Economic Impact of Covid-19 on India
Along with an unprecedented human toll, COVID-19 has triggered a deep economic crisis. The global economic impact could be broader than any that has been since the Great Depression. Leading Indian economists have said that India should prepare for a negative growth rate in FY21 and that the country would need a ?70 lakh crore (US$980 billion) stimulus to overcome the contraction. However, the International Monetary Fund projection for India for the Financial Year 2021-22 of 1.9% GDP growth is the highest among G-20 nations. Within a month, unemployment rose from 6.7% on 15 March to 26% on 19 April. During the lockdown, an estimated 140 million people have lost employment. More than 45% of households across the nation have reported an income drop as compared to the previous year. According to McKinsey’s scenario-based analysis, “the lockdown would contin`ue in roughly its current form until mid-May 2020, followed by a very gradual restarting of supply chains. This could put 32 million livelihoods at risk and swell NPLs by seven percentage points. The cost of stabilizing and protecting households, companies, and lenders could exceed 10 lakh crore Indian rupees (exceeding $130 billion), or more than 5 percent of GDP.” Given the uncertainty about the virus and how it will continue to develop, quantifying its economic impact is far from easy. Economists all over the world are struggling to make an assessment. Nevertheless, everyone is forced to make a call on the quantitative impact, as this needs to be taken into account in the forecasts. The Indian economy is expected to lose over Rs. 32,000 crore (US$4.5 billion) every day during a complete lockdown. Up to 53% of businesses in the country will be significantly affected. Supply chains have been put under stress with the lockdown restrictions in place; initially there was a lack of clarity in streamlining what is an essential and what is not. Those in the informal sectors and daily wage groups are the most at risk. A large number of farmers around the country who grow perishables are also facing uncertainty. Various businesses are laying off employees. The Government of India has announced a variety of measures to tackle the situation, from food security and extra funds for healthcare to sector related incentives and tax deadline extensions. On 26th March 2020, a number of economic relief measures for the poor were announced totalling over ?170,000 crore (US$24 billion). On 27th March 2020, the Reserve Bank of India also announced a number of measures which would make available ?374,000 crore (US$52 billion) to the country’s financial system. On 29th March 2020, the government allowed the movement of all essential aswell as non-essential goods during the lockdown. On 3rd April 2020, the central government released more funds to the states for tackling the coronavirus totalling to Rs. 28,379 crore (US$4.0 billion). The World Bank and Asian Development Bank have approved support to India to tackle the coronavirus pandemic. On 17th April 2020, the RBI Governor announced more measures to counter the economic impact of the pandemic including ?50,000 crore (US$7.0 billion) special finance to NABARD, SIDBI, and NHB. On 18th April 2020, to protect Indian companies during the pandemic, the government changed India’s foreign direct investment policy. The Prime Minister of India extended the lockdown up to 17th May 2020. A new set of guidelines for the calibrated opening of the economy and relaxation of the lockdown have also been put in place which have taken effect from May 4th, 2020 on the basis of classification of geographical zones. The Press Information Bureau brought out a fact check that stories about a financial emergency being imposed in India are fake. A financial emergency has never been imposed in the history of India as yet.
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State governments have incurred huge loses to the extent of having to cut capital expenses, government plans in the near future and finding alternate ways to pay salaries. The Delhi government has fallen 90% short in tax collection as compared to 2019 and is planning to take loans and raise taxes in certain sectors. Maharashtra has put a hold on all new capital works till March next year and spending under government development schemes has been reduced by 67% for the current fiscal. All said and done, as the Pandemic is beyond the reach of any mathematical models, there is an urgent need to take instant steps to not only contain the spread of the virus, but also to address the pain areas of the industry which can help in minimising the impact of the outbreak on the Indian economy and businesses. The Indian Government & RBI need to support the Indian industry and economy at this juncture in different ways and means including pump priming.
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