India has proven credentials in IT services, pharma and engineering. Therefore, diversification of global supply chain may throw up opportunities for India to become a ‘manufacturing hub’.
Having said that, it will be appropriate to caution that our future development strategy should not be dependent only on above possibilities. We should also fully tap domestic potential to be more resilient to the global shocks. It is why the Prime Minister has highlighted the importance of ‘local’ and urged to be ‘vocal’ about ‘local’.
Deficient infrastructure in the country throws huge opportunities for growth, employment generation as well as overall productivity gains. Collaboration with Japan may be a game changer. There cannot be a better time for this, when Japan wants its companies to shift from China and both the Prime Ministers enjoy a strong bond.
This is also a time when India can make a special effort for attracting foreign portfolio investments. Global capital is already favourably inclined towards India in the long term, thanks to falling yields everywhere else. The investment by likes of Facebook and leading private equity players in Jio amply demonstrate the global appetite for successful Indian businesses.
Further, the global pension fund industry including Sovereign Wealth Funds (SWF) has a potential to amplify portfolio capital flows into India. Globally, pension funds is a $50 trillion industry, and even a share of that pie will be a game changer for Indian markets.
There is no denying to be able to capitalize on these opportunities, we need some big-ticket reforms, especially in the area of land and labour. But sometimes crises for the foundation stones for major reform initiatives.
The biggest advantage of India at this point of time is its firm and decisive leadership. The announcements of the last few days show that there is a sense of urgency that will change the narrative for post-Covid India from ‘survival’ to ‘revival’.
The writer, Rajeev Agarwal is a former whole-time member of the Securities and Exchange Board of India. The views expressed in this article are personal.