SOME REFLECTIONS ON COVID-19 AND THE ECONOMY: RESET TIME

I am presenting a few thoughts on
the reasons for the pandemic, how to stop future pandemics, its impact on the
economy and steps for its revival, the oil shock and its domino effect and
other related issues.

PANDEMIC REASON – VIRUS AND STRESS IN
ANIMALS

I have seen
a video on the reasons for pandemics published by the Nutrition Facts Organisation
of the USA in 2010. Dr. Michael Greger, M.D., FACLM, explains that (i)
this is a zoonotic disease and the virus which is present in animals infects
mankind, (ii) most viruses are completely neutralised within 30 minutes under
direct sunlight; however, in dark, damp and shaded conditions they can survive
for weeks, (iii) viruses which have existed for thousands of years innocuously
have now become deadly.

Why is this so? Clearly, the stress
and the pain suffered by animals results in even an innocent virus turning
into a deadly one. When these stressed animals / birds are eaten by men,
they get infected. If we don’t stop industrial animal farming for food, then we
should be prepared for a pandemic of deadly proportions equivalent to the
Indonesian tsunami of 2004 simultaneously hitting all the major cities around
the world. In case a pandemic hits the USA, it may be necessary to lockdown
the whole country for 90 days. This prediction was made in the year 2010. (See
the video: https://nutritionfacts.org/video/pandemics-history-prevention/)

In short, extreme cruelty by
mankind on animals and birds has caused this pandemic. And all nations are
responsible for this cruelty. Industrial farming of pigs and chicken, of cows
for milk, etc., several such cruel practices were started in the capitalist western
countries and this is the chief cause of this virus.

According to me, in the same way,
globally, half the human population lives in stress because of poverty and wars
inflicted by greedy lobbies and nations. This stress also affects world peace
and welfare. It is time we take notice of this fact.

PREVENTING FUTURE VIRAL PANDEMICS

To prevent such pandemics, one
should not only turn vegetarian, one should turn vegan. It is a simple
philosophy. Love your animals as you love your family. Love your employees as
your own family. Love is a great strength. The absence of love or callousness
has immeasurable negative power. Philosophy includes the principles of how to
live happily in society and the world. In Hindi it is called: In English, it’s ‘The
relationship amongst: Individuals, Universe and God’.

A useless plastic straw that we
throw away travels a few thousand miles through the ocean and hurts a tortoise.
The tortoise is in stress. Its stress affects world peace. We do not give
cognition to the stress suffered by billions of lives around the world. It is
high time that we recognise the philosophy that the stress caused in the
tiniest of lives will one day come back to haunt us. We have ignored the
warnings of numerous environmentalists. Let us now hear this warning by Mother
Nature or This is the time to RESET
everything and challenge all our assumptions. The virus has proved that we
have to live as one family, The solution to this virus and many other
problems may be found by the world in co-operation and not in competition. All
national boundaries are man-made and artificial. The ultimate truth is – We Are
All One,

If someone
had said before seeing the above video, ‘Don’t be cruel with animals’, the mass
commercialised industrialist as well as the consumer would not have listened to
him. The government would not interfere considering ‘philosophy and ethics as a
matter of personal choice’. But after seeing the video anyone who believes in prevention
of pandemics and other mass tragedies may want to practice and spread the
message of Universal Love and Truth.

A reader may ask, ‘Okay. I have
understood that the cause of the current pandemic is human cruelty to animals
and birds. But as an individual, what can I do?’ The answer to that is,
‘One individual cannot change the world. He cannot stop industrialised animal
farming. But he can stop eating animals and consuming dairy products.’ When
many individuals stop buying any product which involves cruelty, businesses
will have to change their practices. If we do not reset our business practices
and our personal lives, nature may (or may not) give us another warning.

PANDEMIC’S IMPACT ON ECONOMY

Both the Indian and the global
economies have suffered a serious setback due to the current pandemic.
How serious is it? How long will it take to recover? As recently stated by Mr.
Sanjiv Mehta, CA, Chairman of Hindustan Unilever, no one can provide a proper
answer to these questions. Economics is a social subject. Unlike the laws of
physics, the results of actions in economics cannot be predicted. They depend
upon society’s psychology, culture, readiness to put in hard work and so on.

To explain the issue in simple
terms, one can use the analogy of a person who has suffered a heart attack.
He knows the reasons of the attack: Lack of exercise, an over-indulgent
lifestyle, and so on. ‘Can he or will he recover? How good will be the
recovery?’ The answer to these questions is, ‘Of course he will recover.’ ‘How
well he will recover depends upon whether he has learnt his lesson. Will he
change his over-indulgent lifestyle? Will he start exercises? And does he have
the will power to return to a healthy life? Is he a positive thinker? Does his
positivity translate into action?’

This analogy can be applied not
only to individuals hit by disease, but also to nations hit by disasters.

The current pandemic has already
caused serious damage to economies. And the damage will continue for some time.
Nations and the world are not going to die. We will all recover. How well do we
recover is the issue. The quality of recovery depends upon how well we reset
our businesses and our personal lives.

Supply chains have been broken
and damaged. The demand for many goods and capital assets has evaporated. When
both supply and demand go down, there is necessarily a contraction of the
economy. There is no alignment between reduction in supply and demand. In other
words, the supply of goods A, B and C has stopped. The demand for goods C, Y
and Z has evaporated. Hence the contraction in the economy can be even worse.

In agriculture, tea gardens and
mango and grape orchards, vegetables and so on are adversely affected.
Agriculture has been exempted from the lockdown. But then a lot of migrant
workers have gone back to their native places. Transport is affected. Even the
manufacture of medicines is seriously affected.

Where does a nation start with relief
and recovery actions? The Government of India (GOI) and the RBI have
already announced different packages of financial relief – all together
amounting to Rs. 5 trillions. (One trillion is a short term for one lakh
crores.) Food Security is provided to 80 crores of Indians. The
GOI has started with ensuring that the poor daily wage-earners do not stay
hungry. They are being provided food and fuel in different ways. It is my
personal knowledge that, at least in Gujarat, the GOI is reaching the poor.

Having discussed stress and the
pain in animals, let us turn to the stress and the pain in human beings.
Let us take an example. The Covid-19 virus has spread in the Dharavi slum.
Hundreds of people are infected. This has raised fears of community spread. The
Central and the State Governments are worried. They do not see any practical
solution. They are frustrated. Imagine an invisible tiny virus frustrating the
Government of India. Why has this situation arisen?

In Mumbai, some flats are sold at
a price of Rs. 1,00,000 per square foot, or even more. In the same city,
several million people live in slums, on footpaths and in chawls. Many
people just do not have a roof over their heads.

Why is there such a wide
difference in incomes and wealth?

We do not ask this question.
Society in general doesn’t care. The government has excellent schemes for slum
development. Market forces will make it practical to give decent homes to
many slum-dwellers. And instead of spending money on slum redevelopment, the
government will get revenue. And yet, the Dharavi redevelopment scheme has not
taken off for so many years. Why? Because of corruption and greed.

Imagine a poor person living in
Dharavi. Most people there do not have toilets and bathrooms within their tiny
homes. They use common facilities. Imagine their fear of viral infection. They
can’t leave Dharavi due to the lockdown. And they can’t live in Dharavi because
of the abysmal living conditions. What amount of fear and stress are the people
living in Dharavi suffering from right now? Won’t that stress affect us and our
governments? Nature has already provided the answer. It will affect all of us.

There are many individuals and
NGOs who question the current pitiable condition of the poor. They work on the
ground in helping the poor. Many of them have achieved good success. May their
tribe grow; may their enthusiasm to help the poor infect society and
governments. May we see a day when every family in India has a home. One
such dreamer is Prime Minister Narendra Modi. He has already planned a
scheme for this purpose. I remember saying in my presentation at the BCAS
Economics Study Circle in 2015: ‘If all the welfare schemes planned by Mr. Modi
are executed in reality (not just on paper), then India can have 12% GDP growth
for the next 20 years.’ This is the solution and the answer to the question,
’How will the economy be affected by the present pandemic?’

India has a huge unsatisfied
need. And India has sufficient natural resources to provide food, clothing and
homes to every individual in the country. But the market system will not permit
it. Under a capitalist market system, farmers, teachers and doctors earn less
than share market speculators and tax consultants. A producer of goods and
services earns less than a film star and a sportsman. This market system has
to be reset.

GDP

GDP is a
misleading statistical figure that has become popular to such an extent that it
has become harmful. When a jungle is destroyed and factories are set up, GDP
goes up. But there is no consideration for the damage to the environment, the
loss of life of animals, the huge difficulties to tribals and so on. If the
Indian rupee rises to Rs. 36 per dollar, our GDP will jump from $2.8 trillion
to $5.6 trillion. This shows that the exchange conversion market is an
illusion. When liquor and cigarette production goes up, the GDP goes up. Share
market speculators speculate and GDP goes up with zero contribution to the real
economy. I am not worried if the GDP falls, but the people would be free from
pollution and the resultant diseases.

There is none and there will be
no direct relationship between welfare and GDP.

THE
CORONA SHOCK: NEGATIVE OIL PRICE

On Monday, 20^thApril,
and also on Thursday, 23^rd April, 2020, the price for a barrel of
crude oil on the New York Commodity Exchange dropped to negative $38. What is a
negative oil price? Why did it happen? And what can be the consequences?

This has happened because of
excess supply of crude oil and lack of storage capacity for the excess. Global
production (extraction from oil wells) is 100 million barrels per day (MBD).
With the almost global lockdown, the entire transport system and factories have
stopped. Now only domestic and agricultural consumption of power continues. As
per oil experts’ opinion, the demand has gone down by at least 25%. However,
production of crude oil continues at the same pace. Saudi Arabia, Russia and
the USA have agreed to cut down production by about 10.3 MBD. This cut will be
effective from 1^st May, 2020. But the surplus of supply over
consumption will continue. Global storage tanks are almost full. In the USA,
people holding a ‘Buy’ contract have no storage space. Assume that a buyer has
already paid the full price. Now, either he has to lift the oil, or pay $38 per
barrel to cancel the contract. A negative price reflects the cost of storage
for an indefinite period. However, these negative prices will not last. It is
estimated that in the short term the price may settle around $20/barrel.

Crude oil is the most important
component of energy today. Hence, the USA has used it as an instrument in its currency
war. Its government insists that all global trade must happen in US
Dollars. Some nations refused. They were ready to sell their oil in Euros.
Hence the attacks on Iraq, Lebanon and Libya and the sanctions on Venezuela and
Iran. This is a classic illustration of a currency war using commodities as
weapons. When the opponents do not succumb to sanctions, the USA starts a
weapons war. [See a clip of the news on CNN dated 23^rd April, 2020:
New York (CNN Business) 22^nd April, 2020.]

The report said, ‘The Trump
administration ordered Chevron to halt oil production in Venezuela, dealing
another blow to the nation. The directive is part of President Donald Trump’s
effort to pressure the regime of Venezuelan President Nicolas Maduro by starving
it of cash. Despite having more oil reserves than any other country on earth,
Venezuela’s production has imploded because of tough sanctions imposed by the
United States and other reasons.’

But there are other factors to be
considered. When oil was sold at $100 per barrel, the USA started shale oil
production on such a scale that it became free from imports of crude oil. The
average cost of production of shale oil is estimated to be $40 per barrel
(estimates vary). When the oil price was high, shale gas producers took huge
loans on small capitals and did business. Now, with the oil price being less
than $40 per barrel, most of them are making losses. Because of the viral
pandemic, the global economy has slowed down. The demand for oil may remain low
in the short term. Hence prices may remain under $40 for many months. Some
shale oil producers may even go insolvent.

Domino Effect: When an
oil producer goes insolvent, the following people also suffer losses:
Speculators in oil prices, speculators in shares of oil companies, banks and
institutions that lent to the oil producers, speculators in bank shares;
employees of all of the above entities suffer and ultimately the government
loses tax revenues.
When these loss-making companies are bailed out, the common man, the taxpayer,
suffers. Thus, one loss has a domino effect.

We have seen this oil industry
projection at some length. There are many other enterprises that are also
highly leveraged. The airline industry is a capital intensive, high
revenue cost industry with widely fluctuating profit margins. The lockdown may
have caused huge losses for all airline companies. Some may go insolvent. Many
other enterprises will also go insolvent. That means huge losses for banks
and the financial system. Will it result in banks going insolvent? Will central
bankers around the world be able to save the banking system?

In Maharashtra, mango and
grape orchard owners can’t export their fruits. All over the country, many
farmers cannot sell their products even within India. Most of their products
are perishable. They will suffer huge losses. Who will bear these losses? The
list can go on.

Suddenly, the force majeure
clause is being invoked by parties for not fulfilling their part of the
performance. Everyone looks at themselves. As if the ship is sinking! If this
happens on a very large scale, then the economy can come crashing down. The
economy is really like a giant machine with several wheels within wheels.
All these wheels are connected by bearings, gears and chains. Some wheels
stopping or slowing down may disrupt the machine. But if several wheels stop
functioning, then the bearings can break down and the machine stop. We need to
identify all the wheels, bearings, gears and chains in the economic machine.
Observe them, help them, and ensure that almost all parts function.

SOLUTION: ECONOMIC ACTION

Confidence at the highest level
is crucial. The US and European economies have been built over a few hundred
years. The Indian and Chinese economies and societies have been built over a
few thousand years. How can these economies be destroyed if a pandemic
disturbs them for a few months? Only when an economy has its fundamentals
seriously wrong can it be damaged. Probably, all countries, including communist
countries, are working on Capitalist Market Economics. These need to be RESET.
In other words, extreme disparities in income, wealth and welfare have to be
reduced. Every producer of goods and services must get at least a living wage.
There should be no or minimum stress caused by unfair economics at the human
level. Poor people constitute the base of the economic pyramid. When the base
is strong, the structure will be steady. And it can come up fast. If the poor
at the base die due to starvation, the whole economy will be badly affected And
it cannot recover fast enough.

The Government of India has
effected a large financial relief package. And the Prime Minister has
his heart in the right place. First priority is being given to the poor, daily
wage earners, hawkers and others. Cooked and uncooked food is reaching the poor
in villages through the government machinery. There are corners where the government
may not reach. These are being reached by NGOs. Cash is reaching the poor under
‘Direct Benefit Scheme’. Tax refunds are being expedited. Banks are asked to
release more loans. Provident fund claims are being released quickly. Through
all practical measures the government is ensuring that cash flow in the nation
must continue. Cash in the society is like blood in the body. It must remain
circulating. Otherwise the body parts will get numb. And even the smallest part
going numb will affect the whole body.

One big relief this time is from
the tax departments. Every year, from January to March, Income-tax and
GST officers get into overdrive to collect tax revenues, whether departmental
claims were right or wrong. Big refund claims, howsoever legitimate, are
withheld for the 4th quarter. That pressure is off this year. And revenue
targets have naturally gone for a toss.

Will this huge expenditure of Rs.
5 trillion cause a budgetary deficit? Yes, certainly the budgetary
deficit will increase. Will it cause inflation? May be, maybe not. The
Food Corporation of India (FCI) has over 70 million tonnes of food stocks.
Every year, substantial quantities of food rot and have to be disposed of. If
this stock of food is used, the market demand-supply equations will not be
affected. There need not be any inflation in the price of food. There are some
other items whose demand has fallen. In the case of some other items, it is the
supply that has fallen. All together, as a combined figure, there may be a
minor inflation. (Any guess for the future is to be taken with a pinch of
salt.) But in times of recession, it will help the economy rather than damage
it.

ON TOP OF THE ECONOMIC CHAIN

Man is at the top of the food
chain. No other animal eats man. Man eats almost every animal and plant.
Man contributes little to the nature, but he exploits nature to the maximum
extent. Similarly, there are many people within mankind who are on top of the
economic chain. They contribute little to the economy / society and yet earn
disproportionately large incomes. It is for governments to identify the
enterprises on the top of the economic chain. Do not spend a single rupee
and a single minute on these people. They will manage.

BAILOUT PACKAGES

All nations
have announced huge bailout packages. Most of the funds for these packages will
come simply by ‘printing money’. How long can money supply influence and when
does it become useless or even counter-productive? To understand this point,
consider an extreme hypothesis: Indian GDP is Rs. 190 trillion. Can we
say, ‘Just print Rs. 190 trillion and no one has to do any work? They can relax
and enjoy.’ We cannot do that. People have to work and produce goods and
services. A currency note that cannot buy anything has no value. Having
ruled out the extreme hypothesis, one needs to work out the right balance.
Every enterprise that breaks down due to the pandemic will be a wheel that
stops functioning. Save that wheel. Lend it sufficient cash to make it turn
again. Once it starts running, stop lending. Slowly take back the loans. On the
other hand, the daily wage earner can be given food free as long as the
lockdown runs. Probably, for one more week. Then stop all free doles. His
hunger will make him hunt for work. And those millions of wheels will start
functioning once again. Bailout packages is a huge subject by itself. But I
will not go into that right now.

There should be no central
command in the sense of planning from top-down. A central command will make
mistakes and commit blunders. Let everyone find their own way. Ensure
continuity of infrastructure. Those who need help should be helped. Give
priority to very small enterprises, then to small and medium, and finally to
large. Let individual spirits find individual solutions. Open up the market
with safety. Planning by every individual and every enterprise, with the
government supporting them, is the best approach.

Note: This
article was written on 24^th April. Before it gets published in our
journal, I had the opportunity to listen to the Economic Wizard – Mr. Mohandas
Pai on BCAS Webinar on 9th May. I am adding a few more notes.

i)  When India works for full year, it generates
GDP of say Rs. 200 Trillions. It is clear that Indian economy will not work for
at least two months due to Covid 19 Pandemic. As simple arithmetics, GDP should
fall by 17%. There are many variables. Some things continued even during lock
down. Some things will not work even after the lock down is lifted. On the
whole, Indian GDP for the financial year 2020-21 can fall by 20%. From an
estimated growth rate of 5% if there is a fall of 20%, our GDP may fall by 15%.
This can cause massive repercussions. As discussed earlier, Government, RBI
& peoples’ job is to ensure that the wheels within wheels work with minimum
damage. Otherwise the domino effect can cause far more losses.

ii) Long term stability lies in
Indian economy being an independent economy. Neither based on exports, nor
based on imports. In still longer terms, when we all – Government to people are
sensitive to the weakest of the lives; and when we ensure welfare of all lives;
we can have a truly satisfied, peaceful India.

CONCLUSION