The Financial Literacy Cell
Pandemic and its economic impact
As I write this article, the count of total coronavirus cases in India is about to breach the 2 crore mark and the death toll has risen precisely to 2.12,570. Every second that passes by, one Indian is losing his/her life due to the disease. 46 lakh vaccine doses have been wasted, life saving remdesivir is being hoarded and oxygen supply is short, all thanks to our friends who are selflessly black marketing these essentials for the welfare of the society. They are indeed the true corona warriors.
The list of miseries is very long. Nevertheless, we Indians never give up hope and try to find a glimmer of joy even in the toughest of situations. Be it becoming home chefs, banging plates in an attempt to woo away the virus, enjoying our evening at the market without our masks on (after all they are really suffocating) or celebrating birthdays and anniversaries, our cheerful attitude in such tough times seems to frighten the virus.
But regardless, there are some positive aspects too. The pandemic has resulted in a stronger healthcare system, made us realise our worth, brought some of us closer to our dear ones and made us understand the true meaning of national unity. As far as the economy is concerned, the global GDP has shrunk by somewhere around 3 to 4.6 percent, according to different sources, the industrial output for FY20 was cut by 12.8%, resulting in a supply-demand imbalance and in turn, increased inflation. The stock markets, also our politicians, who had been rallying until recently have also started facing resistance fearing the second wave. But as long as there are bulls and bhakts, both shall enjoy some support.
Despite burning holes in many pockets, the pandemic has resulted in exponential wealth increase for the super rich. Also, the vaccine manufacturers worldwide are expected to make a whopping $40 Billion in profits by the end of 2021. This number will probably rise with the liberalisation in vaccine sales kicking in. Others who have flourished include companies manufacturing medical equipments, telecom operators and our local grocery shops. This is the reason all of us must have seen at least a couple of new grocery shops budding in our localities. After all, who doesn't want to enjoy the celebrity status of being able to operate while all of our other friends and neighbors are sitting at home and many facing job losses.
This idea of every second person opening a grocery shop or a fast food stall to secure themselves financially seems to be lucrative in the short run. But in the long run, this idea is destined to face adverse consequences. Imagine that every second person, after losing his/her job is attracted by the still growing sectors like FMCG and decides to manufacture or sell FMCG goods. If such a situation occurs wherein every other household sells rice, flour and oil, the question is that who will buy it? Our sellers would probably have to sit home and consume these goods themselves. Moreover, there will be a demand supply imbalance in the labour market for other industries once everything gets back on track which will leave the prices of goods or services in those industries skyrocketing. Now, since in other sectors, the wages rise due to labour shortage, our new shopkeepers would be lured back to their old jobs and the investment made by them in these businesses goes in vain. Also there is no guarantee that all of them would be able to get back to their old jobs or find a new one which is as satisfying and rewarding as the old one.
So how can our friends ensure that they are financially secure in the post COVID era? The first thing that they need to realise is that the economy is an amalgamation of households and firms both working and producing goods/services in a large number of diverse sectors. If they would try to saturate a select number of seemingly lucrative sectors, it would be sickening for the economy. Imagine you trying to find a flight and a hotel to enjoy a family holiday, but not being able to get one because the people who used to work in hotels and airlines are now grocery shop owners.
Secondly, people need to move out of conventional investment ideas and accept the modern and hybrid ones. One can preferably learn about and invest in instruments such as stocks, bonds or commodities. Even if they wish to take up business or entrepreneurship as a potential career, they can think on how to revive the severely hit industries or rather develop a unique business model.
All this seems interesting. But one needs adequate knowledge and financial means to convert these ideas into reality.Many people in our country are stuck inside a vicious cycle of poverty wherein because they are financially unsound, they are not able to attain proper education and knowledge which further leads to helplessness and lack of skills to do something which would fetch money for them to get out of this cycle. This is probably a major reason why the not well-to-do section of the society doesn't believe in saving money or investing it. All they earn, they consume. This lack of savings then forces them into misery during recession. We have seen a lot of our migrant friends fleeing to their hometowns due to lack of savings to survive. This lack of savings was perhaps a result of lack of financial literacy and remoteness to the importance of savings and investment.
Keeping everything aside, we currently experience the second wave of the pandemic in our country. It's high time that we need to stop taking things lightly and tighten our belts to take all necessary precautions, not only to save ourselves, but to save our fellow mates and most importantly, to save the economy. If the trend continues, the healthcare systems will collapse, there will be more people dying as a result of which the governments will be forced to impose stringent restrictions and consequently, people dying due to hunger will soon outnumber those dying due to the virus.
By Ikshit Ahuja