The economy is a very sensitive organism. – Hjalmar Schacht.
The coronovirus outbreak, which later turned into a pandemic, has adversely affected the stability of the economy of 150 countries — jeopardising their lifestyle, impacting business, and making us realise the assumption of common well-being that we had taken for granted.
India has been widely affected by this pandemic as well. Notably, India had been witnessing a pre-pandemic slowdown, and necessary measures taken by the government in the name of lockdown and induced market instability have only further magnified the pre-existing risks to India’s economic outlook.
1. As per the data released by the World Bank, India’s economy will shrink by 3.2% in financial year 2021.
2. As per a statement released by the Chief Indian Economist Of Goldman Sachs, the economic growth of India has been estimated at a low figure of only 1.6%.
Why Is The Indian Economy At A Downfall?
Taking into consideration their severe intensity, the governments at both Union and State level, commenced necessary action in the name of the lockdown due to which all economic activities came to a standstill. The governments’ only focus was on meeting the hyper demand of essential goods.
All major sectors i.e. primary, secondary and tertiary have been severely impacted.
Sectorial Impact
1. Raw Materials And Spare Parts
China is India’s third largest export partner for raw materials such as organic chemicals, minerals fuels, cotton etc. Due to the coronavirus pandemic and increasing tensions between the two countries due to military standoff in Ladakh, it has ultimately brought a severe jolt to the supply of essential raw materials used in the production of various products.
2. Agriculture
There is hardly any manpower available for agricultural purposes in different States. The lockdown has manifestly made it difficult for farmers to take their produce for sale to the market.
3. Apparel and Textile
The apparel and textile industry has been adversely affected due to disruption in labour supply, unavailability of raw material, restricted demand, shortage of working capital due to limited movement of people, and decline in purchasing capacity.
4. Building and Construction
The construction industry is going to face a dual challenge of high-interest payments and lack of sales.
5. Automobile Industry
The industry will continue to face challenges due to lack of demand because of falling income levels and global recession.
6. Pharmaceuticals
Nearly 70% of active pharmaceutical ingredients in India are imported from China.
Due to a rise in consumer demand for pharmaceutical products and shortage of APIs to manufacture drugs, the pharmaceutical market is witnessing skyrocketing prices. For instance, the price of vitamins and penicillin alone has already seen a 50% surge.
7. Tourism
The tourism sector is one of the worst-affected sectors, with visas being suspended and tourist attraction places being shut indefinitely. The whole tourism value chain that includes hotels, restaurants, agents and operators is expected to face losses worth thousands of crores.
8. Aviation
The aviation industry will also be one of the worst-affected sector in the next 12 months, as it’s highly unlikely that people will travel for leisure apart from essential travel.
Nearly 600 international flights to and from India and 90 domestic flights have been cancelled for varying periods, leading to a sharp drop in airline fares, even on popular local routes.
9. Banking Sector
Liquidity is expected to remain tight as the cost of borrowing in real terms will jump upwards. This is despite the Central bank’s efforts to reduce interest rates. Banks and financial institutions will be under immense pressure as the fear of NPAs, insolvency and bankruptcies will increase manifold.
10. Impact on trade
The United Nations Conference On Trade And Development (UNCTAD) has estimated that India’s trade impact due to the COVID-19 outbreak could be around USD 348 million.
The sad state of affairs is the effect of all the circumstantial conditions on the rupee value, exerting extra burden on the cost of imports of commodities and services in India and on the accumulated foreign reserves.
Repercussions On Employment
International Labour Organisation has estimated about 40 crore workers of the unorganised sector to go unemployed due to the pandemic.
As estimated by the Center For Monitoring Rate, the overall unemployment rate may have surged to 23%, with urban unemployment at nearly 31%.
Most of the rural population, particularly the daily wage earners, have been adversely affected as they are mostly employed in the informal sector, majorly in construction companies. Due to the shutdown, they have been rendered jobless and thus are being forced to migrate to their native place.
Many people have lost their jobs as the country is facing a period of slowdown and recession.
What Relief Measures Have Been Taken By The Government?
The Central Government has announced much-needed relief measures in areas of Income tax, GST, customs and central excise, corporate affairs, insolvency and bankruptcy, fisheries, banking sector and commerce with the intention of boosting the economy.
Atmanirbhar Bharat Abhiyan
Recently, the Prime Minister of India announced India’s self-reliant mission with economic packages worth Rs 20 lakh crores. The mission aims to make India self-reliant and cut down import dependencies, with a focus on supply chain reforms, rational tax system, simple and clear laws, capable human resources and a strong financial system.
Relief Measures Taken By The Reserve Bank Of India
The RBI reduced the reverse repo rate in April 2020 by 25 basis points to 3.75%. It also announced a refinancing window of Rs 50,000 crores for financial institutions NABARD and SIDBI.
The Road Ahead
Though the recovery of the underlying economy will be slow and will take around two years for normalcy to come back across sectors, this is the right time to start from scratch and prove our mettle. This pandemic has taught us a lesson of becoming self-reliant in every aspect and, for that to happen, not only the government and financial institutions need to take initiatives, but we the citizens of India should also take the responsibility to uplift the deteriorating economy.
In my opinion, we all should contribute to infrastructural development and rigorously work on the slogan of “Rebuild India Rejuvenate India”.