Indian Economy under Quarantine: How Long Will it Take to Recover?

Indian Economy under Quarantine: How Long Will it Take to Recover?

Scope of Computer Science Engineering

Covid-19, a global pandemic, spread across around 205 countries, has come on to become one of the most dreadful threats ever been witnessed by the human race. Originating in China in late 2019, the menace has breached many international boundaries.  Although, the positive cases and death toll are abounding in many developed countries, on economic front developing countries are amongst the worst hit owing to their lower export earnings, capital outflow, depreciating currencies and disrupted manufacturing supply chain.

In the light of social distancing being the only solution at present, the Indian Government proactively declared countrywide lockdown to break the corona chain and end the disease. Restricting people to home, placing the suspected under quarantine, hospitalising the infected and shutdown of economic activities barring the emergency services across the nation has put Indian economy also under quarantine.

Many sectors of Indian economy have been witnessing slowdown since the third quarter of the last financial year 2019-20. For instance, in automobile sector, falling demands and approaching deadline for implementation of BS6 emission norms have pushed the auto sales at the lowest in last two decades. The downfall was also seen majorly in construction, real estate and aviation sectors. Low rural demand, depressing private investment, high unemployment rate and rising NPAs & bad loans etc. have further pulled down the growth rate.

Since February 2020, the outbreak of Covid-19 in India has adversely impacted the survivors of last year’s slowdown such as the Travel and Tour, Hospitality, Textile and Gems and Jewellery Industries. The slowdown of manufacturing sector is now also hovering on service sector. The nationwide lockdown has pushed economy to a virtual standstill and almost closed all production activities, pushing economy under quarantine. There has been no revenue generation for the companies for weeks. And the longer the lockdown continues, deeper will be the recession. This will require multifaceted efforts to recover the economy. The V and U shaped recovery depends upon duration and magnitude of the efforts of the government, supported by other stakeholders.

S&P has slashed down India’s growth rate for FY21 from 5.5% to 3.5%. Fitch Ratings has sliced India’s growth projection from 5.1% to 2% for current fiscal year, which will be the lowest since the last 30 years. Dr. Santosh Mehrotra, an economist at JNU, Delhi highlighted in his recent study that 136 million non-agricultural jobs will be at risk post corona in India. According to the report of rating agency Crisil, real estate, airlines, auto dealers, gems and jewellery and steel are the worst affected sectors due to Covid-19.

The Indian consumer’s fear of job loss has reduced the consumption of the masses to the essentials only. Liquidity crunch is severely affecting the Corporate and the stock markets have become more risky and volatile than ever before. Still, five out of eight core industries (consist of 40.27% of IIP) have shown some growth in the month of February. Telecom, fertilizer, FMCG, pharma and food business are the least impacted. The respite is also in oil prices which is lowest since 2002.

Economist Paolo & Andrea from London Business School highlighted in their report titled ‘The Economics of Pandemics: The Case of Covid 19’ that if the world economic activity gets reduced to 50 percent in the Month of March and  25 percent in the next two months, the world GDP is likely to reduce to 10 percent and further 15 percent without any policy interventions. Major countries of the world are having high debt equity ratio, giving a gloomy picture of the Global economy. China’s initial reports of increasing default rate of retail finance by 50 percent, decrease in vehicle sale by 79 percent and initial increase in US unemployment rate in March 2020 are already the indications of emerging economic pains.

Although there is no reliable measure to gauge the impact of Covid-19 on the economy, it still forces us to imagine the post Covid-19 impact on major countries of the world, which may be worse than any other prior slowdowns of the last few decades that were mainly due to demand shock. But this time it is health shock and affecting supply side, which is not easy to recover as mentioned by World Bank India’s Chief. According to KPMG report, Covid-19 is unique as it is supply, demand and market shock. UN Report says that India is likely to be an exception due to its agriculture sector, which is still operational and contributes around 15 percent to its GDP. However, this Black Swan event is leaving us with the expression “History Repeats Itself’ (Pandemic 1918). Post Covid-19 world is unpredictable but preaches the economy to be more localized, cash rich, digital and malleable.

BY

Dr. Sheetal Mundra, Institute of Management, JKLU

covid-19 update