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The Pandemic Game-Changer

The Pandemic Game-Changer

The Economic Times, 14-04-2020

By Rekha Sethi

Covid-19 is the first truly global pandemic. It has spread faster and wider than any previous epidemic because of global connectedness. But because of the same reason, it has allowed the world to fight together in this battle against this contagion.

India has fared better, so far, compared to many other countries. Acting early by a nationwide lockdown — which Prime Minister Narendra Modi announced on Tuesday to have been extended till May 3 — has helped. But there is need for continued vigilance to ensure that neither imported nor community transmission occurs.

A more clear and present test is of managing the economic consequences of Covid-19. China’s economy has tanked by double-digit percentage during the first quarter. IMF has predicted that for the whole of 2020, the global economic output growth would be negative. India’s economic growth projections have been put at under 3% for the year.

Economic activity could be resusciated if the pandemic runs its course in a month or two. The best way to look at the current economic paralysis is as a deferment of production and income, which can be, with the right policy levers and stimuli, made up over time.

The key to economic recovery is rapid containment of the pandemic to a level that allows progressive resumption of business. Historically, pandemics have a graph of starting slowly, gaining momentum, peaking and petering out. Wuhan, where Covid-19 originated in China, and which was locked down for nearly three months, has started returning to a semblance of normality. Covid-19 is showing signs of having reached its crest in the most-affected parts of Europe.

If Wuhan can be taken as a model for Covid’s peaking and waning, then one can budget 2-3 months of staggered economic shutdown before resumption of regular business.

Post-Covid-19, the world will not go back to the old normal. Behavioural changes involving work, social interaction and governance will linger on and many of the changes could even become permanent. The most obvious change has been in the way we work. While ‘remote work’ technologies have been around for decades, most businesses have favoured physical presence and interaction for work and supervision. They have invested in buildings and prioritised employees commuting to one place, instead of reaching out to people wherever they are.

Covid-19 has helped everyone appreciate remote work technology a little more. Bosses are learning to trust their remote colleagues, and the latter have learned to work remotely. Thanks to remote work, a lot of the back-office and services sector work has continued during the lockdown. Much of education is moving online and a physical-virtual hybrid will probably be the default mode in the future.

The disruption of production, logistics and travel has made businesses review their attitudes towards automation. The scars of the current crisis will encourage development and adoption of business automation solutions. The larger companies will lead business process automation and will propagate mobile, cloud, Internet-of-Things, robotics and AI throughout their supply chains. Even the small businesses would be compelled to look at using third-party digital business process services, such as e-commerce platforms. The slapdash ramping up of online capacity-building in the wake of lockdowns will be followed by strategic automation efforts.

This crisis is an inflection point for the gig economy. The lack of income and healthcare security of gig workers and contractors has been cruelly exposed by the lockdown. It is reasonable to expect that there will be some changes in the terms of gig contracts and some kind of safety net will have to be built into those. Consumers should be prepared to pay a little more for taxis and deliveries in the future.

Citizens should also be prepared to pay a little more in the post-Covid-19 era. The extensive relief programmes announced by governments all over the world have to be funded. Governments are paying for food and healthcare for many, deferring taxes and debt repayments of the private sector, lowering interest rates and stuffing more money into the financial system. A lot of the private losses during this period will be nationalised to protect sectors and organisations central to the economy.

Some governments are reducing the stress on public finances through informal taxation in the form of citizens’ donations to the government. Most countries are likely to see the impact of Covid-19 on their fiscal and monetary policies for many quarters to come.

Global supply chains will certainly see significant changes because of the breakdown of global production and logistics. The just-in-time and lean management practices have proven vulnerable and businesses are likely to be more willing to invest in reserve inventories and suppliers. The high dependence on China for manufacturing of electronics, auto parts, and pharma ingredients is likely to be reduced. India could benefit from a reorganisation of global supply chains provided things do not get any worse from here onwards. It is likely that most global companies would prefer to have a certain minimum local supply chain close to their manufacturing sites.

The Covid-19 crisis has challenged the management orthodoxy, and it will force a fundamental rethink of business structures, processes and behaviour in the years to come.

(The writer is Director General, All India Management Association)