Gradual opening will build confidence among consumers: Jim O’Neill

In the UK, that because of the successful vaccine rollout, if one opens up gradually, that actually seems to build confidence amongst consumers which helps the economy and which in turn makes earnings for stock markets more sustainable, says Jim O'Neill, Chairman, Chatham House.

How are you analysing this big crack in Indian equity markets? Having fallen 3.5%, we have underperformed the rest of the globe at a time when we had a solid handover from the US equity markets. Was Covid alone to blame?
This devastating pandemic keeps on catching many of us around the world by surprise. We keep learning from this pandemic and The evidence of 14-15 months shows that one cannot be ever sure that we have got ahead of it.

Secondly, the UK has learnt the lesson very painfully that it is best to be cautious. A year ago, I myself was partly guilty of thinking that there was a direct trade off between worrying about the economy being closed and in terms of the consequences of the pandemic on the economy. Now we find in the UK, that because of the successful vaccine rollout, if one opens up gradually, that actually seems to build confidence amongst consumers which helps the economy and which in turn makes earnings for stock markets more sustainable.

So it is right that the Indian authorities are probably trying to deal with this more aggressively and it means parts of the economy have to be closed down in the near term. That is sad for many individuals and businesses but it is better than leaving it to just do its own thing. We do not know where this is going to go, especially because of its further mutations.

Help me understand how the second wave impacted economies in other parts of the world beyond the UK.
I find it fascinating that people seem to adapt, particularly those who are fortunate enough to work more flexibly. Just today, the UK is coming out of a pretty long lockdown for its non-essential retail shops and yet many forms of consumer spending in recent weeks appear to have been rather good. Though the Indian economy and its nature and characteristics are very different, it is an important lesson because people have got more confidence that the government is in control of what is going on with this pandemic and so people have been spending more even though they have not been able to do so through their normal channels.

It is all a sign of belief that there was an end and a return to more permanent normality rather than the stop-start that we have seen in many places. That is one of the big things I have learnt observing what is going on here in the UK which has been such a contrast and a bit of a rollercoaster over the past 14 months. This time a year ago the UK was in a position where it did not really have a clue what it was doing and there was this very strong belief that we cannot shutdown for too long because it will cause devastation. And it did so for a while but now we are coming out of it much stronger than many other economies in the world.

What is interesting for India in that regard and, of course, given its vaccine production capabilities, now it is time for India to accelerate its vaccination to more and more people.

The other factor is that the mortality rate this time around is much lower. In that case, the fear of a prolonged economic impact could perhaps be a little overblown. Do you think the market is over reacting?
That is also possibly true. There are different characteristics to different societies in this pandemic and as you point out, India’s death rate has been much lower than so many other places. It may have something to do with the age demographic or the inbuilt resistance because of other infections and diseases that Indians are exposed to over time. So that is important but I guess the dilemma is that two months ago there was a belief that India has overcome it completely and so what we are probably seeing is just a bit of a shock that the infection is now spreading again. But indeed if this time next week, it looks like it is not leading to a lot more deaths than we have seen throughout the whole process, then it might make people a little bit less concerned.

But we would not want India to be in the position of say Brazil where at least from a distance all seems well. There are significant infection rates and deaths and the economy is struggling even though they are trying to keep it open.