POVERTY MAY RISE, WAGES TO BE CUT
India, like the world, faces a deep crisis as shipping charges reach critical highs and lows amid less known impact of corona and government revenues slump. It may impact trading and governance costs.
The global G20’s $ 5 trillion package, US congress $ 2.2 trillion domestic package, Australian $ 189 billion rescue offer, Indian package of Rs 1.7 trillion (lakh crore), UK’s self-employed pound 2500 a month income support scheme and many more, the world is gearing up to fight the predicted downturn.
The UK scheme is stated to cover 95 percent; the Indian about 55 percent population or 80 crore people – largest in the world. It is varied as it covers women, registered labourers, MNREGA wagers, self-help groups and farmers and is laced with free 5 kg wheat and rice for three months.
The RBI has meanwhile infused Rs 1 lakh crore liquidity through short-term variable repo-auction. It would infuse funds to the banks. It cuts repo rate to 4.4 percent. The FM and RBI together give about Rs 2.7 lakh crore or about 1.5 percent of the GDP.
Together different schemes aim at sustaining the most vulnerable people of the world.
The G-20 announcements with US President Donald Trump, Russian President Vladimir Putin and Saudi Arabian King Salman come amid 21000 covid-19 deaths and over millions people locked down in the west, in addition India’s over a billion.
The US plan to ensure $ 1200 each direct payment to those who earn up to $ 75,000 with an additional $ 500 per child. It may benefit 90 percent of Americans.
One significant aspect, unlike the 2008 Lehman sub-prime crash incentivisation, it so far excludes the corporate.
Even Finance Minister N Sitharaman’s package is silent on corporate packages. The Rs 15,000 crore health package, however, would help industries producing various medical aids.
The packages indicate that overall poverty or problems of the working classes have increased during the past over a decade. Their savings are at stake and the cost of living rose manifold. Various UN and World Bank reports indicate it.
France and many other European countries had been facing people’s ire against severe and harmful bankisation of the economies. The lowering of interest rate on saving, rising fees and taxes are causing discontent.
Even the Economic Survey 2019-20 speaks about the problems in India.
The lockdown in India is hitting public and private sector companies.
Transporters are severely hit. Most airlines in India have announced 15 percent wage cut. The government has come out with advisories to employers to pay wages. But as lockdown hits their income, it may not be easy for many to meet the commitment. The finance minister’s package may take care of that for the most vulnerable section for three months.
The global and domestic Indian packages are aimed at boosting sustenance as well expenditure by people by consuming more. The manufacturers are expected to benefit through higher consumption and rise in sales.
How India would benefit from the G-20 stimulus is to be seen. Leaders are quick to meet online. But it will take time for the situation to normalize. On March 26, the rating agency Moody’s estimates the G-20 GDP to contract by 0.5 percent, the US by 2 percent and the Eurozone by 2.2 percent.
Moody’s revises India growth from 5.4 to 5.3 percent in 2020. The S&P predicts it at 5.2 percent.
A silver lining is that current account deficit even as corona was hitting the world reduced to 0.2 percent of GDP or $ 1.4 billion as trade deficit comes down to $ 9.8 billion in February, according to RBI data on March 12. Out of the 30 major items, 16 export items and 14 imported goods expanded in February. Imports rise by 2.5 percent but petroleum imports come down.
However, the scenario may change as the world is in lockdown uncertainty. The airlines have grounded and ships are anchored. The shipping industry hit by lockdown has approached the government for relief. Ports are hit by steep drop in volumes owing to global slowdown.
Maritime industry is further hit by rising freight rates and overall weak demand. Shipping charges have increased since January as the new International maritime Organisation (IMO) 2020 low sulphur regulation and higher charges came into vogue. This is to impact world trade even beyond corona.
Commodity prices are to rise as selling prices include FOB (free on board) in most cases. It may spike oil prices too despite the silver lining of a 30-year-low of around $ 30 a barrel. Even inland or coastal shipping charges may go up, which now the Indian shipping companies are pining for their survival.
World Trade Organisation statistics show merchandise trade slumped by 0.2 percent in the third quarter of 2019. For 2020, it says growth may fall further.
The drop in the WTO barometer since November has been driven by additional declines in indices for container shipping (94.8) and agricultural raw materials (90.9), as well as the plateauing of the automotive products index (100.0). However, the Goods Trade Barometer will be influenced by the economic impact of COVID-19.
Different government packages have their economic and social costs. The corporate packages that ruined the post 2008 economies may follow. In a world of production holiday, problems are to mount. Nobody gives wages or packages for free. The G-20 or individual nations are facing revenue contraction.
Those enjoying working from home or suffering wage losses may have grimmer future. Strangely enough India’s rich except few exceptions, corp, movie or sport heroes have not offered a bit from their pocket.
There is nothing like a freebie. Interest cuts and some wage cuts have already been announced. Even some national governments are finding it difficult to pay or delaying salaries.
Most governments have not announced any cut or relief in taxation. Despite that revenue realizations are to slump and hit health and other welfare measures.
People of the world would face lower interest earnings, higher commodity prices, bank charges, rail and transport fares, taxes, tolls, physician’s fees, tuition fees and many more. As the people and governments are likely to lose the large companies would want more pound of flesh.
Amid rise in world poverty, fall in government revenues, corona coming as great leveler, may change contours of economy and politics. India would not be an exception. A relook at lockdown is needed.