Deepening partnerships and minimising the trade and economic impact
By Sachin Chaturvedi
Prime Minister Narendra Modi’s proposal to engage with SAARC member countries and leaders through videoconferencing for chalking out collective strategy for combating the coronavirus outbreak is a very timely and laudable initiative. This truly reflects the spirit of the G20 statement which said that the G20 countries will enhance cooperation and coordination to control the outbreak, protect people, mitigate the economic impact, and maintain economic stability. It, indeed, shows how the leaders at the global level articulate positions and how best regional cooperation may help cope-up with the crisis.
The challenge seems to be deepening on all fronts. The globalisation that was already grappling with the rising nationalism is now facing a much greater crisis of global governance. In this respect, the key question is how the world organises itself, as trust deficit has multiplied many times, particularly when economic challenges have deepened.
Amidst collapsing share markets, economic impact studies are pouring in from all sides. All have their own take and prescriptions. The announcements from the US of travel and other restrictions in engagements have, however, accentuated panic and fear across the global trading system. According to the OECD report on COVID-19, the GDP shrinkage might be 4.5% and unemployment may go up by 7%. In this study, two shocks were given: 4% in Q1 and 2% in Q2. The shrinkage in the global GDP is estimated to be close to 2.4%. It is also reported that, globally, almost 4,000 flights are affected and several goods consignments have missed their timelines.
It is in this respect that the role of central banks assumes greater significance. Central banks have come forward with different approaches. The US Fed has generously supported liquidity through treasury bills of the magnitude as high as $7.49 billion. Along the G7 statement, the Bank of Japan has suggested close monitoring of the unfolding payments crisis, while People’s Bank of China (PBC) has lowered MLF (Medium-term Lending Facility) and LPR (Loan Prime Rate) by 10 basis points. The PBC has also proposed a provision of RMB 300 billion for banks in provinces where the epidemic has gone above a particular threshold, in terms of its economic impact. The budgetary allocation of 12 billion pounds, by the British government, has been supplemented by the Bank of England with a cut in interest rates by half a percentage point to 0.25%. The ECB has come up with a list of similar suggestions for EU economies.
With China being a major trading partner for most global economies, there is a major blow as supply chains are getting fragmented. The coronavirus impact in China and the resultant shutdown signals the potential scarcity of pharmaceuticals across the world as China caters to 40% of global demand of APIs.
While auto, electronics, chemicals are prominent sectors likely to be affected, we focus here on the possible imperatives for Indian pharmaceuticals. Of India’s global API imports worth $2.7 billion, $1.5 billion (56%) comes from China alone. Also, in India’s global imports of medical devices worth $5,502 million in 2018-19, China contributed $614 million (11.2%). In high-tech medical devices including preparations for X-ray examinations and diagnostic reagents designed to be administered to patients, India’s import dependence on China is too high. In this category, India’s global imports were around $43.38 million in 2018-19, of which China alone constituted $32.47 million (75%).
Taking account of the gravity of the situation, India must increase domestic production of face masks and medical gear. It is an opportunity for India to cater to the growing world demand for face masks and other medical devices, especially from the US and the Philippines. Also, India must build adequate domestic capabilities in this industry through investments in scientific human resources, R&D, standards and quality control, and technological upgrade.
Global public goods
Global leadership must take a call on what Prime Minister Narendra Modi has suggested in the regional context. As is clear, nationalism is no solution to this major crisis at hand. Together, we need to move on creating global public goods. They are required to be strengthened and nurtured, particularly in the realm of connectivity, supporting national medical and other specialised capacities, and collective R&D efforts.
Supporting global evacuation missions requires greater efforts at this point. India has undertaken some initiatives that should be scaled up further, of course in partnership with other countries. Under its six evacuation missions, India evacuated 1,031 persons including 48 nationals from other countries such as Maldives, Myanmar, Bangladesh, China, the US, Madagascar, Sri Lanka, Nepal, South Africa and Peru.
The world needs several initiatives of this nature, at the global level. Supporting each other for improving infrastructure to meet the national challenges is equally important. India also sent teams of senior doctors and scientists to Male and Tehran for expert-led crisis management. This is in continuation of India’s larger global efforts within the framework of South-South cooperation. Going beyond South, India also sent a team of four doctors from the Ministry of Health to Rome with sufficient material and reagents to collect samples of Indians there for onward testing in India. Most of this comes from India’s own experience. The ICMR has expanded the testing capacity for the virus to 52 labs now.
Collective R&D efforts should be the top-most priority. India has sent scientists, equipment for labs, reagents, and brought back samples for testing to the country. So far, 1,199 samples have been collected in Iran and brought to India for testing. The recent development of isolating the coronavirus by scientists at the National Institute of Virology (NIV), Pune, is very encouraging. As reported, they have been successful in getting around 11 strains isolated. The strains are a prerequisite for conducting any research related to viruses. Such collective efforts must lead to light at the end of the tunnel engulfed by the darkness of COVID-19, and show the way out to overcome the menace.
The author is director general, Research and Information System for Developing Countries (RIS), a think tank. Views are personal