The coronavirus has struck India together with 89 other countries with 100,000 plus people infected around the world. The signs of infection are common colds, cough and fever. In severe cases, this viral strain causes respiratory problems that can be fatal.

Every day the count is rising of affected Indians as they have visited countries like China, Italy and Iran where the outbreak has occurred. If the contagion is not contained, it portends a public health emergency and wipes off prospects for India’s and global GDP growth to recover in 2020. Fear has led to a meltdown in domestic and global stock markets.

This viral outbreak in India is bound to seriously strain its fragile public health system, thanks to low levels of investment languishing at 1 % of GDP. The issue is not the supply of hand sanitisers and masks that are flying off the shelves but the woeful state of public health infrastructure in the various states, barring Kerala. When push comes to shove, India does not have the capability like China to erect a cordon sanitaire to lock down millions in affected cities to prevent infection from spreading. Imagine the consequences if it afflicts Uttar Pradesh and Bihar that have the weakest public health systems?

Besides public health, the coronavirus impacts the Indian economy (globally as well) through a slowdown of trade and travel. The government has issued advisories to avoid inessential travel abroad, especially to affected countries. People are also advised to stay at home and avoid public spaces where there are crowds like shopping malls and eateries. Retail outlets and restaurants thus experience fewer footfalls. The movie business also suffers as going to multiplexes is a no-no. All of this translates into a slowdown in the all-important services sector, which accounts for more than half of the country’s economy.

As an economy open to global influences, there are also knockdown effects on India’s industrial activity through the ripple effects of broken down supply chains due to the ongoing shutdown in China to combat this virus. India’s dependence on the dragon is high for ingredients for essential drugs, components for automobiles, smartphones and other electrical goods. Internationally as well, China is the biggest exporter of car parts. It is also the largest exporter of electrical and electronic components, almost 30% of exports globally, according to the United Nations Conference on Trade and Development.

The overall impact on India’s GDP growth thus depends on supplies from China resuming in the months ahead. According to the government, there’s enough stock of drug ingredients to last another three months and has restricted exports. Automobile companies, especially two-wheeler manufacturers, are facing the brunt of supply disruption for parts. This can only worsen the prospects for the industry as it is already experiencing a slump in demand. E-commerce giants Amazon and Walmart are also scrambling to rejig supply chains for smartphones and consumer appliances.

However, the current viral outbreak -- especially if it’s not controlled – has put paid to the expectations of the Economic Survey for 2019-20 for a pace of expansion of 6-6.5% in 2020-21. The prospect is closer to 5.1% according to the Organisation for Economic Cooperation and Development (OECD). This is not very different from the latest numbers from the Central Statistical Organisation that show growth at a 7-year low of 4.7% in the quarter ending December that could take overall growth to the projected 5% in 2019-20. This hardly indicates any bottoming out from the steady deceleration since 2016-17.

The coronavirus is in fact considered the biggest threat to the global economy since the financial crisis of 2007-08 by the OECD. This assessment has led it to sharply cut global growth to 2.4% in 2020, 0.5 percentage points lower than its projection of 2.9% in November 2019. The world economy thus hovers on the brink of a nasty, brutish and prolonged slump if the virulence remains unchecked. A recession is likely due to the outsized influence of China that accounts for 16% of global GDP and is vital for international supply chains. Its citizens boost the leisure tourism business worldwide.

As the dragon has sneezed with the virus, the world economy is on the ventilator! What has been the policy response of governments? Unlike 2007-08 when the financial crisis led to a coordinated monetary policy response, this time around it is only the US Fed that has cut interest rates to boost market sentiment and signal that it is ready to do whatever is necessary. The European Union has so far desisted from a rate cut. Japan plans to infuse more liquidity into markets and step up asset purchases. To be fair, central bank governors, like that of the US Fed, are fully aware that rate cuts do not make any difference to reducing the rate of infection or fixing broken supply chains.

More than monetary policy, a massive dose of public spending by the major economies of the world can dispel these blues and restore global growth. A coordinated step-up of public investment in building roads, seaports, airports and power generation creates employment and boosts aggregate demand. This measure is an ideal counter-cyclical measure – rising when the economy is weakening and falling when the economy is strengthening – to revive flagging global growth due to the coronavirus’ impact.
A global fiscal stimulus will also rekindle what economist John Maynard Keynes wrote about the “animal spirits” of entrepreneurs and improve the overall climate for business.

Investor confidence remains low. The ranks of the jobless keep rising by the day. While a stimulus package is necessary, the sad reality, however, is that only a few major economies are considering it. France’s foreign minister is a lone voice in stating that Europe must be ready for a fiscal stimulus. In Germany, the ruling conservative party is divided on this measure. UK’s new finance minister has asked his officials to draw up measures to support businesses and economy as needed. A global recession thus is increasingly probable this year.

(The writer is an economics and business commentator based in New Delhi)