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  • Varshini Kattamuri

economic impact of covid-19 in india and possibility of recession; an overview



What do you think coronavirus has done to us? I know you all got your own answers. This virus has changed many lives.

But you know what has been deeply impacted by this virus? Oh yes. It is our Indian economy indeed.


Coronavirus, along with Public Health Emergency, has become a major threat on world economy. The World bank and the Ministry of Statistics revised India's growth for FY 2021- real GDP being contracted by 4.5%. Well, this is the lowest figure India has seen in 3 decades since India's economic liberalization in the 1990s.


The Indian economy was expected to loose over Rs. 32, 000 crore (4.5 b USD) every day during the first 21 days of complete lockdown.


If we see sector-wise, there has been a lot of impact on manufacturing, airlines, theatres etc, but major impact has been on Travel & Tourism; which lead to collapse of hospitality industry. Due to fall in travel, global industrial activities have been affected. Oil prices fell in March as the Transportation sector, which accounts for 60% of the oil demand, was hit due to several countries imposing lockdowns.


Revenue of transport companies such as Ola cabs went down nearly 95% in March- April resulting in almost 1400 layoffs.


In terms of Unemployment- within a month during the lockdown, unemployment rose from 6.7% on 15th March to 26% on 19th April. During lockdown, almost 14 crore people lost their jobs while salaries were cut for many others.


In terms of trade- there has been a lot of stress on demand and supply chains in India and due to which consumer spending has been reduced.

Even at e-commerce level, companies like Amazon stopped sale of non-essential commodities to increase the sale and delivery of only essential items across the country.


IMF projected a decrease in food prices by 2.6% in 2020, caused by supply chain disruptions, border delays, food security concerns in regions affected by Covid-19 & export restrictions.


In terms of imports- as we know that our dependence on China for imports is huge, because China is the world's largest exporter and 2nd largest importer. Imports like electronical imports which contribute 45%, organic chemicals, pharmaceutical products/ ingredients were reduced eventually.



In terms of Agriculture- 10% of farmers could not harvest their crops in lockdown and 60% of those who did harvest reported a yield loss. Due to logistical problems following lockdown, tea & coffee were unable to harvest their first flush.

But by the end of April, under new lockdown guidelines to reopen the economy, agricultural businesses like dairy, tea, coffee, rubber plantations and associated shops & industries re-opened. Rs. 17, 986 crore has been transferred to farmers under the PM-KISAN scheme.


Defence- The Department of Military Affairs postponed all capital acquisitions until the coronavirus pandemic recedes. Also, in May 2020, Bipin Rawat, Chief of Defence Staff emphasized the need for India to minimize costly defence imports and boost domestic production.


State income and expenditure- State Governments incurred huge losses to the extent where they had to cut the capital expenses as well as Government plans in the near future and finding alternative ways to pay salaries. The Delhi government and Andhra Pradesh Government imposed a 70-75% "corona" extra tax on liquor, whereby such excise duty on liquor became the 3rd largest source of income for a number of states.



Economic package- On 12th May, India's overall economic package was announced as Rs. 20 lakh crore (10% of India's GDP), which is a mix of reforms, infrastructure buildings, support to stressed businesses and a certain amount of direct cash support. Along with this, changes in FDI policy, privatization of the power sector, provident fund contribution, ease of doing business and land reform measures were also announced.


Prime Minister Narendra Modi said the country should view the covid-19 crisis as an opportunity to achieve economic self-reliance. In his address to the nation, he stressed on importance of promoting "local" products. He called it Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission).


Although India has been battling with a pandemic, and with financial & economical threats looming all around, there is no need for financial emergency at the moment as the Government has come up with a support system with economic packages. Though reports stated that economic package did not address short term demand concerns, which may in turn pull down the economy even more, it was given a positive response for the necessary caution the government showed in its spending.



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