All may not be hunky-dory yet but Covid may have a few positives

Here’s an attempt at recapping the key happenings in the last 12 months:

• Covid-19 and its mammoth impact on lives will no wonder be the first line.
• The associated impacts on livelihood and job losses follow as a close second.

And the following comes out without too much debate on the financial impact of the pandemic:

• Huge loss in GDP globally, and India
• Loss in international trade
• Stretched financial situation within the economy; corporates and Individuals alike
• A large accumulation of debt
• Accentuating fiscal strain

While the last quarter brought in a ray of hope on the imminent recovery – both in India and abroad, there were threats of the mutant variant of the virus dislodging the same. The second waves of such pandemics in history have on many occasions proven as more lethal compared to the first ones.

Thus, all may not be hunky-dory yet.

The MPC will not have an easy policy review this week, with growth getting derailed, inflation lurking higher — and a sticky core, persisting supply issues and higher imported prices. In this environment, while keeping the ‘accommodative’ stance intact appears to be an obvious move, the medium-term challenge will be to maneuver the term rates in an environment marked with increasing interest rates, potentially increasing inflation and not-as-high-as-expected growth.

To all above, we may add the potentially mundane stuff. The huge shift in our daily routines, reduced physical activity, no physical schooling for children, reduced social interaction and travel, have been the causes for anxiety and trauma for many.

Each of us may add our own few pain points to it and hopefully, there will be an end to the sob story. What doesn’t get captured above is what has changed for the positive through this episode.

Going back in history, the Black Death pandemic in Europe that lasted for over five years in the 14th century and took between 75 million and 200 million lives may have been the cause for the onset of Industrial Revolution in the western countries of Britain, the Netherlands and Belgium.

The huge loss of lives resulted in a significant loss of resources in the form of labour, leading to a surge in wages in these countries. This proved to be a catalyst for a large migration from the farm to the cities, thus moving these economies from an agri- to manufacturing mode. Further, the large costs owing to high wages and the need to lower them brought in the need for these companies to mechanise, and thus the onset of industrialisation.

Now, back to our own time, FY21 has unexpectedly placed each of us into the innovation zone: from kids to adults, and from gardeners to CEOs.

The huge bandwagon of the move from office premises to work-from-home protocols is the most obvious result. It not only has the potential to bring down the costs, but has also created great room to balance one’s role at office and at home on an individual level.

The year saw a lot of talk on bitcoin and how its value has rallied. But what has not been observed as much are the tremendous efforts the central banks are making to float digital currencies of their own. While China is leagues ahead, European countries are working on a central bank digital currency (CBDC), and the RBI is also drawing the map on that front.

It will not be of surprise if much before we exit the decade, the central bank liquidity statement will have a line item on digital currency in circulation, and it could be at the cost of currency in circulation (hard cash)!

While demonetisation saw a number of small value payments moving from cash to digital modes, the Covid-19 pandemic has reinforced it, thus potentially casting the net wider on the financial inclusion front.

To the above, we can add the significant number of progressive measures announced by the government and the RBI as part of their planned developmental efforts: 24/7 NEFT and RTGS transactions, the Netting Bill, and the countless number of measures taken to deepen our financial markets to name a few.

The pandemic, and its challenges, are not yet over but neither are the opportunities it presents.

(Lakshmanan V, Senior Vice President, Federal Bank. Views are his own)