Impact of COVID-19 on Indian economy
BY: RAYEES MASROOR
The noval coronavirus which first emerged in the Chinese city of Wuhan last December has not only posed a serious threat to the human lives but the virus outbreak has become one of the biggest threats to the global economy and financial markets. Major institutions and banks have already cut their forecasts for the global economy. Its impact and the subsequent lock down on the global economy has rocked markets worldwide. Amid the economic lockdown just as everywhere else in the world, the Indian economy is bracing for the fallout from this unprecedented event. It is expected that the lockdown will dramatically reduce GDP in subsequent quarters, while there will be a prolonged economic gloom throughout the rest of the year.
In an economy already reeling under a demand depression, rising unemployment and lowering industrial output and profits, all of which have happening together for several quarters now, a supply side constraint would deliver a big blow, jeopardizing growth prospects and social and economic well-being of a large population.
Since the outbreak of the virus in China, the import dependence on China has already had a significant impact on the Indian industry. In terms of exports, China is India’s 3rd largest export partner and accounts for around 5 percent share. At the same time the dependence of India on China is huge. China accounts for a significant share of the top 20 products that India imports from the world. India’s total electronic products account for 45 percent coming from China. Similarly 90 percent of certain mobile phones come from China besides significant share of automotive parts, fertilisers and organic chemicals.
Amid the ongoing three week lockdown both the production and distribution of all the non-essentials have come to a halt. Rising cases of local transmission of the virus has added to the concerns with a hit to many important sectors of the economy including travel, tourism, hospitality and aviation.
With coronavirus pandemic becoming more threatening by each passing day, India’s economy which was already going through a six year slowdown with a growth rate of mere 4.7 percent seems to have no chances of recovery in near or medium term.
With widespread fear and panic across the people of the country, consumption is also getting impacted due to job losses and decline in the income levels of people, particularly the daily-wage earners due to slowing activity in several sectors including retail, construction, entertainment and others. The shutdown of planes, trains and buses had forced people (inter-state migrant workers) to walk hundreds of kilometres with women and kids on the way to their homes. It is estimated that about 300 million informal workers could vulnerable amid this unprecedented lock down in the country.
Coronavirus pandemic amid an economic slowdown has also hit revenue at Indian retailers selling non-essential items like clothes and jewelry by almost 75 percent so far and is likely to cause widespread job losses. About 40 percent of the six million employees working in India’s modern, rather than traditional, retail sector could likely lose their jobs in the next four months if the government does not intervene.
Since the country-wide lockdown, adverse effects of the coronavirus on the economy have already begun to show. Besides the adversely affected production and distribution system, services sector, pharmaceutical industry, retail and entertainment industry, Indian information technology (IT) service companies and so many others sectors of the economy are likely to see a big hit to their revenues in coming weeks.
INR to USD exchange rate is already nearing the psychological barrier of Rs 75 per Dollar. If the barrage of capital outflows from India continues, Rupee may come under increasing pressure in the days to come.
In the present circumstances it does not require an economist to tell that a complete social and economic lockdown for 21 days would severely dent the economy and the economy on a downward spiral cannot find the bottom till the pandemic is contained globally. Although to mitigate the risk associated with the lockdown, the finance ministry came up with certain measures but it’s widely felt that the steps taken by the union government are too little and late. It’s being said that if the coronavirus spread continues, India’s growth will remain quite low in the first quarter of 20-21. Rating agency Moody’s has revised its growth forecast for India to 5.3 percent from its earlier estimates of 5.4 in February. Let’s hope and expect the present situation to pass through without much catastrophic consequences.
(Rayees Masroor is a writer and columnist and can be reached at [email protected])