This time last year the world was a different place. The coronavirus had just emerged, every country was bracing for a lockdown, there were fears that the virus would turn into a pandemic and could bring economic recession the likes of which were never seen before. Fears turned out to be true: the virus went global, claimed millions of lives, infected millions more and destroyed the world economy. Covid-19 was the greatest economic blow since the Great Depression. Recession hit all five continents. 26 percent of world business was shut down at one or other point of time. Four hundred million jobs were lost, out of which 89 million were lost in South Asia alone. There were insolvencies and closures, the Global FDI collapsed by 42%.
There are still many uncertainties, but the outlook is getting brighter. In 2021 the world is looking to build back by learning from the mistakes of the past and not let history repeat itself.
The global economy is set to recover in 2021. the World Bank says it will expand by 4%, Morgan Stanley projects world GDP growth of 6.4%, 5.4% is the IMF’s projection. The figures are impressive. The US GDP is forecasted to expand by 3.5 %, the European Union’s by 4.2 % , Japan’s 4 % and for India the IMF has upgraded the GDP growth outlook to 11.5%. The IMF says India is rebounding to achieve the target of five $5 trillion economy. It sounds amazing but if these figures turn into reality India will have to adapt to the changing economic order.
There are opportunities for radical reform, but they mean nothing if India does not realign its priorities. India will have to keep a close eye on the emerging trends and at the same time work to diversify the supply chains from China. Here are the five ways that can help India achieve its target.
The first is to attract companies leaving China. Look what Japan is doing: over 40 % of Japanese companies are looking to shift their base from China. Why? First to protect sensitive technology linked to security, and second to diversify the supply chain. The companies that are shifting bases include CANON, TOYOTA, KDDI, NEC-COBI, Steel Mitsubishi Heavy Industries. They are looking to invest in new territories and India can rise to the occasion and replace China as the new market. It has the potential and the land to do so.
Second is to diversify the economy. Look at west Asia, where the pandemic has served a major blow to the region’s oil sector. The dependence on oil is further set to fade away in the post-pandemic world, so a growing number of Arab counties are investing in tourism, transportation, retail and real estate. Saudi Arabia has laid down a long term economic plan ‘Vision 2030.’ A total of 13 projects have been launched under this initiative. The project that stands out is NEOM. A planned smart city that could rely wholly and solely on wind and solar power, the Saudis say that a company will look after security, logistics, home delivery and even home caring. NEOM is attracting overwhelming interest from international investors. It has been said that by the time this city is complete the FDI into Saudi Arabia will have increased to 5.7% of the total GDP. The United Arab Emirates too is making headways with efforts to diversify its oil driven economy. It has entered space exploration. In July 2020 the Emirates launched the ‘Hope Orbiter’ to study signs of life on Mars. The orbiter will land in Feb this year. It is set to boost development and investment in United Arab Emirates in scientific research and academic sectors. With growing closeness with the Arab world, India must make this economic diversification along with West Asia.
The third trend is ‘Made in America’. The trade war with China along with the pandemic has led to thousands of Americans losing their jobs, so the new president Joe Biden has signed an executive order to promote ‘Buy American agenda’. It is a two-pronged strategy to bolster American manufacturing. On the one hand it will direct agencies to strengthen rules around purchasing American products and on the other hand it will close all loopholes that allow companies to offshore production and jobs. President Biden wants American taxpayers’ money to be spent on American goods, made by American workers and with American-made parts. This ‘made in America’ plan is set to revitalise manufacturing sector which accounts for 12% of American economy. As America strengthens its domestic market and looks inwards once again, India must ensure that the trade ties with United States are not affected.
Now we come to South America. The race for lithium is picking up momentum here. Lithium is the new oil, the element that has become the driver of technology. It is used in phones, tablets, laptops, digital cameras but the most important use is in rechargeable batteries for electric vehicles. As this decade moves forward the fossil fuels will diminish and so will the demand. The solution will be largely battery dependent and for that we need lithium. The most recent estimates say that the demand for lithium will hit 1.3 million tonnes this decade. Three countries have 50% of the world’s lithium reserves: Argentina, Chile and Bolivia. One-third of reserves are in Bolivia, 21 million tonnes, the second-largest in Argentina, 17 million tonnes, and Chile comes third with 9 million tonnes. Together these countries form ‘The Lithium Triangle’. They have the potential to form a body similar to OPEC and reap the bounty. The world’s leading economies are in a race to procure lithium supplies, including India. India is working to secure a giant stockpile of lithium. A new company was set up in 2019, Khanij Badesh India Ltd. It was incorporated by three state-owned companies: NALCO, Hindustan Copper and Mineral Exploration Ltd. Khanij Badesh Ltd. has inked a pact with Argentina and together they will hunt for reserves, acquire strategic mineral assets, get the raw material back home, and use them to make rechargeable batteries at home, which bring us to trend five: preparing for the future.
Under ‘Make in India’ programme the production of E-Vehicles is expected to increase the share of manufacturing in India’s GDP to 25% by 2022. On the economic front it is projected to have saved 60 billion dollars on oil imports by 2030, and to have reduced vehicular emissions, a key contributor to air pollution which causes 3% GDP loss for India every year. India is working towards the world’s largest E-Vehicles market. India is also trying to leverage the online market. A recent report from the UN says India’s FDI grew 13% in FY-20, much of which has to do with investment in digital sector and E-Commerce. In 2020 the Covid-19 pandemic pushed many consumers and companies online and this shift in consumer behaviour was more evident in India which is the world’s second-biggest online market. The market is expected to grow by $200 billion by 2026. India is only two of major countries that saw increase in FDI despite the pandemic, the second one being China. $57 billion poured into India in 2020 and this number is likely to increase in FY-21 because more countries are moving out of China. A United Nations report points to an interesting trend that says FDI inflow to America and Europe dropped into negative territory but in South Asia FDI rose 10 % to $65 billion and this growth was stirred by India. So, the bottom line is that Indian economy is seeing indicators of a V-shaped recovery.
The writer is a Lecturer of Political Science. [email protected]