When the second wave of Covid hit, the country braced for economic disaster, anticipating worse than what happened last year. So far, that hasn’t happened, and judging by all evidence, it seems unlikely that trade and economy will take as much of a beating this year as it did in 2020. There are definitely green shoots of hope on the economic front. So, what went right this time?

Localized lockdowns

One of the biggest reasons why the second wave didn’t bring economic destruction in its wake is probably the lack of a national lockdown. Last year, the central government declared a stringent lockdown, leading to loss of livelihoods and severe disruption of the supply chain. This year, rather than a blanket nationwide lockdown, localized, targeted lockdowns were imposed.

Experts seem to agree that localized lockdowns may be doing better than a national one. “It is less disruptive of supply chains since it is adapted to local conditions and need not go all the way to a full lockdown," Ashima Goyal, member of the RBI Monetary Policy Committee, is reported to have said. In fact, even from the healthcare perspective, some doctors say it is better for states to decide on lockdowns.

More important, states recognized the need to let businesses function as close to normal as possible even while maintaining Covid protocols. While there have been some disruptions caused by some states imposing night curfews, by and large, factories have been allowed to function, albeit with a few restrictions.

Having said that, while local supply chains have been impacted by localized lockdowns, various state governments have implemented measures to ensure that the movement of goods is not unduly hampered. Logistics have been kept out of the lockdown purview, which means the free flow of goods hasn’t been affected too badly.

The problem that many businesses face, like last year, is that of manpower. But where last year, the crisis was because of the large-scale migration of workers, this time around, it’s because Covid is leaving few families unscathed. Workers are testing positive, or are away from work because of positive cases in their families. That said, there’s a silver lining here too, as reports show that businesses are hiring temporary staff to tide them over this crisis.

Exporters face trouble

While manufacturers have had a somewhat better time this year compared with last year, exporters haven’t been so lucky. International freight costs have been rising; reports estimate that there’s been at least a 100% increase in freight costs for Europe and the US trade routes. Exporters add there has been a shortage of containers, which did not bother them too much last year as global demand had not been strong. Now, however, with demand picking up, exporters are finding it impossible to transport goods on time. Even transporting goods from factory to port within India has become expensive due to the steep rise in fuel prices.

Another growing problem is that of Indian sailors being denied entry into several countries on covid fears. Singapore and Fujairah have prohibited the entry of sailors who have traveled from India, while Zhoushan in China has banned the entry of ships or crew that have visited India or Bangladesh in the past three months. India is one of the world’s largest sources of sea crew members, and the sudden loss of sailors could damage the freight industry globally.

These factors are unlikely to abate in the near future. Exporters are trying to counter the high prices by bunching up orders to save on transport and freight costs. However, this may impact their delivery schedules.

The good news (and there is good news) is that UN data show that India is among the few countries that have fared better than major economies in imports and exports in the first quarter of 2021. Import of goods grew 45% in the first quarter over last year, while exports grew by 26%.

Signs of growth?

The numbers that are coming out now seem encouraging. India's exports in April 2021 were recorded at $30.63 billion, as compared to $10.36 billion in April 2020, exhibiting a growth of 195.72%. The Purchasing Managers Index or PMI, which measures the direction of economic trends in manufacturing, shows that “economic conditions in India’s manufacturing sector remained favorable in April, as companies scaled up production in line with a further improvement in demand.”

Even as she warned about headwinds largely caused by Covid, Pollyanna De Lima, Economics Associate Director at IHS Markit which brings out the PMI for India, said: “New export orders surged to the fastest since last October and buying levels expanded at one of the sharpest rates seen for nine years. Also, the downturn in employment eased and business confidence towards the one-year outlook strengthened.”

It cannot be said too often, however, that a lot of this positive sentiment will depend on how the country tackles future waves of Covid or any other disaster. For the moment, though, things are not as dark as they seem.

(The article was first publised on economictimes.indiatimes.com)

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