Corona Daily 094: Indian Crisis is Global Crisis

In the last financial year, the Indian economy contracted by 8.5%. In the last twenty five years, this was the first time India plunged into recession. 2021 was expected to offer recovery; those hopes are now dashed by the onslaught of the second wave. For more than forty years after independence, India had quasi-communism, and a so-called Hindu Rate of Growth (3.5% and stagnant). Following the collapse of the USSR, India, to an extent, embraced market economy and globalisation. The pandemic threatens India’s ambitious growth plans. Not even the Hindu nationalist government would want to revert to the Hindu rate of growth. A CNN article this week points out why a crisis in India can be a global crisis.

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First, the supply chains. 80% global trade by volume happens on ships. India is a quality human resource provider for the shipping industry. Currently, couple of my neighbours, friends, and a nephew are sailing on container ships. They are either captains or chief engineers. Out of the 1.7 million seafarers, more than 200,000 are Indians. In terms of ranking, education and skills, the Indian percentage is high. Shortage of seafarers leads to disruption of supply chains. When countries outright ban flights from India, the Indian captains or chief engineers are unable to reach their ship. Alternatively, many can get stuck for months because the replacement doesn’t arrive. Last year, those cargo ships were called floating prisons. It can happen again this year.

Currently, UAE, Singapore, Hong Kong, and China have already imposed strict quarantine restrictions on vessels arriving from India.

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Second, generic medicines. The world by now knows India produces 60% of the world’s vaccines. Serum Institute of India was expected to export 200 million doses to 92 countries, the plan now blockaded by the domestic surge of cases.

India is also the largest supplier of generic (unbranded), cheap medicines. A prescription by an American doctor has 90% drugs made in India. One out of every three pills taken by an American is from India.

Now, there is a catch. India may be the world’s pharmacy, but 70% of the medicines’ raw materials come from China. For USA to get the Indian medicines, the China-India, and India-USA supply chains must function.

Two weeks ago, China’s Sichuan Airlines suspended cargo flights to India for fifteen days. Worried, India’s pharma community has written to the Indian ambassador in Beijing urging him to resolve the issue.

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Third, financial services. If other than medicines, India is not great at exporting goods, it is a powerhouse for export of services. As many as 4.4 million Indians work in IT and business process backend, most working for American or European companies.

Banks are encouraging staff to work from home, shifting work out of India, and extending project deadlines. Work from home is complicated because employees are falling sick, or are looking after sick relatives. Security and data protection are additional challenges. Barclays employs 20,000 people in India. In India, banks fall under essential services. Stanchart CEO said the bank has suffered disproportionate share of cases among its branch staff.

The Big Four accounting firms (KPMG, PwC, EY and Deloitte) and Accenture together employ 350,000 Indians. Ernst & Young activated its contingency plans to shift work from India to other geographies. Accenture employs 200,000 people in seven Indian cities. They also have a plan to shift functions elsewhere if necessary.

In addition to the banks and accountancy firms, Amazon, Twitter, Google, Microsoft, Zoom and Indian IT giants Infosys and Wipro have donated money, medical equipment, opened covid care centers, and offered paid sick leave to their employees.

With vaccine nationalism and superior medical infrastructure, ordinary people in America and Britain may be able to celebrate a normal summer this year. However, those engaged in business will pray for India’s recovery. Front office loses its glamour without a well-functioning back office.

Ravi