Background

Towards the end of December, everything was hunky dory, throughout the world. The world was enjoying Christmas holidays and there was a busy travel, sporting season ahead. Many plans were made, many itineraries chalked, many seminars fixed, heads of Governments’ meetings fixed. It was business as usual. Many of the Corporates following calendar year were busy finalising plans for the ensuing financial year, until a tragedy struck in the form of COVID-19 taking everything for a topsy turvy, proving the adage man proposes God disposes.

The outbreak of covid-19 was identified in Wuhan, China, in December 2019. The World Health Organization declared the outbreak to be a Public Health Emergency of International Concern on 30th January 2020 and recognised it as a pandemic on 11th March 2020. WHO woke up to the enormity of the crisis very late, thereby causing great damage, wherein better preparation could have been taken by the member countries, if they had been forewarned of the enormity earlier. Many suspected that the delay was due to the clout enjoyed by China with WHO, which did not want its image to be tarnished in the world.

The delay in information cost the world a lot by way of rapid spreading of the disease throughout the world forcing nations to implement nation-wide lockdowns and introduction of emergency measures.

Measures Adopted to combat the spread

Authorities worldwide responded by:

1. Implementing both local and international travel restrictions.

2. Quarantines,

3. Curfews and stay-at-home orders.

4. Workplace controls, closure of business establishments, factories etc

5. Intermittent checking, social distancing and avoiding public contact.

6. Cancellation of all conferences, sporting events, meets of heads etc.,

7. Closing places of worship, mall, markets etc.

Effects of such measures

1. Postponement or cancellation of sporting, religious, political and cultural events causing heavy financial loss.

2. Widespread supply shortages further aggravated by panic buying.

3. Cancellation of travel plans thereby leading a body blow to travel and hospitality industries causing great damage to countries dependent on such industry.

4. Schools, universities and colleges have been closed, thereby causing untold disruption in academics and their future plans causing financial loss.

5. Closure of factories, business establishment, layoff of employees, affecting employers and employee’s livelihood and setting back expansion plans.

6. Share markets were severely affected wiping off the wealth of investors amounting to billions of dollars worldwide and reducing the valuation of companies to a fraction of earlier values.

7. Severe strain on health care professionals and health care industry leading to increased casualties and pressure on treatment procedures.

8. Banks were affected due to stoppage of business, layoff of workers leading to doubts in recovery of loans and debt commitment thereby casting a doubt on their profitability.

9. Severe stress to insurance companies and non-banking finance entities.

10. Many of the international and local airlines are facing the prospect of bankruptcy.

Governments are facing the prospect of falling tax revenues due to slackening of activities and increasing   public spending.

Overall, the vitals of economic activities of all nations around the world were severely affected. The pandemic has caused severe global socioeconomic disruption, leading to one of the largest global recessions in history.

Role of China in the pandemic

Now let us analyse the action and reaction of China where the virus originated.

A global pandemic is not a blind force of nature, independent of human agency.  It happens when there is an absence of accurate information about the virus and its characteristic. There was belief among international experts that China deliberately delayed informing the world about the pandemic and also sharing information about the pathogen.

Further, China was also lax in regulating its food industry and markets when compared to world standards —in this case, abject failure to regulate food and marketplaces to prevent the transmission of virus.  Chinese Government is not accountable to its people and their voice does not mean anything to them. Further it did not even notify WHO of the pandemic nature of the disease thereby causing delayed response in arresting the same. Many a valuable life could have been saved.

Further the same laxity was shown in the failure to shut down transportation and control movement, once the disease started spreading. Travel was allowed without any checks and balances. This helped in the rapid spread of the disease throughout world catching most countries off guard. The best that could have been done was to avoid international and local travel.

Whistle blowers in China were ruthlessly dealt with, information was fudged, statistics were also fudged (nobody believes in the statistics of communist countries), the enormity of the disease was denied and the voice of its people was stifled, stoking suspicion among the comity of nations.

It is an accepted fact that national interest prevails over that of anything else. In the present situation when the world was battling the enormity of the disease, China went about its business as usual, as if nothing wrong had happened.

Vietnamese boat was sunk in South China sea, boundary problems was raked up with Taiwan, Malaysia, India and with most of the countries surrounding its borders. It further reinforced the suspicion that China was asserting its power during the global crisis and wanting to gain an undue advantage out of it.

This suspicion was further strengthened, when China offered medical supplies to the affected nations, almost, as if, it knew that such a crisis would happen. Every path of the mistake, leading to its doors, was aggressively denied and they started blaming USA, FRANCE and ITALY AS THE ORIGINATORS OF THE DISEASE.

This strategy of China will backfire. More so, due to the fact that an undue advantage was sought to be derived by it, militarily and commercially during the global crisis of such enormous magnitude.

The comity of nations does not trust China anymore. This will lead to more alliances of affected nations.  Nations who have entered into deals with China will also start having a relook and in fact many have started to have a relook at the commercial and strategic cost of such deals which impinge on their sovereignty.

Not only this, Chinese investments companies started investing in valuable companies across the world at stressed values forcing many of them to bring in legislations to avoid such opportunistic buyouts. USA, Europe and India are some of them who have introduced legislation against such buyouts.

China does not have many sympathisers in the world. It does not act by any set of international rules. It observes the rules, if it favours it, otherwise it will follow its national interest which a detriment to the comity of nations.

The European union states have started bringing in legislations to thwart the Chinese march. Japan has plans to shift its industries from China AND IS OFFERING FINANCIAL STIMULI TO DO SO.  South Korea has also started shifting their industries.  Apple and other companies from America have moved out due to rampant data theft from Chinese hackers. The honeymoon with Chinese cheap labour has ended.  The figures released by Chinese Government also shows that their GDP has come down.

China GDP Growth Rate – Historical Data

Year        GDP Growth (%) Annual Change

2018        6.60%                             -0.16%

2017        6.76%                               0.02%

2016        6.74%                              -0.17%

The growth for 2020 will be much lesser because of covid crisis.

China has invested very heavily in infrastructure projects in other countries in order to extend its reach and they are capital intensive.  In the backdrop of recession in the global economy many of such investment may come a cropper. Further, China is also spending heavy money in capex projects for its army, navy and air force which does not give instant returns and may be a further burden on its national economy.

There is thus a feeling that the honeymoon period with China has ended and the nations may be on the lookout for alternative source of investment other than China.

India as an alternative

Now let us look at how India can position itself as an alternative to China and how India can emerge as a global leader in restoring the global economy and be the next business hub of the world.

Indian government has already taken steps like reduction in rates of Income Tax, rationalising GST, creating manufacturing corridors  and relaxing regulations needed to start business in India and it has  taken a series of steps in ensuring an optimal balance between hassle-free business transactions and operations, inside the country and cross-border alike with increased accountability and transparency.

Let us a weigh the pros and cons that India would face in reviving its market and the global market:

Pros

Democratic Governance

India is the largest democracy in the world wherein Government is the representative of people of the country. Democracy ensures better accountability and increased information being available by the Government to the other stakeholders of the Indian Economy.

Large and Young Workforce

India is the second most populous country in the world with the median age of around 27 years. By imparting adequate training and soft-skills, the population can be converted to a ‘young, efficient and productive’ workforce.

Agricultural Economy

India is predominantly an agricultural economy wherein agriculture contributes to an approx. of 18% of the GDP and employs an approx. of 52% of the population. Hence, it is safe to say that, India is self-reliant with respect to essential food items.

Penetration of Information Technology

India is the second largest online market in the world. It is estimated that around 600 million users having access to internet can be seen in India by 2021. The nation-wide lockdown has further increased the online entertainment industry in the country by a manifold.

Convergence with IFRS and DTAAs with other nations

With the stage-wised implementation of Indian Accounting Standards (Ind ASs), Indian financial reporting process is in line with the International Financial Reporting Standards (IFRS). This helps in better understandability and comparison of financial statements of companies by the users of financial statements. Furthermore, the Indian Government has entered into Double Taxation Avoidance Agreements with 88 countries across the globe, thereby reducing the cross-border taxation complexities and enforcing transparency in cross-border business transactions.

Infrastructure and Defence Projects

Spending by the Government on Infrastructure projects has increased in the recent years. Projects concerning highways, Modern and Advanced Storage facilities, Waterways, Airways are being aggressively undertaken.

Yoga, Meditation and Ayurveda

The above practices have been followed in India since time immemorable. These essential activities ensure optimal mental and physical health which are much needed in balancing the work-life and personal life of an individual. India can be positioned as a supplier of spiritual health provider.

Robust and Vibrant Media

The Indian media is independent and robust thereby effectively checking the actions of the Government and acting as the voice of the people.

Medical Diplomacy

During the recent covid crisis India has selflessly provided medical supplies to countries in need without looking at profit even when its own population needs them thus earning the respect of nations.

Extraction Diplomacy

During many an international crisis including covid crisis, the Government of India has extracted its citizens and other foreign national through its military and civil planes thereby earning the grudging respect of nations.

Cons

Ease of Doing Business

In 2019, India ranks 63rd (a jump from 100 in 2017 and 77 in 2018) among ease of doing businesses in the world while China ranks 31st. Though, on paper, it may seem that business can be started and terminated easily in the country, in spirit, it is not so. Incorporation formalities, Project approvals and obtaining sanctions from Government is time consuming. Furthermore, cost of statutory compliances in India is on the higher side.

History of Government’s hostility towards businesses

Post-independence, India has been quite hostile towards the business class and favouring the employee sector of the population. While it is a good strategy concerning the vote bank, it is a folly that the Government has failed to realise the bigger picture. Business entities generate GDP, revenue, employment, contribute to employee self-reliance and also reduce income inequality. “An unproductive and unemployed population is an additional burden on the Government.”

Efficiency of the Indian Workforce

Indian workforce, at large, with a few exceptions, is nowhere close to the efficiency of the Chinese workforce. For example, from issues pertaining to sanctioning of a project to time taken in constructing an infrastructure or achieving the desired economies of scale in manufacturing and production sectors, India has always underperformed in comparison with China.

Percentage of Agricultural Yield

India’s crop yields are lower compared to those of the United States, China and Europe. The only solution for this is in use of modern machinery and organic farming in the areas of agriculture and allied activities.

Fake Media Propaganda

India has problems pertaining to fake media and paid media propaganda and low ethics in journalism which spread false and biased information in almost every aspect of the Indian society from religion till economics.

Summary

The advantages offered by India are many.  Unlike China, India is a follower of world order and has no intentions of land grabbing and hegemonistic tendencies. India is also entering into strategic alliances with Quad Countries and Pacific Ocean rim countries and is also following a neighbourhood first policy.

After the covid crisis, the way India managed to contain the spread with timely solution and aggressive acts by the Government has earned it, the respect of the comity of nations and is being seen in an entirely different prism.

Stable Government, Vibrant financial markets, active market regulator, Independent Judiciary, Independent media a strong accounting regulator and the Central Bank are all playing their designated role in ensuring that the rule of Law is being followed which makes India an ideal destination.

Many countries which are planning to quit China have made India as their next destination and we may see many more countries also in the pipeline for shifting their investments to India.

In India, the segments which are of paramount interest would be, Software, Pharma, Diamond, Jewellery, Defence, Engineering and Service Industry, Education, healthcare and hospitality Industry.

Though Real Estate Industry is going through a recession it may not be for long. With shifting priorities of the world order, the industry will grow with a little help from the Government since it, is a labour-intensive industry and Government cannot ignore its investment potential.

The outlook for present business is to hold their capex for some time, improve efficiency of production and enter into partnership with entities across the world in a bid to bring in economies of scale and cutting down wasteful expenditure and to adopt AI tools to improve business.

Indian business will do well to find alternate sources for raw materials needed in order to break the hegemony of cheap Chinese products since China works on the Godfather principle. The God father gives in the beginning but sucks your life in the end.

With the Governments stated intention being to improve infrastructure across the country, the sector offers enough scope for employment.

After the current pandemic, the following trends are expected to happen across the world:

1. People and businesses may not be so welcoming of international tie ups.

2. A temporary but rapid change in the supply chain management and operations of businesses at the global level.

3. Citizens of each country would demand and enforce greater accountability from the Government and regulatory authorities.

4. Furthermore, Governments of every country would expect the same from the governments of other countries on which they have shared supply chain operations and economic tie-ups.

5. Changes in the alliances and diplomatic stance among the nations. Furthermore, amendments such as additions, changes or cancellations in the MOUs, MRAs, treaties between nations are expected in the areas pertaining to FDIs, Tax provisions, defence contracts, etc.

Easing of bank rate of interest on lending, friendly tax laws and a responsive Government will be able to position our country as a welcome and safe destination for doing business. Already financial stimulus package has been announced, NPA norms have been factored for covid crisis, banks have been told to be more forthcoming in extending credit, with a stable Government and a strong-armed force, the lure of India as an investment destination cannot be ignored.

However, suffice it to say that since India has earned the admiration and respect of the nations, the above said issues may be sorted to mutual satisfaction and a new world order may just be around the corner wherein a major role for India is envisaged.

Article by

1. CA. K S Sridhar

2. CA. Rakshith S Chakravarthy

Tags:

Author Bio

More Under Corporate Law

11 Comments

  1. Anitha Chakaravarthy says:

    Well written!!! Good analysis! The
    article has emphasized on critical aspects! Rakshit’s analysis at such tender age is appreciable! Keep going!

  2. Krishna kumar says:

    Inforamative article thankful to sridhar and rakshit article covered pre and post effects of corono19 also it has been briefed about history of this pandemic effects of work force detailed very nicely. personally as a Banker Effects of implication of moratorium in NPA concept is educative hopefully v keeping our finger crossed for positivety of economy

  3. Venkat says:

    A really well written article, which not only talks about Carona but also give various issues about the difference between Indian and Chinese worlds

    Most importantly the step motherly treatment of Industries n India, only appreciation and support can make MSME and other Industries in India a strong Industrial nation

  4. K. L Sudarshan says:

    Sridhar sir and Rakshith, very good article & informative, aspects & threats to overcome let’s hope for the best and business should flourish. As mohan sir, mentioned government efforts is also important.
    Thanks

  5. Mohan Kumar says:

    The article is very informative. Bothd main the authors have discussed in detail the complete gamut . Government s effort should be in the right direction and there are cases or tendencies to drift from the right direction. Both Sridhar and Rakadhit have brought out the salient aspects and the threats to overcome .
    Very good article .

  6. Dr Manjunath says:

    Nice article, very clearly explained the current covid19 scenario in all aspects without any confusion to reader and you would have thrown little light on responsibility and role of all industrialists in this crisis and ur good myopic vision, gives a hope and light to the reader which is the need the hour,wish u all the best and expecting some more articles.GN.

  7. Padmini K S says:

    The write up covers all aspects of pre, current and post period of effect of COVID-19. The authors have given extentive information. The language is quite simple so that a lay man can understand the facts. My congratulations to both authors for bringing out a well written information. I am happy that there is some sunshine in the horizon amidst gloom. Thanks

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031