COVID Impact on Indian Economy

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. India’s growth within the fourth quarter of the financial year 2020 went all the way down to 3.1% in step with the Ministry of Statistics. The Chief Economic Adviser to the govt. of India said that this drop is principal because of the coronavirus pandemic effect on the Indian economy. Notably, India had also been witnessing a pre-pandemic slowdown, and per the globe Bank, this pandemic has “magnified pre-existing risks to India’s economic outlook”. The govt. of India announced a spread of measures to tackle the case, from food security and further funds for healthcare and for the states to sector-related incentives and tax deadline extensions. On 26 March variety of economic relief measures for the poor were announced totaling over ₹170,000 crores (US$24 billion). The subsequent day the depository financial institution of India also announced a variety of measures which might make available ₹374,000 crores (US$52 billion) to the country’s economic system. The globe Bank and Asian Development Bank approved support to India to tackle the coronavirus pandemic.

Introduction

The World Bank and rating agencies had initially revised India’s growth for FY2021 with all-time low figures India has seen in three decades since India’s economic liberalization within the 1990s. However, after the announcement of the economic package in mid-May, India’s GDP estimates were downgraded even more to negative figures, signaling a deep recession. (The ratings of over 30 countries are downgraded during this era.) On 26 May, CRISIL announced that this can perhaps be India’s worst recession since independence. The banking concern of India research estimates a contraction of over 40% within the GDP in Q1 FY21. The contraction won’t be uniform, rather it’ll differ consistent with various parameters like state and sector. On 1 September 2020, the Ministry of Statistics released the GDP figures for Q1 (April to June) FY21, which showed a contraction of 24% as compared to the identical period the year before.

How COVID Impacted Unemployment?

Unemployment rose from 6.7% on 15 March to 26% on 19 April so go into reverse to pre-lockdown levels by mid-June. During the lockdown, an estimated 14 crore (140 million) people lost employment while salaries were cut for several others. quite 45% of households across the state have reported an income drop as compared to the previous year. The Indian economy was expected to lose over ₹32,000 crores (US$4.5 billion) daily during the primary 21-days of complete lockdown, which was declared following the coronavirus outbreak. Under complete lockdown, but 1 / 4 of India’s $2.8 trillion economic movements were functional. Up to 53% of companies within the country were projected to be significantly affected. Supply chains are put out stress with the lockdown restrictions in place; initially, there was an absence of clarity in streamlining what an “essential” is and what’s not. Those within the informal sectors and daily wage groups are at the foremost risk. an outsized number of farmers around the country who grow perishables also faced uncertainty.

Effect of COVID on Big Companies or Young Startups

Major companies in India like Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group, BHEL, and Tata Motors have temporarily suspended or significantly reduced operations. Young startups are impacted as funding has fallen. Fast-moving commodity companies within the country have significantly reduced operations and are specializing in essentials. Stock markets in India posted their worst losses in history on 23 March 2020. However, on 25 March, sooner or later after an entire 21-day lockdown was announced by the Prime Minister, SENSEX and NIFTY posted their biggest gains in 11 years.

In India, up to 53% of companies have specified a particular amount of impact of shutdowns caused because of COVID-19 on operations, as per a FICCI survey in March. By 24 April the percentage had increased nearly 19% within a month, reaching 26% unemployment across India, per the ‘Centre for Monitoring Indian Economy’. Around (14 crores) Indians lost employment during the lockdown. Over 45% of households across the state reported an income drop as compared to the previous year. Various businesses like hotels and airlines cut salaries and lay off employees. Revenue of transport companies like Ola Cabs went down nearly 95% in March-April leading to 1400 layoffs. it absolutely was estimated that the loss to the tourism industry is going to be ₹15,000 crores (US$2.1 billion) for March and April alone. CII, ASSOCHAM, and FAITH estimate that a large chunk of the workforce attached tourism within the country faces unemployment.]Live events industry saw an estimated loss of ₹3,000 crores (US$420 million).

The number of young startups is impacted as funding has fallen. A Data Labs report shows a forty-five decrease within the total growth-stage funding (Series A round) as compared to Q4 2019. Per a KPMG report, working capital in Indian startups has fallen over 50% in Q1 2020 from Q4 2019.

How COVID Affected the System of Government?

Government revenue has been severely affected with assembling taking place, and as a result, the govt has been trying to search out ways of reducing its own costs On 10 May 2020, Union Minister Nitin Gadkari said that some states did not have enough money to pay salaries within the near future. In April, former banking company of India chief Raghuram Rajan said that the coronavirus pandemic in India could be the “greatest emergency since Independence”, while the previous Chief Economic Advisor to the govt. of India said in April that India should harden a negative rate of growth in FY21. The Indian economy was expected to lose over ₹32,000 crores (US$4.5 billion) a day during the primary 21 days of the lockdown, in keeping with Acute Ratings. Barclays said the value of the primary 21 days of shutdown yet because the previous two shorter ones will total to around ₹8.5 lakh crore (US$120 billion). Confederation of the Indian Industry (CII) had sought an economic fiscal stimulus package of 1% of India’s GDP amounting to ₹2 lakh crore (US$28 billion). The fiscal package and financial policies approach is being compared to what went on in other countries like Germany, Brazil, and Japan. Jefferies Group said that the govt can spend ₹1.3 lakh crore (US$18 billion) to fight the impact of coronavirus. Bloomberg’s economists say a minimum of ₹2.15 lakh crore (US$30 billion) has to be spent. Former CEA Arvind Subramanian said that India would wish a ₹10 trillion (US$140 billion) stimulus to beat the contraction.

Conclusion

At the beginning of May, Duvvuri Subbarao, a former RBI governor, said that India could foresee a V-shaped recovery. A V-shaped recovery is the best outcome. Arthur D. Little, a world consulting company, has suggested that India will likely see a W-shaped recovery. Mythili Bhusnurmath writes within the Economic Times that U- shaped recovery is that the presumably followed by an L-shaped recovery. CRISIL chief economist says if things go well, that if the virus is contained, we will expect a V- recovery, otherwise it’ll find yourself as a U-recovery.
In the second week of May, companies started preparations for restarting operations. Some companies opened offices with the most permitted strength of 33% while others took a more cautious approach of as low as five percent. The start of June saw the company’s further reopen and planning to reopen. A study by Elara Securities Inc. found that five Indian states, Kerala, Punjab, Tamil Nadu, Haryana, and Karnataka, are contributing 27% to India’s GDP as India emerges from a complete lockdown. By mid-June, unemployment levels were back to pre-lockdown levels. Online sales reached pre-COVID level sales by June end. Hindustan Unilever registered pre-COVID levels in sales in late June. On 2 July 2020, the days of India reported that a variety of economic indicators like the manufacturers purchasing managers’ index, goods movement, GST collections, electricity usage, and rail freight transport showed significant improvement as compared to previous months. On 24 July 2020 Ajay Bhushan Pandey, the Finance Secretary of India, said that the “Indian economy could revive ahead of we expect” while Tarun Bajaj, the Economic Affairs Secretary said that he expects a v-shaped recovery. Localized intermittent shutdowns in July were seen to negatively affect aspects of the country’s economic recovery. On 29 July 2020, the cupboard of India passed the National Educational Policy 2020 geared toward strengthening the economy.

References

  1. yas, Mahesh (21 April 2020). “Unemployment rate touches 26%”. Centre for Monitoring Indian Economy (CMIE). Retrieved 24 April 2020.
  2.  Sharma, Yogima Seth (24 June 2020). “Unemployment rate falls to pre-lockdown level: CMIE”. The Economic Times. Retrieved 24 June 2020.
  3.   Goyal, Malini (22 March 2020). “Covid-19: How the deadly virus hints at a looming financial crisis”. The Economic Times. Retrieved 23 March 2020.
  4.  Research, Centre for Policy. “Podcast: How has India’s lockdown impacted unemployment rates and income levels?”. Scroll.in. Retrieved 24 April 2020.
  5.   “Covid-19 lockdown estimated to cost India $4.5 billion a day: Acuité Ratings”. Business Line. 2 April 2020. Retrieved 11 April2020.
  6.  PTI (25 March 2020). “Experts peg India’s cost of coronavirus lockdown at USD 120 bn”. The Hindu @businessline. Retrieved 25 March 2020.
  7. “Lockdown relaxation⁠— more than half of India’s economy may reopen from Monday, says Nomura”. Business Insider. Retrieved 18 April 2020.
  8.   Biman.Mukherji (23 March 2020). “Coronavirus impact: Indian industry seeks relief measures to aid the economy”. Livemint. Retrieved 23 March 2020.
  9.   Chaudhry, Siraj A. (26 March 2020). “Covid-19 puts India’s food supply chain to a stress-test”. The Hindu @businessline. Retrieved 26 March 2020.
  10. Das, Goutam (30 March 2020). “136 million jobs at risk in post-corona India”. Livemint. Retrieved 2 April 2020.1
  11.  “Young Indian startups hit as investors get cautious”. Outlook India. IANS. 1 April 2020. Retrieved 1 April 2020.
  12. Singh, Sandeep (1 April 2020). “Covid-19 Pandemic Spoils Indian Startup Funding Party, Growth Stage Worst Hit in Q1 2020”. Inc42 Media. Retrieved 1 April 2020.

Questions

Q1. How COVID impact Unemployment?

Unemployment rose from 6.7% on 15 March to 26% on 19 April so go into reverse to pre-lockdown levels by mid-June. During the lockdown, an estimated 14 crore (140 million) people lost employment while salaries were cut for several others. quite 45% of households across the state have reported an income drop as compared to the previous year.

Q2. Effect of COVID on Big companies or young startups?

Major companies in India like Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group, BHEL, and Tata Motors have temporarily suspended or significantly reduced operations. Young startups are impacted as funding has fallen. Fast-moving commodity companies within the country have significantly reduced operations and are specializing in essentials. The number of young startups is impacted as funding has fallen. A Data Labs report shows a forty-five decrease within the total growth-stage funding (Series A round) as compared to Q4 2019. Per a KPMG report, working capital in Indian startups has fallen over 50% in Q1 2020 from Q4 2019.

Q3. How COVID affect the system of government?

Government revenue has been severely affected with assembling taking place, and as a result, the govt has been trying to search out ways of reducing its own costs On 10 May 2020, Union Minister Nitin Gadkari said that some states did not have enough money to pay salaries within the near future. In April, former banking company of India chief Raghuram Rajan said that the coronavirus pandemic in India could be the “greatest emergency since Independence”, while the previous Chief Economic Advisor to the govt. of India said in April that India should harden a negative rate of growth in FY21.

Q4. Impact on sectorial due to COVID?

The National Restaurant Association of India (NRAI), which represents 500,000-plus restaurants across the country, has advised its members to shut down dine-in operations starting Wednesday till March 31, 2020. This will impact the operations of thousands of dine-in restaurants, pubs, bars, and cafes. The food and agriculture sector contributes the highest in GDP i.e. 16.5% and 43% to the employment sector. The major portion of the food processing sector deals with dairy (29%), edible oil (32%), and cereals (10%).

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