The Way Forward For Firms

Business Standard     17th May 2021     Save    
QEP Pocket Notes

Context: Indian firms need to prepare for export boom by vaccinating employees, their family members; and prioritise export market.

Challenges to the Indian Economy:

  • Inadequacy of vaccination: The immunity provided by the current available vaccines might not last forever; new variants could generate breakthroughs.
    • E.g. the Astra Zeneca vaccine is less effective against the “South African variant”.
    • There are two pathways to immunity: Through the vaccine or through the virus. A lot of India is becoming immune through disease experience, which may revert in future.
  • Lack of demand in the economy: At present, in India, the government lacks fiscal space to enlarge demand.
    • Private sector investment is at its lowest values since 2007 or 2011.
    • Household consumption demand has been hampered by disease, fears about income volatility, and lack of access to borrowing.

Opportunities available to India:

  • Improving policy framework for vaccination: Imports are kosher, many sub-national governments have put out tenders for vaccine purchase, and private persons have started administering vaccination drives.
    • There is a direct connection between state capacity (greater competence maps to greater vaccination) and economic outcomes (vaccination restores normalcy, starting with a euphoric stage).
  • Rising export demands: Most advanced economies are faring better than India on health policy and on fiscal policy.
    • As a consequence, many countries have been able to bolster consumption using bigger fiscal deficits in a way that’s infeasible in India.
    • This global economic recovery has given export buoyancy for India.
    • For e.g. In the US, total goods imports from December 2020 to March 2021 were 4.1% higher than the pre-pandemic level. In these months, US imports from India rose by 9%.
    • In absolute terms, Indian goods exports to the US were up to a monthly value of $5.1 billion compared with pre-pandemic conditions of $4.7 billion.
    • In overall Indian non-POL (petroleum, oil, and lubricants) goods exports, the latest four months of data (January to April 2021) had a value of $26.3 billion a month, up 12.5%.

Way Forward: For strategy thinking in Indian firms, this reasoning has two implications.

  • First, every firm should take an effort to vaccinate its employees, their family members, and possibly its customers, and keep an eye out for variants that will require booster shots.
  • Second, this is a time to prioritise the export market.
QEP Pocket Notes