Britain’s Prime Minister Boris Johnson has set off an alarm around the world, by announcing that a mutant strain of the Covid virus has gone “out of control”. Gripped by panic, the EU has closed its doors on British travel and goods. This response cannot really be called knee-jerk, in a year that has seen 1.7 million deaths due to Covid, and with cases in US and parts of EU back to mid-year levels. The EU Commission has, however, called for reasonable restrictions in an attempt to reconcile economic and health goals — a dilemma that has roiled policymakers this year. The developed world, which has started vaccinating its people, is pushing hard for a speedy return to normalcy — which is possible only if the new ‘super-spreader’ strain of Covid is nipped in the bud and does not outpace vaccination efforts. US infectious diseases expert Anthony Fauci has observed that the mutant virus is likely to have entered his country. Assuming that this strain has been around for the last two months, its entry into India cannot be ruled out.
At a time when India’s daily case numbers have dipped to June levels, any laxity may lead to a return to the situation that prevailed three months ago, derailing hopes of an early economic recovery in 2021-22. The priority now is to keep the new strain from spreading in the country. The government has stopped flight connections to UK until December 31 but that may not do; it should extend the ban until the UK is able to bring things under control. Second, all passengers flying in from abroad need to be tested at all airports and mandatory institutional quarantine has to be enforced, because the new strain may not be limited to the UK alone. We do not know whether this new strain is deadlier than prevailing ones; but what stares us in the face is a deeper global slowdown in the first quarter of 2021, owing to another phase of lockdowns, and a gradual recovery thereafter. The IMF has alluded to this possibility while commenting on the UK development, arguing for another stimulus in the EU.
Loose fiscal and monetary policies are expected to translate into higher capital flows into emerging economies, complicating liquidity management. A return of consumer confidence may be pushed back by a few months, with much depending on quick roll-out of the vaccines on offer. The UK also faces the prospect of a no-deal Brexit, which implies that it would trade with the EU on MFN terms. This could raise the cost of both UK’s imports and exports. India’s trade surplus with the UK of about $2 billion in 2019 (in a bilateral trade of $15 billion) could suffer in this scenario. While there is renewed uncertainty in the global economy, India needs to focus on the twin objectives of preventing the new strain from spreading while doing all it can to boost the nascent recovery in the economy.