Impact of Coronavirus on Indian Economy

Impact of Coronavirus on Indian Economy

The dread of losing jobs and the catastrophic repercussions on business due to COVID-19 is heavy in the air. Not just the common man but even the analyst and business expert fear the worst. The Indian economy was already reeling under the pressure of slow growth and a sharp decline in jobs. The consumption, so it seemed, was decreasing at a steady pace. Some called it lack of government understanding, while some called it just another business cycle, and some just ignored it! To prevent the situation from getting worse, the honorable Finance Minister Nirmala Sitharaman released a slew of relaxations in December 2019. And just when they were expecting the situation to improve, Corona hit! The impact of coronavirus on the Indian Economy is not direct, but a ripple effect!

It was predicted long before, that if there will be a World War, it would be biological, and Coronavirus is nothing less than a WAR! The entire world is abuzz with news, speculations and the rising cases and death tolls. Everybody is waiting for a cure, till the time this article was published, test kits have not been distributed throughout the country. And in situations when the number of patients is increasing by the second, an economic downturn is inevitable!

General Impact of COVID-19 on Indian Economy

Coronavirus is a contagious disease, the virus spreads through contact. As the vaccine for the same is not yet available, the only way to contain it was through isolation. Patients were getting isolated in hospitals, but the Indian Government decided to issue a country level isolation through ‘Janta Curfew’. Long before the curfew, advisories were issued to allow work from home. Many offices acted upon it, but there were those that couldn’t, not because they did not care about their employees, but because it wasn’t possible to carry operations under work from home model.

Retail stores, supply chains, real estate, manufacturing, hospitality, tourism, and service industry do not function from remote locations. Hampering operations, or in other words, bringing these sectors to a standstill, which is bound to downgrade economic development.

Dun & Bradstreet, a credit rating organization has estimated that the effect of the lockdown would be severe. Their earlier forecast of 5% GDP growth for the FY 2020 seems to be a long shot now, and the rate of growth in FY 2021 is all dependent on the situation post lockdown. The ‘Janta Curfew’ has brought the demand and supply to an abrupt halt.

Apart from the essentials, there isn’t much available in the market. Crude oil, energy, base metals and fertilizers have already seen a decline in the price. In view, the CPI and WPI inflation are expected to stay at 6.5-6.7% and 2.35-2.5% respectively.

The share market, which has lived on speculations, was also not spared from the effects of Coronavirus. In the second week of March 2020, the Indian Stock Market lost an estimated Rs. 10 lakh crores.

Corona impact on Industries
Information Source: People Matters

India Fights Against COVID-19 Impact!

Realizing the adverse effects and allaying fears of an economic breakdown, all governmental organizations are working towards stabilizing the economy. In line, our Honourable Finance Minister Nirmala Sitharaman, and RBI Governor Shaktikanta Das have announced policies that should set the ground rules for a hopeful future.

Finance Ministry Fights Back!

On March 27, 2020, Honorable Finance Minister Nirmala Sitharaman announced a care package under the aegis of Pradhan Mantri Garib Kalyan Yojna.

Key Takeaways:

  • Insurance cover of Rs 50 Lakh (US$ 71,540) per health worker fighting COVID-19 to be provided under the Insurance Scheme.
  • 80 crore poor people will get 5 kg of wheat or rice and 1 kg of preferred pulses for free every month for the next three months.
  • 20 crore women Jan Dhan account holders to get Rs 500 (US$ 7.15) per month for the next three months.
  • Increase in MNREGA wage to Rs 202 (US$ 2.89) a day from Rs 182 (US$ 2.60) to benefit 13.62 crore families.
  • Ex-Gratia of Rs 1,000 (US$ 14.30) to 3 crore poor senior citizens, poor widows and poor disabled.
  • Government to front-load Rs 2,000 (US$ 28.61) paid to farmers in the first week of April under existing PM Kisan Yojana to benefit 8.7 crore farmers.
  • Central Government has given orders to State Governments to use Building and Construction Workers Welfare Fund to provide relief to Construction Workers.
  • Free Gas Cylinders to 8 crore poor families for the next 3 months.
  • 24% of monthly wages deposited in the PF account for the next 3 months of people earning less than Rs. 15,000 per month in businesses employing less than 100 workers.
  • Employees’ Provident Fund Regulations will be amended to include Pandemic as the reason to allow the non-refundable advance of 75 percent of the amount or three months of the wages, whichever is lower, from their accounts.

Information Source: India Brand Equity Foundation

RBI Fights Back!

  • Repo rate and reverse repo rate have been reduced by 75 basis points to 4.4% and 90 basis points to 4% respectively.
  • A moratorium of 3 months on payment of installments of term loans with EMIs outstanding on March 31 from all commercial, regional, rural, NBFCs, and Small Finance Banks. Corporate, home, personal, and car loans are all under the ambit of this moratorium.
  • No hit on the credit score for the next 3 months.
  • Auction of targeted long term repo operations of 3-year tenor for total amount Rs 1,00,000 crore at a floating rate.
  • Reduction of CRR for all banks by 100 basis points. Will release Rs 1,37,000 crore across the banking system.
  • Accommodation under the Marginal Standing Facility to be increased from 2% from SLR to 3% with immediate effect till June 30. It will release Rs 1.37 lakh crore into the system.

Information Source: Economic Times

The packages and relaxations announced, the future still seems a little bleak. The actual effect on the economy and how soon it would bounce back is totally dependent on the situation after lockdown. The relaxation and care packages are going to increase government expenditure without building any new revenue streams. This would in-turn increase the burden on the economy. But let this be known, the Indian Economy has waded pressures in the past. First there was Mr. Manmohan Singh, who skillfully built the economic amidst downturn and then there was the team of Mr. Manmohan Singh and Mr Pranab Mukherjee who steered the economy away from the economic slowdown caused in 2008 by the recession in the US economy. With Honourable Prime Minister Narendra Modi leading the country with steady focus, the hopes are high that we would wade this danger with slight bruises!

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