E-Conclave Corona series: Provide guarantees to companies, protect salaries, says Martin Wolf

With the novel coronavirus pandemic taking the entire world hostage in less than four months and the global economy suffering the consequences due to the lockdown, noted expert on world economics Martin Wolf said that the governments must support citizens so that they don't venture out looking for help. Speaking at India Today's E-Conclave Corona series, Chief Economics Editor of the Financial Times shared some important tips on how India can protect its companies from coronavirus outbreak.

Martin Wolf suggested that the Indian government should make 'very large guarantees' to firms as they do not have the capacity to continue operations during the lockdown. The Indian government has imposed two lockdowns - Phase 1, from March 25 to April 14; and Phase 2, from April 14 to May 3.

"If people can't go out and work, they can't be expected to stay at home and starve to death. The first priority should be to support their living standards. The second focus of governments should be to support companies," he said. "My view is that governments should put a hold on all bankruptcy proceedings and encourage banks to support companies," Martin Wolf added.

Martin Wolf, while addressing the great economic crisis that companies across the globe are facing, said that governments must protect businesses. He said, "At the end of this, there will be some businesses that will be completely devastated and the government will have to look at those industries and see what sort of bailouts are appropriate."

Interestingly, India was not the first to put an entire nation under lockdown. China, Singapore, France, South Korea, Germany and the UK also implemented total confinement to stop the virus from spreading.

When asked about what measures India can consider under a lockdown of minimum 40 days, Wolf responded that India's focus should be on the maximum utilisation of its healthcare resources. "First, you have to use all medical resources you have and can create to deal with the medical side of the crisis. We know India has a relatively limited healthcare system so this is going to be quite a challenge," he said.

Wolf added, "Then, you have to protect people who are dramatically affected by the crisis. In the developed countries, we have rightly put in place systems to protect people's salaries. This is aimed at people's welfare. That's what you have to do but this is an enormously expensive process." Such measures will also escalate the fiscal deficit. "Public debt will rise. I think India needs to run a large fiscal deficit," he said.

Here are some important pointers from the expert on surviving shutdown:

How is the current crisis compared to previous ones?

• It's fundamentally different in its origin and nature... but in its intensity measured in the scale of the economic collapse we expect... it seems pretty clear that the output declines will be enormously greater... it is likely to be the greatest decline since the Great Depression.

On lockdown

• This choice [of lockdowns] is a forced one... if we just let the disease run rampant, it would first impose an enormous economic cost... costs directly in medical care and economic costs would be enormous.
• Now let's suppose we contain the disease... the disease remains subdued... then the economy can go back to normal.

What economic measures should we take?

• First, you have to use all medical resources you have and can create to deal with the medical side of the disease... We know India has a relatively limited health system so this is going to be quite a challenge.
• Then, you have to protect people who are dramatically affected... in the developed world we have rightly put in place systems to protect the people's salaries... this is aimed at people's welfare... that's what you want to do... this is enormously expensive... fiscal deficit will go up, public debt will rise. I think India needs to run a large fiscal deficit.
• If people can't go out to work... they can't be expected to stay home and starve to death. The first priority is to support their living standards... the second is to support companies... my view is put a hold on all bankruptcy proceedings... and governments should encourage banks to support companies.
• At the end of this, there will be some businesses that will be completely devastated... the government will have to look at those industries and see what sort of bailouts are appropriate.

On need to overhaul capitalism

• I do think there are deeper, longer run questions about how capitalism has been operating... there are a number of questions about corporate governance, the tendency towards monopoly and the need for a very strong competition policy... and there are also question about globalisation though I remain a supporter.

On threat to globalisation

• What is happening in many countries is resurgent nationalism, blame shifting and a retreat from globalisation, which was already underway... this has merely accelerated it... it will be a very bad thing. But it is happening.

On global and Indian economic recovery

• Globally, until we have got the pandemic under control GLOBALLY the world economy will not go back to normal... there's a difference on how long that might be... I think the best estimate is that we are going to have weak recovery... if we open up lockdowns too soon we will have a W recovery... activity will recover, virus will spread and economic activity will go down again... this year will be terrible... could be twice as bad as the IMF has predicted.

Race for new economic superpower

• It won't be decided by this virus... will be decided by policy... I have always felt China will become the biggest economy unless the US performs really, really well. The US will remain the dominant and most advanced economy... the performance of US economy will depend on its leadership, which is currently bad.

On trends for the future

• I think five-six years from now, we will find the pandemic has accelerated some tendencies... for example, things that can be organised remotely... foreign travel will diminish somewhat. I don't think the pandemic will be more than an accelerant [of already forming trends].

(Edited by Vivek Dubey)