Impact of Covid-19 on the Indian Economy - B-AIM PICK selects

July 28, 2020

 

 

 

India faces a huge decline in government revenues and growth of the income for at least two quarters as the coronavirus hits economic activity of the country as a whole. A fall in investor sentiment impacts privatization plans, government and industry.

 

The economic impact of COVID-19 is very disturbing. No one has been spared of its ill effects. Economies of about 100 plus countries have been destroyed out of which some of them have asked for monetary help from IMF. Businesses across the world namely hospitality, entertainment, aviation etc have seen a major negative impact. Various sports events such as IPL and Olympics have been postponed. Schools and colleges have been closed. The virus has also disrupted the functioning of various online giants such as Amazon. Countries such as USA, Italy and Spain are suffering the most since their death toll is very high.

Impact on Economy:
There is a big shift in the world economic market and the share market has witnessed crashes day by day. Factories, Restaurants, Pubs, Markets, Flights, Super Markets, Malls, Universities and Colleges etc. were shut down. Fear of corona virus has limited the movement of the individuals. People were not even going to buy the daily essentials and these all were somewhere impacting the economy of the world as a whole. The Organization for Economic Co-operation and Development (OECD)reveals that they have cut their expectation for global growth to 2.4% from 2.9%, and warns that it could fall as low as 1.5%.

India faces a huge decline in government revenues and growth of the income for at least two quarters as the coronavirus hits economic activity of the country as a whole. A fall in investor sentiment impacts privatization plans, government and industry.

The lockdown in India will have a sizeable impact on the economy mainly on consumption which is the biggest component of GDP.

India’s total electronic imports is equal to 45% that of China. Around one-third of machinery and almost two-fifths of organic chemicals that India purchases come from China. For automotive parts and fertilisers China’s share in India’s import is more than 25%. Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain mobile phones come from China to India.

Disruption of supply chain and global trade
Covid-19 has disrupted global supply chains and this is generating spill over effects throughout different levels of supplier networks. Global trade in 2020 will fall in every region of the world, and will affect all sectors of the economy. This will impact countries that are strong exporters (no output for their local companies), but also those that are importers (lack of raw materials). The World Trade Organization (WTO) expects global trade to fall up to 32% this year due to the coronavirus pandemic.

Conclusion
A global recession now seems inevitable. But how deep and long the downturn will be depends on the success of measures taken to prevent the spread of COVID-19, the effects of government policies to alleviate liquidity problems in SMEs and to support families under financial distress. It also depends upon how companies react and prepare for the re-start of economic activities. And, above all, it depends on how long the current lockdowns will last.
The country is facing an extra ordinary challenging time in this financial year. India has to urgently find a way to cushion the demand side shocks induced by potential lockdowns and other ongoing containment measure.

Developing countries like India has more fragile economic and social fabric and the present situation will create more suffering for the unorganizedsectors and migrant labour. Borrowing the words of former RBI governor C Rangarajan “Government of India must provide lifelines to businesses - extend loans and tax waivers to small businesses and the self-employed to retain staff -- give direct support to severely affected industries and provide more funds to states, tax waivers to households etc.”


(Ishita Agarwal. MBA(Finance) from Ajay Kumar Garg Institute of Management has contributed to the blog)

 

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