The Men Who (not) Cried Wolf!

There are people who say “This Time is Different” like the very same ‘boy who cried wolf’. At the same time, because it has become a cliché, there are many other people who cry “this time also is NOT any different”.  Well, that too has become a cliché!

Sometimes, ignoring the cries of wolf impact them more than the ones who cry.  Many a times some wicked individuals make fake calls to scare people of ‘bomb threat’ at public places. Ignoring those calls, unlike the boy crying wolf, it is dangerous and risky of the public rather than the person faking it.

The problem becomes too difficult for the people to comprehend, when both sides of the people crying foul and the people denying it are made of learned individuals and subject matter experts. Most often than not, in today’s complex world, we are exposed to such situations.

Ongoing ‘Novel Corona Virus’ / ‘Covid-19’ is the same case. There are mainly two major impacts it is creating. One, the health (physiological and psychological) of the people and second, the wealth of the people. For all those without expertise in the specific impacted domains, it has become complex to understand because subject matter experts themselves do not seem to be having largely uniform opinion.

The ‘Health’ part:

• The first cases of Covid-19 were found in late 2019 (17-Nov-2019). That’s why the name Covid-19 (Corona Virus Disease – 2019).  However, China started becoming worried by mid December 2019 and they started calling attention of the global community in early January-2020.

• China announced lock-down in Wuhan on 23-Jan-2020, and then extended to Hubei province. (Hubei continued to remain under lock-down till 25-March and Wuhan until 8^th April.)

• World Health Organization (WHO) announced Covid-19 as Public Health Emergency of International Concern (PHEIC) on 30-Jan-2020

• By the beginning of March 2020, Covid-19 had spread to many countries and in many countries it had started infecting people at accelerated pace.

• WHO announced Covid-19 as pandemic on 11-Mar-2020, while acknowledging the fact that it is the first pandemic caused by Corona Virus which means it is different from SARS and MERS.

• So, in the matter of one month (February) situation worsened rapidly to leave people and organizations with shocking truth that it was not similar to SARS or MERS.

• Initially world also took comfort on the factor of Covid-19 being less fatal than SARS or MERS. Indeed it is less fatal with less than 5% kill rate compared to SARS with more than 10% and MERS with 33% kill rate. Though its fatality is fraction of predecessors, its spread rate is many times higher and hence it has ended up killing far more people than its predecessors.

• Many companies and institutions started to develop vaccine and drug for Covid-19 on war footing. Unfortunately, developing a proven drug is a multi-year process and vaccine development is further more difficult and longer process. A quickly developed drug or usage of existing drug (used for the treatment of some other disease) or combination of formulations found effective may be given approval for the usage & dosage without much trials and testing, as patients will have to suffer / die otherwise. However, vaccination on the other hand is preventive medicine that will be injected in healthy people. So, a vaccination must undergo thorough & rigorous trials and tests before approved for the dosage. So, don’t have any hope of seeing any vaccination coming up in next few years.  Ironically, the reliable weapon against virus caused disease is actually vaccine, not a drug to treat the disease. Almost all (as per my understanding as a layman) virus caused diseases – from common cold to AIDS (HIV) – don’t have universal or standard medicine. Most virus caused diseases are self-limiting in nature; that means our body itself will develop immunity against the virus and the disease caused by it. Any drug or medicine during that period actually helps for temporary relief only. Some “anti-viral” drugs which are there also in fact not “Anti Virus” drugs like anti-biotic or anti-fungal ones (which kill bacteria or fungi); anti-virus drugs are actually anti bodies that anyway our body will  produce to fight virus or any other micro organism. In a way, anti viral drugs work as catalysts to speed up our body’s fight against virus, with booster dose of instant antibodies. So, to summarize, drug to ‘treat’ or ‘cure’ viral infection is not a reliable solution and vaccination (which is the right medicine) to ‘prevent’ the disease can’t be developed quickly.

• China, clearly looks to have passed the bad phase and situation is almost back to normal after 3 months, thanks to unprecedented, unheard kind of restraints and actions it took to contain the disease. Though the people & countries around the world, which initially doubted the need, effectiveness, appropriateness of such extreme actions like “Lock-down”, accepted that it’s the only way to fight & defeat the pandemic; the people who doubted, such lock downs may not be practically enforceable in other parts of the world are witnessing that, it is actually happening & working. Earlier the countries adopted the harder and stricter social distancing measures, lower was the damage they had to see.

• South Korea is another country that looks to be out of danger. More appreciable fact is that they achieved it without any lock-down – not even partial or regional. It was possible because of early and proactive combat measures they undertook. It was possible for them thanks to proactive and wider screening/testing of the people (and all of the international travelers coming-in to the country) for covid-19 infection and then, meticulous tracing further possible candidates based on the meticulous & rigorous study of movement history of the people who tested positive to Covid-19. Another country which is more appreciated for its even bigger success is Taiwan, which was even more proactive from the day-one, China let the world to know about the virus.

• All major countries (economies) in the world facing the pandemic and picture for now looks scary with most of them still not showing consistent decline in the spread. Developed Countries in North America (USA & Canada), Europe (Germany,France, Italy, UK, Spain etc) are already facing full blown impact of the virus and situation is very bad there with spread rate still going strong, though in few countries it slowed down for few days to jump-up again. In some other developed countries (Australia, New Zealand, Switzerland etc) and major developing countries (Brazil, Russia, India, South Africa etc) the virus arrived late or local spread started late (mid March). The curve of new cases in these countries is sharply increasing now lately, though numbers of cases widely vary from few hundred per day to few thousand, depending on perhaps (mostly) the measures taken by their Govt. to contain the spread.  Overall global trend line is still very steep.

• India has so far miraculously and commendably done an incredible job of containing the virus spread, even at the extremely high cost of nationwide lock-down (which is inevitable for our present state of health care infrastructure & preparedness and for what our population is and its behavior & culture is). Though the numbers of new infections are soaring, they are one of the lowest in the world on the basis of relative population. It should start to end hopefully from here, not just for our good but for the entire world's.

• By now Covid-19 has reached almost every country on the globe. Among the most populous countries, it has almost ended in China, rising in India, peaking in USA, just started to rise in Indonesia & Bangladesh, seems to be peaking in Brazil, seems to be flattening in Pakistan, while it is rising in Russia.

• So, the world isn’t going to get rid of the virus any time sooner in a month or two. Mostly it will take at least 3 months or more from now before we call the situation is “under control”. Lock-down, where it’s already in force will continue for another month or so, where it isn’t there yet will see getting imposed.  Until virus is completely or almost completely gone from any of the major countries mentioned in the previous points above, international movement of the people will be restricted and limited.

• Now, I wonder when in the recallable past of today’s living generation, this kind of health issue was experienced?! I wonder what makes people dismiss saying it is “crying wolf” like in the time SARS, MERS, Ebola etc?! Well, I am sure, most of those people who said this isn’t any different from past similar events, just few days ago (when I decided writing this piece) should have now realized and be acknowledging, indeed this is different, or at least, this as a health problem of far greater magnitude (which essentially makes it different!).  

The Wealth Part:

For the first two months when Covid-19 broke out and when it was mostly limited to China, general feeling among most people, including national leaders and experts around the world was that, it was small, usual disease, limited to and contained within one country. World took comfort in having faced and nailed the similar cases in the past like SARS and MERS.

Just 6 months ago, there was a big noise about Indian economy slowing down. There were talks all around whether that slow-down was ‘cyclical’ or ‘structural’. I also wrote a blog about it then, titled “The Reasons for Present Indian Economic Slowdown”. Nobody dreamt of what was in store, just few months from then. Govt. was in the process of reviving the economy with various stimulus measures and packages. RBI was also reducing interest rates and following accommodative monetary policies. To refresh the memory following major events happened, which reminds us the state of our economy before and during the covid-19 crisis. Finance Minister Nirmala Sitharaman made frequent media appearances to make major announcements (which were popularly referred to as “mini budgets”), after the Union Budget, to revive economy.

• In July 2019, the union budget had provided for recapitalization (Rs. 70,000 Cr) of the public sector banks to enable those to overcome NPA issues and restart lending in meaningful way. (This wasn’t first in recent past; same was done in year 2017 and 2018 as well)

• In August 2019, in the first “mini budget”, Finance Minister made major announcements to give booster dose to the economy, specifically to benefit the badly hit sectors like Banking & Financial Services, Infrastructure and Automobile sectors and also some major tax reliefs. Housing Finance Companies got additional money of Rs. 20,000 Cr.; allowed additional depreciation of 15% for the vehicles purchased till March 2020, removed ban on Govt. departments buying BS-IV vehicles, Assured BS-IV vehicles registrations will be valid till the end of registration period (usually 15 years), etc.; Rolled back additional surcharge imposed in the finance bill on Foreign Portfolio Investors and also exempted recognized start-up’s from “Angel Tax”.

• In September 2019, through media address that was referred to as another “mini budget”, Finance Minister slashed the corporate tax, from 30% to 25% for all existing companies and to 15% for the new companies, which effectively saved up to 10% tax to big corporations.

• In November 2019, to support the construction and real estate sector, FM announced setting up of an Alternative Investment Fund with Rs. 25,000 Cr., jointly with LIC and SBI, to provide funding for the builders of ‘halted under-construction’ projects.

• Because of those out-of-budget major announcements, perhaps there was little left in, next union budget in Feb-2020 to include (or may be FM preferred to do further major boosters also out-of-budget!).  Union Budget 2020-21 was disappointing with no major proposals to address economic issues.

• Meanwhile since beginning of year 2019 to this date, RBI has been gradually reducing the interest (repo) rate, which helped banks more than the consumers (as the banks transferred smaller portion of the benefits to the customers, and preferred using the most of the booster doses in restoration of their own strength over risky growth). Hence, credit growth never took-off.

• Meanwhile some major banks were bailed out (IDBI Bank and Yes Bank), some others like DHFL, Reliance Capital Group (to name few big ones) collapsed and the fate of some others like PMC Bank isn’t known for now. Though IL&FS etc happened 2 years ago, its aftermath effects are still being experienced. These events themselves are too big ones, which fortunately or unfortunately did not create the kind of turbulence they should have created, if such things had happened in other countries (recall insolvency of Lehman Brothers in USA).

• The above frequent and high value relief packages indicate & acknowledge the problem in the economy and desperate efforts to revive it. So, the Govt. was already in the fire fighting mode and in fact they were doing great job. Yes, they were trying hard to mitigate the collateral damage that was caused because of their own sweeping reforms. But then this Covid-19 adds a gigantic problem to what was already overwhelming for the Govt. 

Now let’s look at economic impact of the Covid-19 on the world & domestic economy.

• All major economies, developed as well as emerging, without any exception are under partial or complete lock-down. In whichever country partial / regional lock-down happens, it is in the areas of major economic activity. China was under regional lock-down for about 2.5 months but in the regions of its major economic activity, which means, for the economy, it is almost like complete lock-down.  India’s ongoing nationwide lock-down is almost decided to be continuing till the end of April. That means complete nationwide lock-down for 5+ weeks. However regional restrictions in few states (like in my home state Karnataka) had started at least 1-2 week earlier.  I am sure that situation would improve from here but not so much that lock-down will completely end on 30^th April, the way abruptly it started. Few states, Districts, Cities will continue under lock-down. But if Mumbai, Pune, Delhi, Chennai, Bengaluru, Kolkata, Ahmadabad, Hyderabad etc continue under lock-down for one more month (which is very likely), for economy it doesn’t make much difference than present day situation. Same way within the sates, the regional economy will have almost the same effect if few major cities in the state continue under lock-down [for example Bengaluru (Capital), Mysuru (Industrial & Tourism hub), Mangalore, Karwar (Port Cities), Belagavi (Industrial hub), etc in Karnataka]. So, as seen in China, it will be no different here and take it for granted, lock-downs will be of 2.5-3 months duration. Same will be the case anywhere else in the world, including America and Europe. Even after the lock-down is over, local travel/tour will be very limited and international travel/tour will be extremely low, for the rest of the calendar year. Now, this has never happened in last one century. Anything that happened earlier to that, though similar to this, I would say it is useless to compare because world and world economy has dramatically changed in the last century. So, what will happen to the economy of a country and whole globalized world if whole of the country / world is not going to work or ‘working from home’ for one full quarter (at least) and to be working less productively for one whole year?! It’s unimaginable!! To have some sort of ‘sense’ or ‘feel’ of the impact somewhat at your personal level, imagine, what will happen if your family isn’t generating any income or generating only 10% of the regular income for 3 months!

•  I’ve seen experts comparing it to Gobal Financial Crisis (GFC) of 2008-09 and telling this isn’t as bad as that or this couldn’t go worse than that. Out of my common sense, I feel it is not akin comparing apple to orange but comparing apple to apple tree! GFC was one event, in one country (of course the largest economy) and it sent the huge ripple effects to the whole world that is closely interconnected and inter-dependent. What initiated the GFC was sub-prime crisis. It’s all about good loans becoming bad end of the day. So, I wonder, given the present situation, many businesses with no or very little business for 3 to 12 months will go out of business permanently and consequently lot of people shall lose jobs. If they go out of business and job, how will they service their loans? How long the good loans will remain from becoming bad? And people in the developed economies are not good savers like Indians. Unfortunately, this time also, the worst hit country (by Covid-19) is the US only! Their unemployment claims have already sky-rocketed. If one sub-prime crisis in biggest economy can cause GFC, then what the present crisis can cause that has shaken not just the same biggest economy but the entire world? Why people miss to see dinosaur in the room?! May be because it is too big to see in one frame.

• I’ve also thought about the arguments that GFC was a ‘permanent damage’, where as the current one is ‘temporary’ one! It reminds me of jargons of Personal Accident Insurance – “Permanent Partial/Total Disability” (PPD / PTD) and “Temporary Total Disability” (TTD). Outcome of a personal accident, say a road accident, may cause death or permanent disability or temporary total disability (TTD) to the person meeting with the accident. TTD is the condition when person survives with injuries and fractures that will require few months to heal. During that period the person is totally disabled and can’t move around or work. So, that’s the analogy – some think and made me think whether this is a TTD phase for the economy. Well, my mind said, in that context, sub-prime crises was the cause and collapse of Lehman Brothers and GFC was the effect. At that time also, in fact, the cause was temporary and cyclical – bubbles get created and burst once a while in the economies. I’ve explained in the ‘Health Part’ that Covid-19 isn’t a cyclical event. However, suppose, if this event can be seen as ‘Temporary’ then, after the lock-down is over, world should immediately swing back to normalcy. I think that’s not the case. Even if I consider just one ‘small’ segment / sector of the economy – global travel, tourism, leisure & hospitality, isn’t going to come back to normalcy for the rest of the year 2020, impact will be big enough. April-May for India, July-August of Most of other countries are academic vacation months that see high volume of travel around the world; these months for the year are already swallowed by lock-downs. Next peak season is Christmas vacation (December-January), which hopefully will not be washed-out fully, though some volume decrease could be seen. That means whole of  2020 is washed out for that segment. This ‘small’ segment makes about 15% of the global GDP, together with ancillaries and employs tens of millions of people worldwide.

• All sectors and industries surviving on big ticket purchases like housing, automobiles will take huge impact for the current year and people will be postponing their purchases for a year or more. Even projects under construction will remain stalled or move very slowly because of lack of funding and labor (labor force has moved back to their native places and it will take some time before they start coming back). Construction, Automobile and their ancillary Industries together account for largest portion of employment and GDP.

• Actually, many things can be listed like that but to generalize, barring essential food staples, no other part of the economy will be spared. More the discretionary, higher the value (price), more will be the impact. In fact, though food staples are assumed to be least impacted, farmers and consumers both experience hardship. Farmers in India are already facing problem with respect to harvesting their crops in harvesting season, amid lock-down (though agriculture is one of the exempted activity to which the lock-down doesn’t apply) lack of labor, machinery and logistics, they are unable to harvest and transport & sell the harvested produce. April-May is the season of mangoes. But mangoes are still rare to find and wherever they are available, they are too expensive. Same is the case for other fruits and vegetables. For me, as a consumer it has become too difficult to find fresh vegetables & fruits even after paying higher prices. On the other side the farmers are complaining they are selling the produce below cost. Are middlemen making too much profit then? Mostly not; well, this problem of middlemen taking advantage is normal; but this time around they may not be making more than they usually make. The anomaly is because the whole supply system has become inefficient. Milk dairies, including Karnataka Milk Federation (KMF), are finding themselves left with lot of unsold milk, due to closure of hotels, restaurants, work places etc and hence willing to buy milk from the farmers only if they can offer it at less than half the usual price. But I, as consumer continue to pay the same price and find the milk sold-out, if I don’t go to milk booth very early in the morning. So, excess stock on one side and scarcity on the other side explains inefficiency of the system.

• Governments and central banks around the world, including India have announced stimulus packages of gigantic sizes that were never heard of in the past. Yet again, as said above, stimulus packages are acknowledgements of the problem. Bigger stimulus is indicative of bigger problem. More countries doing it, is indicative of more problems. If it is time of historic and record high stimulus packages, make no mistake, it is the record big problem! 

Wolf is indeed here, be careful!