Economic Consequences of a Pandemic

Owing to the deeper economic consequences of the current pandemic it is imperative to understand how the world will likely be changed five years from now

By Alam Srinivas

  • Lockdowns and depressed GDP affected the unorganised sector more than the organised one
  • Until the 18th century, the majority of the world trade was controlled by India and China
  • The net profits of the listed firms zoomed despite the small drop in revenues and a far greater decline in GDP
  • Like wars and natural disasters pandemics also impact the existing social, political and economic orders

In the short run, we know how a pandemic ravages economies across the world, throws millions out of jobs, disrupts production centres and global supply chains, and devastates government and business finances. In the immediate term, we realise that a few sectors thrive during a health crisis, some bounce back immediately given a semblance of stability, and a few take years before they reach normality. Over time, maybe a year or two, there are more jobs available, but the wages vary as they depend on specific sector-based demand-supply trends. 

However, what concerns us, more than two years after Covid-19, are the deeper economic consequences of the current pandemic. Five years from now, or a decade later, it is imperative to understand how the world is likely to change. In 2030s, will a ‘New Global Order’ emerge in the economic sense? For instance, the instant loss of millions of jobs can easily turn into extreme labour shortages, given the millions of deaths across nations. Or, the worldwide supply chains can give way to new ones, as the current China+1 strategy gains ground. 

More importantly, there are chances that several national economies, especially India, may take almost a decade to recover from the havoc. For example, the country’s finance minister, Nirmala Sitharaman, has hinted that the fiscal deficit, or the gap between the government’s expenditure and revenues, may get back to the pre-Covid level in 2024 or 2025. Thus, India will go through at least five years of fiscal instability, and its impact will last longer, say, another 5-10 years. Thus, many nations are likely to limp back to normalcy over the next several years. 


Freight containers on a Terminal with India and China flags. 3D Rendering

The objective behind the China+1 strategy is to change the global supply chain linkages. This can turn out to be to India’s advantage, as some of the foreign investments can shift from China and its Asian neighbours to India

Over the past two years, a major discussion point was whether it is better to impose lockdowns and shutdowns during a health crisis, or is it better for the government to adopt a hands-off approach. The pro-business and pro-trade lobby argued for the second option. After the harshness of the first lockdown in early 2020, which lasted for several weeks, was evident, even the governments favoured it. But there is a justification in saving lives first, at the expense of everything else. This is a more socio-humane, rather than economic, solution. 

In his book, The Age of Pandemics (1817-1920), Chinmay Tumbe writes about the three great global epidemics that wrecked and ruined nations during the period. Waves of recurring cases of cholera, plague and influenza during the 100 years, according to his estimates, killed 70 million people, of which 40 million died in the Indian subcontinent. In this period, the pro-traders, especially British experts, stood up against quarantines, which were imposed by many countries to combat cholera. They vehemently opposed any physical restrictions. 

For example, Benjamin Moseley (1742-1819), a physician, wrote, “Quarantines, always expensive to commerce, and often ruinous to individuals, are a reflection on the good sense of countries. No pestilential, or pandemic fever, was ever imported or exported, and I have always considered the fumigating ship letters, and shutting up the crews and passengers of vessels, on their arrival from foreign places, several weeks, for fear they would give diseases to others, which they have not themselves, as an ignorant, barbarous custom.” 

In the current context, the manner in which the migrants died during the first lockdown in India is presented as evidence. What many forget is that the closure wasn’t responsible for their miseries. The problem was with the manner in which the entire lockdown was managed. If consideration was given on the fact that migrant labour was out of jobs, and had to travel back to their villages and towns, the emergency was possibly avoidable. It was a man-made calamity, and the blame lies with the ones who imposed immediate restrictions. 


A curious aspect of the pandemic, which will unravel more over the next few years, is the impact on businesses. When the annual results of 2020-21, or the first year since Covid, came out, there were several contradictions. Studies showed that the overall revenues of companies that were listed on the Indian stock exchanges did come down, as expected as the economy tanked. However, the decline in the former was way lower than the one in the GDP growth rate. There can be two reasons to explain this seemingly-paradoxical trend. 

One is that some of the sectors, like health, IT, and technology grew rapidly during the calamity, as others such as travel, tourism, trade and construction suffered. The rise in the former made up for the latter twist, and overall topline was healthier than estimated. The second is that there was a tectonic shift from the unorganised sector to the organised one, and from the small and medium enterprises to the larger counterparts. Both are true. There is factual evidence for the first and anecdotal one for the second. For us, the second is crucial. 

Clearly, lockdowns and depressed GDP affected the unorganised sector more than the organised one. Tens of thousands of small unregistered units, usually owned by one or few individuals, shut down their shutters. The same happened to thousands of small registered units, which did not have the capital or sustenance powers to survive. The businesses of both these kinds of units shifted to the larger businesses, who survived, and some of which thrived. Thus, the scale of corporate existence swung from unorganised to organised, from small to large. 

For the government, this may be a boon, as registered and large companies are more likely to pay taxes, and fill up the Exchequer’s coffers. But for the millions, who owned the smaller businesses, it was the last nail in the coffin. These unemployed entrepreneurs, and those who depended on them, found themselves with minimal earning powers. In addition, they either don’t have the skills, or drive and passion to join the organised sector. They are more likely to wander in the corporate wilderness for a few years, or accept lower earnings. 

At the same time, studies found that the net profits of the listed firms zoomed despite the small drop in revenues, and a far greater decline in GDP. This can be explained by lower costs on administration, marketing and advertising, acceptance of work-from-home culture, and millions either being pink-slipped or paid lower salaries. This can be a bad omen if most companies continue to work in the same vein to rein in expenses. This will impact the GDP, as well as purchasing powers of individuals. This will have implications for GDP growth in the future. 


In the past pandemics, especially during the nineteenth century, Tumbe points out that as tens of millions of people died across the world, there was a huge labour shortage. For the skilled workforce at least, this translated into higher wages and more prosperous lives over the next few decades. As economies stumbled back to normal, the rising demand for workers forced companies to pay more to woo them. The demand became urgent because the pandemics claimed the lives of children and, hence, fewer people joined the workforce for several generations. 

Clearly, lockdowns and depressed GDP affected the unorganised sector more than the organised one. Tens of thousands of small unregistered units, usually owned by one or few individuals, shut down their shutters

This time, the implications for labour will be quite different. For one, most of the people who became the victims of the pandemic were earlier the elderly, and those already afflicted by other diseases, and later those were in their forties and fifties. This didn’t lead to a reduction in the labour force, especially in India, given the millions who became increasingly unemployed over the past several years. The fact remains that the Indian economy went through an extended slowdown period since 2013, and Covid exacerbated the unemployment rate for nearly a decade. 

Until now, the impact on children is minimal, and there will be greater availability of labour over the next decade. Hence, shortages will not occur. What will happen is that a huge proportion of the labour force will find itself inadequate. They will lack the requisite skills to deal with the fast-changing technologies, which will only accelerate in the future. Thus, while there will be labour abundance, most of the willing workers may be unemployable. Even if they find work, they will be paid far less compared to the ones who have the necessary skills. 


When the cholera epidemic became global in 1817 and continued its waves in different geographies over the next century, India was blamed as its origin. In fact, the disease was dubbed ‘Indian Cholera’ or ‘Asiatic Cholera’, and originated in Bengal, which then included West Bengal, Bangladesh, and parts of Bihar, Odisha and Jharkhand. In fact, Bengal was the epicentre from which it spread across the world, and across continents such as Asia, Europe, and the Americas. From Japan to the east, and Brazil to the west, almost no country was spared. 

As Tumbe explains in his book, cholera reached Singapore and Malaysia, which were ruled by the government of Bengal, and commanded by troops of the Bengal Native Infantry. From there, it spread to Thailand and Indonesia, and later to China through Canton, a major trading port. A ship that sailed from Java in 1822 helped the disease to enter Japan. A British expeditionary force from India took it westwards to Oman in 1821. The next stop was Iran, and the epidemic proceeded to Russia and Syria. Within decades, it gripped Europe and the Americas. 

Curiously, this marked a period of the ‘Great Global Economic Divergence’. Until the eighteenth century, the majority of the global wealth and world trade was owned and controlled by India and China. From then on, the West gained supremacy, and left the Asian elephant and dragon way behind. The three pandemics of cholera, plague and influenza between 1817 and 1920 were partially responsible for this trend. This was because the cholera blame-game acquired racial connotations, and dubbed India as backward and unclean. 

From then on, the western powers saw India as a country to be exploited. The vast wealth resources of India were thoroughly drained, and its riches were transferred to the Europeans. China went through a similar phase, and the Indian opium exported by the West to the dragon country destroyed it socially and culturally. It took another two hundred years for both India and China to bounce back, and be counted among the global economic superpowers. Obviously, there were other reasons for the rise of the West – ages of political revolution, renaissance and industrial revolution, and capital and technology. 

During this pandemic, China is in the same position that India was in 1817. It is established that the Covid wave began from the wet meat markets in China, and travelled westwards and eastwards to impact every nation. Trade wars, which began earlier and involved economic powers, became more virulent since 2020. The West, in a bid to punish China, aims to use the business levers to constrict the Dragon’s economy and strangulate its growth rates. The objective behind the China+1 strategy is to change the global supply chain linkages. 

This can turn out to be to India’s advantage, as some of the foreign investments can shift from China and its Asian neighbours to India. This can spur economic growth in the near future, if India plays its business cards well. But China is unlikely to give up easily. The power base that it has constructed over the past four decades cannot be shattered within a few years. Moreover, the West’s dependence on China is extensive, and the supply chain maps cannot be changed overnight. Stay tuned for several trade wars between Asia and the West, even as enemies from both sides become friends, and friends turn into foes. 

Clearly, for nations and businesses, as well as individuals (employers and employees), these are uncertain but interesting times. Like wars, natural disasters, and famines and droughts, pandemics too impact the existing social, political and economic orders. History has shown that this is indeed the case. Tumbe writes that this is exactly what happened in the nineteenth century during several waves of the three pandemics. And, rest assured, it will happen again. Only the implications and dynamics this time may be somewhat different and varied.

Alam Srinivas

Alam Srinivas is a business journalist with almost four decades of experience and has written for the Times of India,, India Today, Outlook, and San Jose Mercury News. He is working on a new book on the benefits and pitfalls of the Indian Bankruptcy Code.

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