Worst recession since the 1930s Great Depression: Tata Sons Chairman on Covid-19

N Chandrasekaran, Chairman, Tata Sons, in his article on professionals’ platform LinkedIn -- “A World on Pause: The State of the World and India during COVID-19” mentioned that there are more than 2.7 million Covid-19 cases in 185 countries as of now. In just the last fortnight, over a million new cases have been found. Its spread is unmatched by any respiratory virus in living memory. SARS took 130 days to infect the first 1,000 people. MERS took 903 days. Covid-19 took all of 48 days.

Chandrasekaran noted that in less than four months since the virus was discovered, the global epicenter of the virus has shifted from East to West, from China to Italy, Spain, Germany, France, UK, and then to the US. He stated that to date, almost 70 per cent of all global cases have occurred in these seven countries. And more than 30 per cent of Covid-19 cases have occurred in the United States.

Coronavirus grip on India

The Chairman observed that India has only 0.9 per cent of global cases and 0.4 per cent of global deaths. The good news is, at least some part of the significant rise in new cases can be attributed to rapidly expanding Covid-19 testing. Nearly 13,000 samples are tested daily at present, and authorities plan to increase testing capacity to 100,000 tests per day.

He analyzed that in India, economic conditions were already weak heading into the health crisis. With the nationwide lockdown, India estimates a loss of nearly a third of output for the current quarter. In annual terms, these calculations imply a 7 per cent hit to GDP in FY21, suggesting slightly negative to flat annual growth. The quarter ending in June is likely to bear the brunt of the lockdown, and the September quarter may also see negative GDP growth.

However, he remained hopeful and said that Indians could expect a gradual and staggered global recovery in the latter half of 2020, once economic activity starts returning, and when newly infected cases fade, and physical constraints and lockdowns can be gradually unwound. However, if Covid-19 returns in waves, the recovery will be under threat.

Bridgital approach

He suggested that India can use this critical moment to implement digital interventions that would make it easier for people to access services on the one hand and create millions of new jobs for people who can act as digital intermediaries on the other. This is what we call the Bridgital approach: An intentional design for Fourth Industrial revolution technologies (AI, machine learning, the cloud, IoT, and so on) to solve for both access and jobs simultaneously. By 2030, our farmers, teachers, doctors, truck drivers, and judges could be using the invisible net of technology to make India a better, easier place to live.

He further informed that a thriving environment of local businesses is key to the revival. India needs many more SMEs, each of whom may not individually hire many people, but that collectively can provide a quantum of access and employment that the country needs. And they need to be spread across the country—not just in the major economic centers.

In a world that is more inward-focused, this would be a blueprint for turning India’s domestic access challenges into an engine of domestic job creation—on the order of 30 million jobs positively impacted, he stated.

Unprecedented measures

Tata Sons chairman believes that the virus was originally thought to be no more dangerous than the seasonal flu, but the human cost it has exacted has forced governments to take unprecedented measures. That’s partly why the global death toll— 190,000 so far, a fatality rate of 7 per cent—hasn’t been far greater. Besides government containment and mitigation measures, demographics, and healthcare system capacity determine the wide band of fatality rates across geographies—13 per cent in Italy, 5.8 per cent in the US, 5.6 per cent in China.

While the news so far has been grim, there’s increased talk of a reduction, if not a flattening, from some parts of the world.

He warned that due to the extended lockdown, there’s the inescapable fact that the global economy’s deep recession will have a profound effect on jobs and emerging markets.

He wrote that this is the worst recession since the 1930’s Great Depression. He stated: “We expect 2020 Global GDP growth to fall between -2.5 per cent and -3 per cent (lower than -0.1% growth in 2009 during the global financial crisis). Every major advanced economy is likely to see a contraction in its output in 2020. Real GDP growth in the US is expected to contract anywhere between -5 per cent and -6 per cent, UK -6 per cent, and Japan -5 per cent.”

Chandrasekaran mentioned that the job market fallout could be very severe in this economic downturn. In the US, nearly 26 million workers have already filed for unemployment claims in the last five weeks alone, wiping out almost all the jobs created since the 2009 crisis. The unemployment rate in the US is likely to increase to 15% in the next few months from 4.4% in March. This is the highest unemployment rate in the US since the Great Depression (24.9% in 1933), he warned.

People may travel less and assess risk differently. We will see a far sharper focus on healthcare systems as national assets, as well as more health and safety features incorporated into product design.

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