Covid-19: Where do we go from here?

You are at home. Working? Who’s checking? There’s a deadly virus out there in the world. But there’s over 1 lac hours of content on Netflix too.

Ars longa, vita brevis (art is eternal; life is short). But wait! How long before reality snaps you out of Breaking Bad?

Here then are some random musings on the global Covid-19 situation

  • Containing the virus or ‘flattening the curve’ is a priority right now. Hopefully, every country will eventually get there – social distancing, quarantining etc.
  • Depending on social and cultural context and extent of enforcement, some will get there earlier. Anyway, expect 6-8 weeks of partial shutdown and disruption in any major city where the case count goes beyond 10
    • Unlike 2008 crisis which was primarily a supply-side shock, this is both a supply and a demand-side shock. Recovery from this will take time (best case 2 quarters)
    • Once we have recovered, expect a whole lot of things to change. GVCs will reset and globalisation will recede as the interconnected nature of the world will take the blame for the pandemic (listen to Trump and you know which way political winds will blow)
  • Viruses don’t go away forever with containment. The long-term solution for eliminating a virus are
    • Develop a vaccine: there’s worldwide effort to develop one but can we expect a universal vaccine that’s available within next 12 months? No idea
    • Herd Immunity: A large part of the population develops immunity by contracting Covid-19 and survives. The virus then is no longer a threat. Rough estimates suggest almost 60% of population has to contract it before we develop ‘herd immunity’. This is what UK and (maybe) Angela Merkel was suggesting. This isn’t a socially acceptable option and having 60% of people in hospitals in any country is unimaginable
    • Deux ex machina. Virus meets a natural killer. Maybe it’s heat or humidity or a combination. Weather changes and some combination of things appear that makes it disappear just like it had appeared
  • In the absence of a long-term virus killer, history suggests the virus will keep resurfacing. The Spanish flu epidemic of 1919 (the single biggest killer of human race in history) had 2 distinct phases. In phase 1, it was less virulent and spread through with lower mortality. Then it paused or, maybe people practised containment. It then came back after a 6-month interregnum in a deadlier avatar. Therefore,
  • We need to be prepared for a longer period of social distancing. Social distancing will be the new normal for the next few years till we eliminate the virus
    • Services sector – no inventory and where the producer and the consumer have to be at the same time and place – will have to recalibrate their businesses. There will be a serious dent in their business
    • Anything involving large crowds, public travel, entertainment, sports, logistics (involving last-mile delivery) etc will be severely curtailed
    • Consumption will fall, supply chains will get periodically disrupted and social interactions will be limited
    • Of course, all of this is worst case scenario. We might still be saved by just containment and life will get back to normal in 2 quarters
  • What it means for India?
    • Most companies have asked employees to work from home (today, even private sector banks have followed suit). Most IT product companies have already been doing that for a week. Eventually, IT services and BPO companies (who bill per resource) will follow. Who will risk not doing it? Like I mentioned in an earlier post, this has its own medium-term impact on the sector for India. There will be a reset of global supply chain in services too
    • Once you have asked employees to work from home, you can only get them back to office when the threat is completely wiped out. This makes it very difficult to predict when people will get back. Even if the cases don’t go up exponentially in India (and I pray it doesn’t), you can’t see any company asking employees to come back before the government declares we have things in control. Maybe 5-6 weeks?
    • Daily wage workers, contract labour and gig workers will bear the brunt first. They are already facing it. Hotel and airline bookings are down 50-60%, malls and theatres are shut; home deliveries have seen a short-term spike as people hoard essentials. It will drop too.  All non-essential goods, consumer durables, auto and luxury sector will see a fall. People will postpone purchases till general sentiment improves
    • Government will act through RBI and pump liquidity into the system. The low oil prices allow for some monetary elbow room more than usual. But beyond a point the supply side intervention won’t change the story on the demand side
    • Other policy response: The government has to put a plan on ‘normalising’ the social distance world that we are coming to inhabit. How do we facilitate consumption and business-as-usual in this world and how quickly we get to, maybe, 70% of the usual consumption? Also, this is a good time to plan on a PM relief fund or an equivalent where we call for contributions from everyone for relief of the unorganised, contract or the gig worker. There is a lot more scenario planning that needs to be done than is visible now
  • Summary: The best-case scenario for the world is Covid-19 being a seasonal phenomenon and going away in the next 2-3 months. By the time it comes back, we’d have found a cure for it. That’s the best case. All other cases suggest a painful adjustment to a new normal

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