In this year, 2 September 2020 will mark the 75th anniversary of the end of World War II, when Japan surrendered in Tokyo Bay aboard the U.S.S. Missouri in 1945. If all goes well, the date might coincide with a return to a semblance of normalcy as the world recovers from the deadliest pandemic in over a century. For now COVID-19 rages on, with doomsdayers and naysayers spinning a web of pall and gloom. United Nations (UN) Secretary-General Antonio Guterres notes that this would have "an economic impact that will bring a recession that probably has no parallel in the recent past”, and emphasized that it is "the most challenging crisis we have faced since the Second World War”. Celebrated author and economist Nouriel Roubini has predicted deep global recession in his essay “The coming of the great depression of 2020”. Meanwhile, Goldman Sachs estimates that “India’s economy may contract by a huge 45% in the June quarter and the five percent projected fall in GDP will be far deeper” compared to all previous recessions. Further, the Bank of England has forecasted that the “coronavirus crisis will push the UK economy into its deepest recession in 300 years, with output plunging by almost 30% in the first half of the year”. But before we buy into such prophesies of despair, it is important to take solace in how England, Germany and Japan overcame the devastation of World War II and became stalwarts of economic progress and prosperity.
After the defeat of Japan in World War II, the United States led the Allies to occupy and rehabilitate Japan under General Douglas A. MacArthur, commander of the Supreme Command of Allied Powers (SCAP). Between 1945-52, the SCAP enacted widespread military, political, economic and social reforms. The rehabilitation of Japan was done in a phased manner, with the first phase comprising disarming and punishing Tokyo for its militarism and expansionist ideology. The second phase was economic in nature, and consisted of land reforms, breaking the monopolistic Japanese-style Zaibatsu conglomerates and introduced a free market economy. By 1947, a brand new constitution reduced the powers of the King and increased those of the parliamentary system. Greater rights were given to women and the citizenry, denouncing the right of the state to wage war thereby eliminating the need of an offensive armed force. By the third phase — beginning in 1950 — the SCAP had laid the foundation for Japan’s stable political and economic future and set course towards a formal peace treaty to end the war and occupation.
The onset of the Korean War in 1950 was a blessing in disguise for Japan. With radical reforms in place, Tokyo was ready to be the main supply depot for the UN forces. Firmly entrenched under the protection of the US, Japan entered into a pacifist era, which ensured that its resources were directed towards education and scientific advancement, rather than on building a large military arsenal. By the 1980s Japan was clearly one of the most advanced economies in the world — a country that had been nuked twice and brought down to its knees. This was possible not only because of radical reforms, but because the Japanese were ready to sacrifice pride, embrace reforms enforced by foreign powers, and were supported by an absolute resolve of its people.
In post-war Europe the situation was worse than Japan, its cities completely ravaged with no sign of hope unless something drastic was done to stimulate reconstruction on a massive scale. The fear of communism forced the American administration to swing into action in the winter of 1946–1947. The US Congress passed the Economic Cooperation Act in March 1948 and approved funding of over $12 billion for the rebuilding of Western Europe. The plan, put forward by George C. Marshall, became known as the “Marshall plan” and generated a resurgence of European industrialization and brought extensive investment in the region. It also provided stimulus to the US economy by establishing markets for American goods. The largest beneficiary of the Plan was England, followed by France and Germany. From 1945-47, material damage across Europe was repaired with remarkable speed, particularly in Germany. At the time of Hitler's death, just 10% of German railways were operational. By June 1946, 93% were working again with more than 800 bridges rebuilt.
The COVID-19 pandemic is just as devastating in terms of death and economic destruction, with over 300,000-recorded deaths and a total disruption of global supply chains. While it may be a gloom and doom scenario to some, it clearly presents an opportunity for world leaders to think outside the box and craft novel responses that were previously impossible due to political compulsions, trade or geopolitics. In such a case, bold measures should become the order of the day.
The Indian economy has never suffered due to war or pestilence of a scale endured by England, Germany and Japan on their own soil. What made them rise like a phoenix from the ashes was the sheer determination of the people to rise up to the challenge. The leaders forgot political differences and supported all efforts to rebuild their countries. India has a unique chance: it’s now or never. The Prime Minister has announced an economic reform package known as the Atmanirbhar Bharat Abhiyan of INR 20 lakh crores. While there is backlash at the package, the reform presents an opportunity to get rid of hackneyed bureaucratic procedure built on mistrust and corruption. A report by Barclays says that the government’s INR 21 lakh crores — including INR 8 lakh crores of measures announced by the Reserve Bank of India (RBI) — will make actual fiscal impact of only INR 1.5 lakh crores, or about 0.75% of the GDP. This is does not amount to 10% of the GDP, which is the stimulus promised by the PM. A large number of companies with weak balance sheets in aviation, hospitality and tourism sector have been hit the hardest with little hopes of revival. While the reforms have mainly addressed supply-side issues via a liquidity boost, it has failed to address industry specific demand for a rescue package. Injecting money into businesses directly has not happened.
The large scale movement of migrants since the lockdown has been the greatest since partition, and its handling has been absolutely abysmal by the Centre and the States. Unless this grave injustice is corrected, India cannot expect its infrastructure sector to take off. In a recent television interview, none other than the Union Expenditure Secretary said that “its difficult to dole out cash to migrating workers with no data”. This statement points to the States apathy towards migrant workers and the poor implementation of 1979 Inter-State Workmen Act passed over four decades ago. Vested interests are also questioning the labour reforms that are intended to promote employment — particularly at a time when hundreds of thousands who lost their jobs abroad are returning home. The country cannot ignore them since they slogged and sent billions of dollars in remittances to support economic growth of the country. The Unions and their leaders want to play politics and not help in increasing employment. Labour reforms by certain States have ensured that core issues of labour welfare remain protected. On the other hand, even good reforms must follow due process. Amendments to existing laws or ordinance passed by States to suspend them should not be done without a stakeholder consultative process. Labour is a subject in the concurrent list. As per Article 254 of the Indian Constitution, there cannot be inconsistency between laws made by the Parliament and those made by the State legislature.
For PM Narendra Modi, this economic emergency has many similarities with the 1991 balance of payment (BoP) crisis — but the cure is certainly different. PM Modi’s ability to woo foreign leaders is astounding. India can take the lead in forming a joint cooperation to revive trade and manufacturing with countries that are leaving China. The government has to work in toto with the industry and not operate in a silo after policy formulation. “Vocal for Local” must be clearly defined, and should not cause confusion or change in perception amongst foreign investors. The Atmanirbhar Bharat plan has vision, but it lacks clarity. The government will have to revisit its reforms sooner to take corrective action and not wait for time to tell the future generations that it did not work.
Fear has always been the key for drastic measures. The fear of the spread of communist ideology post-World War II forced the Allied powers to act and reconstruct Europe and Japan. The fear of economic collapse during the BoP crisis forced India to abolish the license raj. Presently, for India and the world, it is the fear of descending into an abyss of unending recession following the Covid-19 pandemic. Let us prove the Doomsdayers and the Naysayers wrong, the time is now.
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Mr. Sivaraman serves as the Chief Business Officer of the Andhra Pradesh Aerospace Defence and Electronics Park. He has been a part of the CII ...
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