Lessons from COVID–19 crisis for Indian economy and businesses

Reuters/Amit Dave

The COVID-19 lockdown has left many of us wondering what the world could look like in the future and what impact it could have on Indian businesses and the economy?

It is often said there will be fundamental changes in how business and economies reboot post the pandemic.

We list below our initial thoughts on possible impacts and opportunities therein for the Indian economy and business from the COVID-19 pandemic.

Almost all of these points have middle to long term consequences on governmental and business decision making. The following are our inferences based on observed data and discussions during the pandemic.

1. Regional, National and Local Self Dependence - A new version of globalization.

Globalisation, itself, is not going anywhere. However, the COVID-19 pandemic has brought to the fore the need for self-sufficiency in some core health-related products and services.

Even if most nations cannot ramp-up manufacturing to match the mighty Chinese economy, the need to bolster emergency reserves will impact strategic planning for governments and firms alike.

The viability of scenarios entailing extreme dependence on some basic products and amenities will impact planning exercises across Indian entities. The idea of stress testing critical supply chains will have to be pursued with more importance.

The rise of populist nationalism will be further fuelled because of the pandemic. India will also see an increase in demands to dramatically reduce dependency on other countries.

Please note that India is in no shape to significantly reduce its dependence on China and other advanced economies. In varied industries like automobiles, electronics (including mobiles), steel etc, the value innovation and economies of scale offered by China are unmatched.  Currently, Indian firms cannot compete with their Chinese and other advanced economy competitors in a globalised world.

Also, nobody wants to go back to the license raj days of the 70s and 80s in India. So, to expect to match the cost-value combination offered by the Chinese and other Asian firms is nothing but a pipe dream for now.

India and its foreign policy cannot afford to play a leading role in the upcoming conflicts between economic powerhouses.

Initial signals suggest that although India will not play a leading role in changing world dynamics, it will be open to new configurations with “friendly” nations to try and reduce its dependence in key sectors. How fast and efficiently this transition will happen is not clear right now.

On the other hand, businesses have also started working on models that promote local supply chains for essential goods. For example, FMCG firms are looking to stock, manage and deliver a host of products tailored to local needs.

In this scenario, Indian firms will have to focus on improving efficiency and scale while continuing to innovate for value creation. These will be challenging times as managing these conflicts are not easy.

2. Travel and Work/learn from home

A by-product of globalisation and modern industries has been the rise of travel at the domestic and international level. Long office hours have been taken for granted in the Indian corporate setup.

COVID-19 has raised the possibility of large-scale work from home without compromising on efficiency. In the upcoming months and years, Indian offices will experiment with reduced travel and work/learn from home.

In the case of education, we will see further impetus on the growth of e-learning. However, not all functions are amenable to working from home. For example, how a marketeer will deal with lower face to face time with potential clients is something that is not clear.

There will be a reduction in travel (both international and domestic) in the upcoming months. The aviation and hospitality sector most certainly face uncertain times. However, whether there will be long term changes in the way we work, and travel is something that is not answered today.

Post-lockdown, as firms analyse and compare the efficiency or productivity data in work from office versus work from home scenarios, new rules of the game might emerge. If firms also factor in carbon emission reductions, the opportunity cost of travel, work-life balance, reduced office space requirement into the equation, work from home will become the new normal in the future.

3. Revisiting the idea of smart cities and population densities 

Urban areas in India are extremely crowded, unhygienic and offer low quality of life. However, they are nerve centres of economic activity with a disproportionately high concentration of job opportunities. As the rural agrarian economy faltered for various reasons, rural masses in millions have migrated to the urban areas, mostly in search of menial,
informal sector jobs.

Due to the lockdown, reverse migration of gigantic proportions is unfolding before our eyes. The challenge for Central and State governments is to create millions of new rural job opportunities.

Using the Provision of Urban Amenities in Rural Areas (PURA) strategy as suggested by Dr APJ Abdul Kalam, State and Central governments in tandem can usher in a revival of rural economy through massive spending (unmindful of fiscal deficit) on agriculture, infrastructure, healthcare, education etc.

If implemented right, this strategy can drive the next wave of economic growth in India through “smart rural economic hubs” and also help in decongesting the urban areas. The bigger gains in the long run will be reduced urban-rural inequalities and dispersed populations that augur well in future calamities like COVID-19.

Decongested urban areas will provide an opportunity to fast track the “smart cities’ initiative which is essential to move inefficient, resource guzzling urban areas on the path of sustainability. Its high time India gave some serious thought to the problem of unsustainable urban population densities. Solutions will have to be cognizant of the demands of industries and geographical, political systems.

4. Focus on India centric Innovation

India, today, needs India-centric innovation more than ever before. India centric innovation can be key in reducing external dependency while promoting economic growth in these troubled times.

Simple automation efforts will increase efficiency and lower costs. However, India Inc. must also be aware of rising unemployment. The Indian model of innovation must increase efficiency without reducing employment.

Also, how can innovations be scaled up to meet the demands of Indian masses is a pertinent question that needs to be addressed. Indian industry must fund India centric innovation efforts that are measurable and adaptable. No country has been able to reduce external dependence without significant innovation.

We, in India, are currently in the middle phase of innovation growth. We have shifted from mere copying to creative recombination of existing knowledge. India Inc and its research fraternity must start to think about the next jump.

This jump will require unique value-creating innovation geared to solve Indian problems, particularly in rural areas. Many firms will realize that solving Indian problems can lead to reverse innovation and the proliferation of India-centric solutions to other markets.

However, this requires significant leadership from India Inc and the government.

5. Enhanced Social Security and Universal Basic Income.

The demand for extending MNREGA to the urban Indian poor has been on the rise. Many believe that India is not yet ready for a Universal Basic Income scheme.

However, the rise of COVID-19 pandemic has underscored the vulnerability of Indian contract workers and farmers. The economic after-effects of the pandemic will further highlight the plight of these sections of society and hence underline the need for enhanced social security.

In India, some staunch supporters of free-market capitalism still shudder at the idea of Universal Basic Income. The need for significant funding for such programs will also act as a deterrent.

However, this pandemic will rally more and more people towards the goal of improved social security coupled with effective insurance. Insurance schemes are still treated with suspicion in many Indian customer segments.

The fault, here, lies on both sides. Stories of the scrupulous insurance company denying/delaying legitimate claims have been rampant in the Indian middle class.

On the other hand, lack of awareness and education makes applying and engaging with an insurance policy a herculean task for most individuals. The pandemic will cause increased attention to possible insurance products.

However, the Indian government must make sure that the benefits of insurance do get passed to the masses. We will have to come up with new measures to track the effectiveness of insurance products for its customers.

As we move forward in our response to the massive shock by the pandemic, some things will remain the same while in some there will be a new normal. As a nation, we are embarking on a journey that has many unknowns and heightened uncertainty. India must engage with and shape the new reality at our doorstep.

Disclaimer: The ideas presented below reflect the personal opinions of the authors.

(The authors are Prof. (Dr). Saurav Snehvrat, & Prof. (Dr.) Tata L Raghuram, Strategic Management Area, XLRI-Xavier School of Management, Jamshedpur)