TITLE – IMPACT OF COVID ON INDIA’S GDP

NAME – SIMRAN MANOJ RAJPAL

ROLL NUMBER – 97

SPECIALIZATION – FYMCOM(ADVANCE ACCOUNTANCY)

The outbreak of Coronavirus disease 2019 (COVID-19), first identified in Wuhan, the capital of
Hubei, China, in December 2019 and since then having spread globally, has been recognised as a
pandemic by the World Health Organization (WHO) on 11 March 2020. India is widely affected
by this pandemic. As on 29.04.2020, more than 31000 cases of Coronavirus have been confirmed
in India with more than 1000 deaths.

Taking into consideration its severe intensity, seen in the context of India having the highest rate
of density population in the world, the Governments, both at Union and State levels, commenced
necessary actions on war footing to prevent the spread of this pandemic. It was all the more so
when it is known that this deadly disease has no medicinal cure.

The effect of Corona virus is badly felt and noticed in the world's most developed countries like
USA, Britain and Germany etc. Obviously, India was bound to be affected not only because of its
domestic slowdown but also because of international recession. Learning the lessons from the
developed countries like Spain and Italy, India put all its machinery and material into motion to
curb and/or prevent the disease. What started as one day Janta Curfew on 22.03.2020 by the
Prime Minister of India and lockdowns by some of the state governments, the entire country was
declared to be under lockdown from the midnight of 24.03.2020, and the same continues to be so
till now or atleast till 03.05.2020, unless extended.

Resultantly, everything and every activity, barring the activities relating to and concerning with
the essential supplies came to a complete grinding halt. Though the improvement in the
environment due to such a lockdown was a silver lining, however the toll on economy due to this
lockdown is too early to be estimated.

While presenting the Finance Bill for the year 2020-21, the Union Government on 01.02.2020
had reasonably estimated India's nominal GDP growth rate (i.e., real growth + inflation) of 10
percent, however, the same now seems far from reality and certainty. The slowdown in demand,
closure of production activities, fall in the global price of crude oil, ban on foreign trade, price
decrease in the commodities like energy, metals and fertilizers, restrictions on the aviation
industry as also on tourism, amongst others, are bound to exert downward pressure on the
inflation, thus adversely affecting the economy chart. It is believed that India's aggressive
lockdown could bring the country's growth down to 2.5 percent from 4.5 percent it had earlier
estimated. However, as per a statement released by Chief India Economist of Goldman Sachs on
09.04.2020, the economic growth of India has been estimated at a low figure of 1.6% only

Overall uncertainty and lack of demand, coupled with no investment seen in near future, the
Indian stock markets crashed. A UN report estimated a trade impact of more than USD 350
million on India due to this outbreak, making India one of the top worst affected economies
across the world. During the same time, Asian Development Bank estimated the loss to Indian
economy due to this outbreak upto USD 29.9 billion. The worst crash of Indian stock market by
2352.6 points on one single day on 12.03.2020 is a cause of concern for all the Indian economists

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and economic advisors. However, after the declaration of complete lockdown, Sensex and Nifty
gained a little, adding a value of about USD 66 billion to investors' wealth. The trend however
reveals that the curve has been meandrical with absolute uncertainty.

Corona virus had its impact in the industry in general, which has seen, not only cutting the
salaries but also laying off its employees. The hotels are vacant and airlines have closed their
wings. The live events industry has also estimated a loss of more than Rs. 3000 crores.

The Economic Impact of 2020 Coronavirus Pandemic in India has been largely disruptive.
India’s growth in the fourth quarter of the Fiscal Year 2020 went down to 3.1 % according to the
Ministry of Statistics. The Chief Economic Advisor to the Government of India said that this
drop is mainly due to the Coronavirus Pandemic effect on the Indian Economy. Notably India
had also been witnessing a Pre-pandemic slowdown, and according to the World Bank, the
current Pandemic has “Magnified Pre-existing risks to India’s Economic Outlook.”

The Economic Impact of the COVID-19 Pandemic in India

IMF World Economic Outlook April 2020 Real GDP growth rate Map showing real GDP growth
rates in 2020, as projected by the IMF.
Date March 2020 – present

Type - Global Recession

Cause - COVID-19 pandemic-induced market instability and lockdown

Outcome –

a) Sharp rise in unemployment

b) Stress on supply chains
c) Decrease in government income
d) Collapse of the tourism industry
e) Collapse of the hospitality industry
f) Reduced consumer activity
g) Plunge in fuel consumption. Rise in LPG sales.

The World Bank and rating agencies had initially revised India's growth for FY2021 with the
lowest figures India has seen in three decades since India's economic liberalization in the 1990s.
However after the announcement of the economic package in mid-May, India's GDP estimates
were downgraded even to negative figures, a signal a deep recession. (The ratings of over 30
countries have been downgraded during this period.) On 26 May, CRISIL announced that this
will perhaps be India's worst recession since independence. State Bank of India research
estimates a contraction of over 40% in the GDP in Q1 FY21.

Major Effects of the COVID – 19

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 a) Within a month, unemployment rose from 6.7% on 15 March to 26% on 19 April.
b) During the lockdown, an estimated 14 crore (140 million) people lost employment while
salaries were cut for many others.
c) More than 45% of households across the nation have reported an income drop as
compared to the previous year.
d) The Indian economy was expected to lose over ₹32,000 crore (US$4.5 billion) every day
during the first 21-days of complete lockdown, which was declared following the
coronavirus outbreak.
e) Under complete lockdown, less than a quarter of India's $2.8 trillion economic movement
was functional.
f) Up to 53% of businesses in the country were projected to be significantly affected.
g) Supply chains have been put under stress with the lockdown restrictions in place; initially,
there was a lack of clarity in streamlining what an "essential" is and what is not.
h) Those in the informal sectors and daily wage groups have been at the most risk.
i) A large number of farmers around the country who grow perishables also faced
uncertainty.

Major companies in India such as Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim
Industries, Aditya Birla Group,BHEL and Tata Motors have temporarily suspended or
significantly reduced operations. Young startups have been impacted as funding has fallen. Fast-
moving consumer goods companies in the country have significantly reduced operations and are
focusing on essentials. Stock markets in India posted their worst loses in history on 23 March
2020.However, on 25 March, one day after a complete 21-day lockdown was announced by the
Prime Minister, SENSEX and NIFTY posted their biggest gains in 11 years.

Indices: S&P BSE 500 (1 January 2015 to 9 May 2020)

The Government of India announced a variety of measures to tackle the situation, from food
security and extra funds for healthcare and for the states, to sector related incentives and tax
deadline extensions. On 26 March a number of economic relief measures for the poor were
announced totaling over ₹170,000 crore (US$24 billion). The next day the Reserve Bank of India
also announced a number of measures which would make available ₹374,000 crore (US$52
billion) to the country's financial system. The World Bank and Asian Development Bank
approved support to India to tackle the coronavirus pandemic.

The different phases of India's lockdown upto the "first unlock" on 1 June had varying degrees of
the opening of the economy. On 17 April, the RBI Governor announced more measures to
counter the economic impact of the pandemic including ₹50,000 crore (US$7.0 billion) special
finance to NABARD, SIDBI, and NHB.On 18 April, to protect Indian companies during the
pandemic, the government changed India's foreign direct investment policy. The Department of
Military Affairs put on hold all capital acquisitions for the beginning of the financial year. The
Chief of Defence Staff has announced that India should minimize costly defense imports and give
a chance to domestic production; also making sure not to "misrepresent operational
requirements".

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On 12 May the Prime Minister announced an overall economic package worth ₹20 lakh crore
(US$280 billion) 10% of India's GDP, with emphasis on India as a self-reliant nation. During the
next five days the Finance Minister announced the details of the economic package. Two days
later the Cabinet cleared a number of proposals in the economic package including a free food
grains package.

Economic impact of Covid-19 pandemic to vary in sectors - India needs to track its consumption
expenditure along with employment data for policy intervention.

 If the Indian economy were a person, her income in 2020-21 and 2021-22 would be less than
what it was in 2019-20. At least, this is what the latest World Bank forecasts tell us. There is
enormous, perhaps unprecedented, economic pain ahead. Both policy and politics will have to
play an important role to alleviate this. Bad policy can delay, even derail economic revival. Good
politics can ensure that the suffering of the masses is minimized. What can be done to ensure
this?

Three-part series in these pages looked at the nature of economic challenge facing India in detail.
Its main argument was that India needs a demand-side intervention. But Indian economy is both
huge and diverse. The policy response will have to be mindful of this diversity. Only then can
suitable measures be applied where they are needed. Policy, especially in times of crisis, is also a
question of distributing scarce resources among competing needs.

In a democracy, politics influences this process in a big way. This two-part series tries to address
these questions. The first part will highlight how the contraction in growth will not be uniform
across regions and sectors. The second part will discuss possible avenues of political mobilization

Earlier this week, the World Bank released its Global Economic Prospects report. It expects
India’s gross domestic product (GDP) to contract by 3.2% in 2020-21. There will be a moderate
recovery to 3.1% growth in 2021-22. This means that 2021-22 GDP will be less than what it was
in 2019-20. To be sure, India is not the only country which will face this predicament. The East
Asian region seems to be the only exception. (See Chart 1)

What does a contraction in GDP mean in real life? Incomes will drop. Jobs will be lost.
However, the impact of the contraction will vary across sectors, states, even social groups. This
knowledge is indispensible for an effective policy intervention.

For example, it can be expected that at least two sectors; agriculture and government, will not see
a contraction. In 2019-20, these two sectors had a share of almost 30% in total Gross Value
Added (GVA). This means that the economic pain will be far more severe in the rest of the
economy.

Let us assume that the growth rate of agriculture and government sectors in the next two years
will be the simple average of what they were in the past three years. This comes to 4.1% for
agriculture and 9.7% for government.

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India's GDP is likely to range between a decline of 0.9 per cent and a growth of 1.5 per cent in the
current financial year, with the economy undergoing a "turbulent" phase caused by the
coronavirus-induced lockdown.

The Confederation of Indian Industry (CII) in a paper - A plan for economic recovery - has laid
out its growth expectation under three scenarios and suggested "urgent" fiscal interventions.

In the baseline scenario, the Gross Domestic Product (GDP) is expected to grow at just 0.6 per
cent on an annual basis as economic activity is expected to remain constrained due to continuing
restrictions on the free movement of goods and people beyond the lockdown period.

This will lead to disruption in supply chains, slow pick-up in investment activity, labour shortages
in the short-run and muted consumption demand on account of reduced household incomes, the
industry body said.

In the optimistic scenario, which envisages a faster pick-up post the lockdown period, the GDP is
forecast to register a growth of 1.5 per cent in the best case.

In case of a more prolonged outbreak, where the restrictions in existing hot-spot regions get
extended, while new regions are identified as hot-spots' leading to intermittent stop and start in
economic activity, GDP is likely to decline by -0.9 per cent.

The urgent fiscal interventions, as suggested by CII should include cash transfers amounting to Rs
2 lakh crore to JAM account holders, in addition to the Rs 1.7 lakh stimulus already announced.
CII has also suggested additional working capital limits to be provided by banks, equivalent to
April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent interest.

In addition, the CII paper has suggested the creation of a fund or SPV with a corpus of Rs 1.5
lakh crore which will subscribe to NCDs/Bonds of corporates rated A and above.

The fund can be seeded by the government contributing a corpus of Rs 10,000-20,000 crore, with
further investments from banks and financial institutions such as LIC, PFC, EPF, NIIF, IIFCL
This will limit Government exposure while providing adequate liquidity to industry.

For MSMEs, CII has suggested a credit protection scheme whereby 75-80 per cent of the loan
should be guaranteed by RBI, i.e. if the borrower defaults, RBI should buy the loan and repay the
bank upto 75-80 per cent of the loan, so the risk to the lender is limited. SIDBI could provide the
guarantee for loans to industry and trade while NABARD could provide the guarantee for loans to
agro-processing sectors.

There is no doubt that the economy is going through turbulent times, and India will have to spend,
for navigating its way out of the current crisis. At this stage, the government must do whatever it
takes to tide over the crisis," CII Director General Chandrajit Banerjee said.

Given the extent of the damage to the economy from the disruption to business, the GDP growth
in FY21 will likely be the lowest in many decades," he added.

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According to him, without an increase in government spending in the near-term to drive an
economic recovery, government revenue will dwindle, and high deficits will continue to be a
problem in future.

Any significant revival in investment activity is unlikely as capacity utilization levels may remain
suboptimal. Consumption demand is likely to remain lacklustre as people's incomes have been
impacted, CII said.

On the external front, as economies across the globe continue to struggle with the pandemic,
global trade may decline by 13 to 32 per cent in 2020, as estimated by the World Trade
Organisation. Given the situation, government intervention becomes critical not only to sustain
the economy but also to prevent any humanitarian crisis, observed Banerjee.

Coronavirus outbreak was first reported in Wuhan, China on 31 December, 2019. Before reading
in detail about the impact, first, let us study about coronavirus.

Coronavirus (CoV) is a large family of viruses that causes illness. It ranges from the common
cold to more severe diseases like Middle East Respiratory Syndrome (MERS-CoV) and Severe
Acute Respiratory Syndrome (SARS-CoV). The novel coronavirus is a new strain of virus that
has not been identified in human so far.

WHO is working closely with global experts, governments, and other health organisations to
provide advice to the countries about precautionary and preventive measures.

India's GDP projected at 4.8%, Covid-19 to have adverse impact globally: UN report
ndia's GDP growth for the current fiscal is expected to slow down to 4.8 per cent, a UN report has
said, warning that the COVID-19 pandemic is expected to result in significant adverse economic
impacts globally.

The UN 'Economic and Social Survey of Asia and the Pacific (ESCAP) 2020: Towards
sustainable economies' said that COVID-19 is having far-reaching economic and social
consequences for the region, with strong cross-border spillover effects through trade, tourism and
financial linkages.

India's GDP growth for the fiscal year 2019-2020 was estimated at 5 per cent and is forecast to
slow down to 4.8 per cent for the current fiscal 2020-21. Economic growth for the country could
stand at 5.1 per cent for fiscal year 2021-22, the report said.

The report noted that these are very preliminary forecasts based on the data and information
available up to March 10.

"As the COVID-19 pandemic is still evolving rapidly and showing no signs of abating as of
March 31, 2020, its negative impacts on economic performance of countries and territories in
Asia and the Pacific will likely be very significant, a disclaimer accompanying the GDP chart for
economies in the Asia and Pacific in the report says.
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"India’s economic growth declined considerably by more than the earlier estimate (5 per cent in
2019 compared with previous estimate of 7 per cent), as uncertainties ahead of the general
election and tighter credit conditions weighed on manufacturing activities and investments.
Weakness in income growth and a rising unemployment rate also undermined consumer
sentiment. Its exports were affected by global trade tensions as well, while extreme weather
events -especially rainfall - disrupted agricultural activities, the ESCAP report said.

The report noted that COVID-19, first reported in China and subsequently globally, has
significantly increased the downside risks to the Asia and Pacific region’s near-term economic
outlook.

"While the pandemic was initially expected to affect primarily China’s economy (mostly in the
first quarter of 2020), its spread worldwide, including in the Asia-Pacific region, could result in
significant adverse economic impacts.

"High economic integration regionally and internationally could exacerbate the economic
slowdown through multiple channels, such as trade, tourism and financial markets, it said.

The report cautioned that despite measures to contain COVID-19, such as quarantines, suspension
of productive activities and the lockdown of cities, the spread of the novel coronavirus has
already adversely affected regional and global economies.

The regional economic impact is anticipated to be greater than that experienced 17 years ago
when the Severe Acute Respiratory Syndrome (SARS) broke out," it said for the outlook for the
Asia and the Pacific region adding that it is not only because of China's growing economic
importance but also because of increasingly globalised production structures.

Preliminary estimates by ESCAP suggest that the Asia-Pacific region's GDP could experience
declines of 0.6-0.8 per cent (valued at $132 billion to 172 billion) as a direct result of the COVID-
19 pandemic through trade links alone.

The report noted that the global economy is experiencing a significant slowdown. In 2019, global
economic growth is estimated to have expanded at its slowest pace since 2008, at 2.3 per cent, a
sharp deceleration from 3 per cent growth in 2018. Growth is forecast to slow to 2.0 per cent in
2020 before experiencing a modest pick up in 2021, as the global economy loses growth
momentum amid a pandemic and an uncertain economic and geopolitical environment.

Further, against an increasingly uncertain global environment, economic growth in the developing
countries and territories of the Asia-Pacific region weakened considerably in 2019 to 4.3 per cent,
a sharp slowdown from 5.3 per cent in 2018 and 5.0 per cent projected earlier for 2019. The
slowdown was led by the large economies, namely China, India and Russia.

The COVID-19 pandemic has affected supply chains and disrupted manufacturing operations
around the world. It noted that the pharmaceutical industry is facing shortages in the supply of
raw materials.

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"India, which produces 20 per cent of the world’s drug supply by volume, imports from China 70
per cent of the raw materials for manufacturing such pharmaceuticals. If the COVID-19 pandemic
is prolonged, supplies are anticipated to be disrupted.

The report emphasised that in order to overcome the effects of the global pandemic requires the
whole world, including the Asia-Pacific region, to strengthen cooperation and coordination.

It took note of the recent call by India to South Asian Association for Regional Cooperation
(SAARC) leaders to coordinate virus containment measures. India proposed the establishment of
a COVID-19 emergency fund under SAARC and offered an initial contribution of $10 million in
this regard.

The report said that since at least the start of the millennium, the Asia-Pacific region has been the
engine powering global economic expansion.

The region's strong economic growth has more than tripled people’s income and largely improved
their access to basic services, such as health care, education and electricity. As a result, about one
billion people have been lifted out of extreme poverty mostly in China and India in the past two
decades.

Impact of Coronavirus on the Indian Economy

To combat with COVID-19, Indian Government extended the date of lockdown to 3rd May, 2020.

Recently an industry survey that is jointly conducted by industry body Ficci and tax consultancy
Dhruva advisors and took responses from about 380 companies across the sectors. It is said that
businesses are grappling with "tremendous uncertainty" about their future. 

According to the survey, COVID-19 is having a 'deep impact' on Indian businesses, over the
coming month's jobs are at high risk because firms are looking for some reduction in manpower.
Further, it is added that already COVID-19 crisis has caused an unprecedented collapse in
economic activities over the last few weeks. 

Ficci said in a statement, "The survey clearly highlights that unless a substantive economic
package is announced by the government immediately, we could see a permanent impairment of a
large section of the industry, which may lose the opportunity to come back to life again."

The survey found:

- In respect to the approved expansion plans, around 61 per cent of the respondents expect to
postpone such expansions for a period of up to 6 or 12 months, while 33 per cent expect it to for
more than 12 months.

- Surveyed firms of around 60 per cent have postponed their fund-raising plans for the next 6-12
months. Also, nearly 25 per cent of the firms have decided the same.

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- Surveyed firms around 43 per cent have reported that they do not predict an impact on exports.
Further, 34 per cent said that exports would take a hit by more than 10 per cent.

According to Dun  & Bradstreet, COVID-19 no doubt disrupted human lives and global supply
chain but the pandemic is a severe demand shock which has offset the green shoots of recovery of
the Indian economy that was visible towards the end of 2019 and early 2020. The revised Gross
Domestic Product (GDP) estimates for India downwards by 0.2 percentage points for the fiscal
year 2020 to 4.8 per cent and by 0.5 per cent for the fiscal year 2021 to 6 per cent. Further, it is
stated that the extent of the actual impact will depend upon the severity and duration of the
outbreak.

There are three major channels of impact for Indian businesses according to the report namely
linkages, supply chain and macroeconomic factors. The data of the Dun & Bradstreet shows that
at least 6,606 Indian entities have legal linkages with companies in countries with a large number
of confirmed COVID-19 cases. And business activity in the foreign markets is slow which
implies a negative impact on the topline of these companies. Sectors that would be much affected
includes logistics, auto, tourism, metals, drugs, pharmaceuticals, electronic goods, MSMEs and
retail among others

Further, according to the World Bank's assessment, India is expected to grow 1.5 per cent to 2.8
per cent. And IMF projected a GDP growth of 1.9 per cent for India in 2020 because the global
economy is affected by the COVID pandemic, the worst recession since the Great Depression in
the 1930s. Also, we can't ignore that the lockdown and pandemic hit several sectors including
MSME, hospitality, civil aviation, agriculture and allied sector.

According to KPMG, the lockdown in India will have a sizeable impact on the economy mainly
on consumption which is the biggest component of GDP. 

Reduction in the urban transaction can lead to a steep fall in the consumption of non-essential
goods. It can be severe if disruption causes by the 21-day lockdown and affect the availability of
essential commodities.

Due to weak domestic consumption and consumer sentiment, there can be a delay in investment
which further added pressure on the growth.

We can't ignore that post-COVID-19, some economies are expected to adopt de-risking strategies
and shift their manufacturing bases from China. This can create opportunities for India.

According to KPMG, opportunities will largely depend on how quickly the economy recovers and
the pace at which the supply chain issues are addressed.

KPMG India Chairman and CEO Arun M Kumar said: "Apart from providing robust safety nets
for the vulnerable, a focus on ensuring job continuity and job creation will be imperative". "And
there is urgent need to mobilise resources to stimulate the economy for increased demand and
employment". 

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According to the KPMG report "It is expected that the course of economic recovery in India will
be smoother and faster than that of many other advanced countries". 

In terms of trade, China is the world’s largest exporter and second-largest importer. It accounts
for 13% of world exports and 11% of world imports.  

Up to a large extent, it will impact the Indian industry. In imports, the dependence of India on
China is huge. Of the top 20 products (at the two-digit of HS Code) that India imports from the
world, China accounts for a significant share in most of them.

India’s total electronic imports account for 45% of China. Around one-third of the machinery
products and almost two-fifths of the organic chemicals that India imports from the world comes
from China. For automotive parts and fertilizers China’s share in India’s import is more than
25%. Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain mobile
phones come from China to India.

Therefore, we can say that due to the current outbreak of coronavirus in China, the import
dependence on China will have a significant impact on the Indian industry.

In terms of export, China is India’s 3rd largest export partner and accounts for around 5% share.
The impact may result in the following sectors namely organic chemicals, plastics, fish products,
cotton, ores, etc.

We also can’t ignore that most of the Indian companies are located in the eastern part of China. In
China, about 72% of companies in India are located in cities like Shanghai, Beijing, provinces of
Guangdong, Jiangsu, and Shandong. In various sectors, these companies work including
Industrial manufacturing, manufacturing services, IT and BPO, Logistics, Chemicals, Airlines,
and tourism.

It has been seen that some sectors of India have been impacted by the outbreak of coronavirus in
China including shipping, pharmaceuticals, automobiles, mobiles, electronics, textiles, etc. Also,
a supply chain may affect some disruptions associates with industries and markets. Overall, the
impact of coronavirus in the industry is moderate.

According to CLSA report, pharma, chemicals, and electronics businesses may face supply-chain
issues and prices will go up by 10 percent. The report also says that India could also be a
beneficiary of positive flows since it appears to be the least-impacted market. Some commodities
like metals, upstream and downstream oil companies, could witness the impact of lower global
demand impacting commodity prices.

According to CII, GDP could fall below 5% in FY 2021 if policy action is not taken urgently. It is
said that the government should take some strong fiscal stimulus to the extent of 1% of GDP to
the poor, which would help them financially and also manage consumer demand.

In the third quarter (October-December) growth is slowed down to 4.7% and the impact of
COVID-19 will further be seen in the fourth quarter. 
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Ficci survey showed 53% of Indian businesses have indicated a marked impact of COVID-19 on
business operations. And 42% of the respondents said that up to three months could take for
normalcy to return.

Let us have a look at some of the sector-wise impact on Indian industry

Chemical Industry: Some chemical plants have been shut down in China. So there will be
restrictions on shipments/logistics. It was found that 20% of the production has been impacted
due to the disruption in raw material supply. China is a major supplier of Indigo that is required
for denim. Business in India is likely to get affected so people securing their supplies. However, it
is an opportunity. US and EU will try and diversify their markets. Some of the business can be
diverted to India which can also be taken as an advantage.

Shipping Industry: Coronavirus outbreak has impacted the business of cargo movement service
providers. As per the sources, per day per vessel has declined by more than 75-80% in dry bulk
trade.

Auto Industry: Its impact on Indian companies will vary and depend upon the extent of the
business with China. China’s business no doubt is affected. However, current levels of the
inventory seem to be sufficient for the Indian industry. If the shutdown in China continues then it
is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020.

Pharmaceuticals Industry: Despite being one of the top formulations of drug exporters in the
world, the pharma industry of India relies heavily on import as of bulk drugs. Due to the
coronavirus outbreak, it will also be impacted.

There is no doubt that COVID-19 will have a large impact on the Indian economy. With respect
to India, the discussion can be bifurcated into 2 parts – India’s economy, and its stock markets.

The recovery of the underlying economy will be slow, and it will take around 2 years for
normalcy to come back across sectors. While the overall economy might take a hit because of the
government lockdown, some sectors are set to see immense growth in the post-COVID era –
FMCG, B2C specialised lenders, gold-dependent companies, food retail and pharmaceutical
companies to name a few.

Stock markets have a mind of their own, formed by the collective emotions + intelligence of
millions. They are often skewed and aren’t the best indicators of the underlying economy. Stock
markets will have a strong recovery, not due to the fundamentals strength, but due to global
liquidity which is available for almost free (as interest rates tend to near zero). Availability of debt
capital will be scarce in India, whilst equity capital will be available in plenty over a period of
time.

The covid-19 epidemic is the first and foremost human disaster in 2020. More than 200 countries
and territories have confirmed effective medical cases, caused by coronavirus declared a

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pandemic by the WHO. Recent growth rate case globally has accelerated to more than 12,00,000
covid-19 confirmed cases and more than 66,000 deaths till April 1, 2020.

As we have already acknowledged that India is a developing economy, it is stated as an economy

passing through demand depression and high unemployment, with 21-day lockdown announced
by Prime Minister Narendra Modi on March 23, 2020, it would slowdown the supply-side,
accelerating the slowdown further and jeopardising the economic wellbeing of millions.

With an increasing number of coronavirus cases, the government has locked down transport
services, closed all public and private offices, factories and restricted mobilization. Based on
recent studies, some economists have said that there is a job loss of 40 million people (MRD
report) in the country, mostly in the unorganized sectors.

In this scenario, they are predicting that India would go into recession affecting the unorganized
sector and semi-skilled jobholders losing their employment. It may also likely surface that at this
time of eroding trust within and between countries – with national leadership under pressure from
growing societal unrest and economic confrontations between major powers if we refer to the
times of Ebola crisis in Africa.

The labour sector under the MGNREGA, 2005 are worst impacted as they are not provided jobs
due to lockdown, most of the labour sectors are associated with the construction companies and
daily wage earners. Travel restrictions and quarantines affecting hundreds of millions of people
have left Indian factories short of labour and parts, just-in-time supply chains and triggering sales
warnings across technology, automotive, consumer goods, pharmaceutical and other industries.

If we refer to the recent measures announced by the government and the RBI to mitigate the
impact of the pandemic, as said by the RBI governor, these are only for short term and may not
deliver the desired results as the problem is severe and has been further aggravated by the
lockdown.

The quarterly GDP growth has consistently fallen since Q4 of FY18. If there is a deviation in Q4
of FY19, as shown in the graph below, it is because the National Statistical Office (NSO) revised
its data on February 28, 2020, drastically cutting down growth rates in the first three-quarters of
FY19 (from 8% to 7.1% for Quater1; from 7% to 6.2% in Quarter 2 and 6.6% to 5.6% in Quarter
3.

Referring to the recent happenings and data, the unorganised sector excluding this likely to suffer
a great downfall in the coming days as the job generation is going down in an alarming rate with
the prolonged lockdown and weak GDP.

With the commencement of 2020-21 financial year the effects of coronavirus have affected the
stability of the economy of 150 countries - jeopardising their lifestyle, economy, impacting
business and assumption of common wellbeing which we had taken for granted. The lockdown
has adversely have affected service sector like banks, restaurants, food vendors, and food delivery
providers at par with providing health safety and medical sustenance, we should also have to

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think about the health of the sickening economy by mobilizing the resources and make plans of
job creation and job continuity.

Sectorial Impact

Restaurants Services: The National Restaurant Association of India (NRAI), which represents
500,000-plus restaurants across the country, has advised its members to shut down dine-in
operations starting Wednesday till March 31, 2020. This will impact operations of thousands of
dine-in restaurants, pubs, bars and cafes. By extension, food delivery platforms such as Swingy
and Zomato that are by itself functioning -- have also taken a big hit. Orders on Swingy and
Zomato have dropped 60 per cent amid the pandemic.

Food and Agriculture: The food and agriculture sector contributes the highest in GDP i.e. 16.5%
and 43% to the employment sector. The major portion of the food processing sector deals with
dairy (29%), edible oil (32%), and cereals (10%). India also stands number one in dairy and
spices products at a global scenario (export).

The supply of the food and Agri - the product will be affected in the coming seasons due to low
sowing of the upcoming seasonal crops which will affect the mandi operations as said by the
Ministry of Agriculture. The companies which deal with Agro-chemical depend on export for
finished goods and import of raw materials. The food retail with the Central government and State
governments allowing free movement of fruits and vegetables the Bricks and Mortar grocery
retail chains are operating normally but with the shortage of staff is impacting operation.

It is expected that with prolonged lockdown the demand for the food supplies will increase. The
online food grocery, on the other hand, suffers a huge loss due to the restriction of delivery
vehicles. With the shortage of labour, the food processing units are facing a hunch in normal
function but the government is trying to ease out the situation until that the factories have to
adjust to working with low labour count. A major destination in the grapple of covid-19 for the
next few months the Indian export is impacted due to low consumer demand the export-oriented
commodities like seafood, mangoes, grapes are crashing this will impact the future crop
availability.

MSME: This sector contributes 30% to 35% of the GDP, showing a bifurcation of micro (99%),
small (0.52%) and medium (0.01%) enterprise. If we see the sectorial distribution of MSMEs, it
shows 49% from rural and 51 % from the semi-urban and urban areas.

Maharashtra, Uttar Pradesh, Bihar, Tamil Nadu, and Madhya Pradesh have the highest number of
registered MSMEs, a study by the AIMO estimated that about a quarter of over 75 million is
facing closure if the closure goes beyond four weeks and if the lockdown still extends the
situation would worsen affecting the employment of 114 million people affecting the GDP.
Consumer goods, garments, logistics are facing a sharp drop in the business and the MSMEs
engaged in the service sector are still operating, however, is likely to isolate due to plunging
liquidity constrains and purchasing capacity.

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Sectors which depends on import such as electronics, pharma, consumer durables etc are facing a
downfall causing a huge rapture across the value chain. As a splash of relief came the RBI
announcement of a three-month moratorium on repayments of loan and reduction in the repo rate
as most of the MSMEs depends on the loan funding from the government.

Online Business / Internet Business sector: The online business in today's economy plays a major
role in the economy with a market share of USD 950 billion. It contributes 10% to the Indian
GDP and showed a drastic in the employment sector in the FY19 viz 8%. Its major segments are
the household and personal care products (50 %), healthcare segment (31%) and the food and
beverage sector (19%).

The manufacturing, an important part of any economy, suffers from total lack of clarity.
Lockdown has put great stress on the supply chains of essential commodities, and therefore, many
of the Indian companies have focused on the production and supply of essential items only,
thereby stopping all other production activities, thereby bringing down the production graph.
Likewise, the other sectors like agriculture being the primary sector and the tertiary sector are also
not free from its impact. There is hardly any manpower available for the agricultural purposes in
different states. Lockdowns have manifestly made the farmers difficult to take their produce for
sale to the markets. Informal sector of India, the backbone of its economy, will be hardest hit in
view of economic activities coming to a total standstill. These lockdowns and restrictions on
commercial activities and public gatherings are necessarily likely to strongly impact domestic
growth. As estimated by Centre for Monitoring Indian Economy (CMIE) on 07.04.2020, the
overall unemployment rate may have surged to 23 per cent, with urban unemployment standing at
nearly 31 per cent. International Labour Organisation (ILO) has estimated about 40 crores
workers of unorganised sectors to be unemployed.

At mist the social distancing due to threat of covid-19 the tendency of the consumers to overstock
on essential product and commodities viz rice, flour and lentils. This gave rise in the sales of the
FMCG companies which it saw fall in the stoke in trade due to distorted supply chain .the e-
commerce sector saw a dip in growth with pressure on the supply chain deliveries and the
expectations of the consumers on the companies to come up with newer distribution channels
focusing on direct to customer routes. In this soaring environment the managing and predicting of
demand will play a vital role in the customer relation sector. Categorizing the commodities into
part i.e. essential commodities and non-essential commodities showed different responses in the
market.

The key notable points are:

·Daily essentials categories are massive 200% hike in searches driven by hygiene and healthcare
needs.

·Lifestyle categories sales witnessed a drop between 15% to 30% with an increase in consumer
price sensitivity.

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·Purchase growth skewed to family vs individual purchases.

·Increase in searches skewed to brand agnostics.

Above points stated mostly the negative impact of the lockdown, but we would miss out
something if we do not acknowledge the growth of digital infused technological gain. With the
advent of the lockdown most of the sector shifted their functioning online the MNC are utilising
their work from home option to carry on an uninterrupted working.

While these trends were already in the baby steps, they were forced to hit the fast-forward button.
The digital world got such a push that the small retail sectors like the Bricks and Mortar stores are
also using apps like PayTM and other digital channels. The education sector is now completely
based on the digital platforms the colleges and universities are conducting their routine classes
being in the comfort of their home with various online platforms such as google classrooms,
zoom, etc. they are also introducing new software to their curriculums such as digital campus
where the students can access their college library, fee payments, online exams etc. This present
crisis has highlighted the importance of investing in technologies like cloud data and cyber
security, self-service capabilities, and e-governance.

Slowdown in demand & supply

Coronavirus has disrupted the demand and supply chain across the country and with this
disruption, it can be seen that the tourism, hospitality, and aviation sectors are among the worst
affected sectors that are facing the maximum impact of the current crisis. Closing of cinema
theatres and declining footfall in shopping complexes has affected the retail sector by impacting
the consumption of both essential and discretionary items. As the consumption of any product or
services goes down, it leads to an impact on the workforce. In the current scenario, with all the
retailers closing down their services, the jobs of the employees are at a huge risk.

The financial market has experienced uncertainty about the future course and repercussions of
COVID-19. An estimated Rs 10 lakh crore of market cap was reportedly wiped off due to the fall
of sensex in the second week of March 2020. The fall has continued till date as investors resorted
to relentless selling amid rising cases of coronavirus.

The supply-side impact of shutting down of factories resulted in a delay in supply of goods from
China which has affected a huge number of manufacturing sectors which source their
intermediate and final product requirements from China. Some sectors like automobiles,
pharmaceuticals, electronics, chemical products etc were impacted big time.

The United Nations Conference on Trade and Development (UNCTAD), has suggested that
India’s trade impact due to the COVID-19 outbreak could be around US$ 348 million. India is
among the top 15 countries that have been affected most as a result of manufacturing slowdown
in China that is disrupting world trade. For India, the overall trade impact is estimated to be the
most for the chemicals sector at 129 million dollars, textiles and apparel at 64 million dollars, the
automotive sector at 34 million dollars, electrical machinery at 12 million dollars, leather products

15
at 13 million dollars, metals and metal products at 27 million dollars and wood products and
furniture at 15 million dollars. As per UNCTAD estimates, exports across global value chains
could decrease by US$ 50 billion during the year in case there is a 2% reduction in China’s
exports of intermediate inputs.

According to a survey by the Federation of Indian Chambers of Commerce & Industry (FICCI),
the immediate impact of COVID-19 reveals that besides the direct impact on demand and supply
of goods and services, businesses are also facing reduced cash flows due to slowing economic
activity which in turn is having an impact on all payments including to those for employees,
interest, loan repayments and taxes.

Implications on the workforce

Job losses and salary cuts are likely in the high-risk services sector, including airlines, hotels,
malls, multiplexes, restaurants, and retailers, which have seen a sharp fall in demand due to
lockdowns across the country. If the current global and domestic economic slowdown persists, it
will impact demand and realization.

Undoubtedly, with this crisis impacting the business around the country, it will create very
challenging situations for the workforce. Companies are not meeting the revenue targets hence,
forcing employers to cut down their workforce. The World Travel & Tourism Council has
predicted 50 million tourism jobs getting eliminated because of the pandemic. Not only the
employees of multinational companies, but daily wage workers have been impacted the most
during this crisis.

The International Labor Organization has called for urgent, large-scale and coordinated measures
across three pillars - protecting workers in the workplace, stimulating the economy and
employment, and supporting jobs and incomes.

According to a preliminary assessment report, nearly 25 million jobs could be lost worldwide due
to the coronavirus pandemic, but an internationally coordinated policy response can help lower
the impact on global unemployment.

While on one hand, Indian employees are losing their jobs and receiving a salary cut, there is also
an assumption that the majority of expats have gone back from India and they will take time to
return. Different sectors such as automobile, banking and manufacturing employ a large number
of expats. Indian companies need expats for several industry verticals and job functions such as
after-sales services, business development and market audits.

The United Nations Conference on Trade and Development (UNCTAD), has suggested that
India's trade impact due to the COVID-19 outbreak could be around USD 348 million. For India,
the overall trade impact is estimated to be at 129 million dollars for the chemicals sector, textiles
and apparel at 64 million dollars, the automotive sector at 34 million dollars, electrical machinery
at 12 million dollars, leather products at 13 million dollars, metals and metal products at 27
million dollars and wood products and furniture at 15 million dollars. As per UNCTAD estimates,

16
exports across global value chains could decrease by USD 50 billion during the year in case there
is a 2% reduction in China's exports of intermediate inputs. What is also worrisome is the effect
of all the circumstantial conditions on the Rupee value which is at its lower value of more than
Rs. 76 per USD, exerting extra burden and pressure on the cost of import of commodities and
services in India, and on the accumulated foreign reserves.

To minimise the effect in the economy caused by the COVID -19 outbreak, the Union Finance &
Corporate Affairs Minister, on 24.03.2020, announced several important relief measures taken by
the Government of India, especially on statutory and regulatory compliance matters related to
several sectors. The Central Government, amongst others, announced much-needed relief
measures in areas of Income Tax, GST, Customs & Central Excise, Corporate Affairs, Insolvency
&Bankruptcy Code (IBC) Fisheries, Banking Sector and Commerce, intended to boost the
economy.

Need for policy intervention

There is an urgent need to take instant steps to not only contain the spread of the virus, but also to
address the key pain areas of the industry which can help in minimising the impact of the
outbreak on the Indian economy and businesses. The Indian Government & RBI need to support
the Indian industry and economy at this juncture in different ways:

Maintain liquidity at surplus levels and provide special liquidity support for any companies /
NBFCs / banks that come under strain due to intensifying risk aversion in financial markets or
due to large demand shock.

Increase credit limits for all regular banking accounts by 25 percent across the board. Also,
Increase overdraft facility to state governments from the RBI. Pay the pending GST compensation
immediately.

IBC to be suspended for a short period for the aviation and hospitality sectors as they are the
worst affected.

Since a large number of people will stand to lose their jobs especially in the retail, hospitality,
travel, construction sector, the government can consider giving incentives for employers to keep
the workers, while the coronavirus problem tides over.

On March 24th, 2020 the Finance Minister extended the filing dates of ITR, GST, linking of PAN
and Aadhar and other reliefs for the big and small enterprises. The finance ministry is already
working on an economic package to mitigate the impact of coronavirus on the Indian economy.

The government is taking necessary steps that will not damage the economy further but the
damage that has been done in the previous few months will definitely last for a longer period of
time. As the country is locked down for the coming three weeks, India Inc has to stretch
themselves to sustain the situation and face the challenge. The Indian government has also urged
employers to not cut jobs and salaries. Many CEOs and management teams are taking pay cuts to

17
ensure their workforce does not have to bear the brunt.

What can the Government do?

Like its counterparts across the globe, the Indian government has announced a slew of measures
to prevent total collapse. However, it isn’t enough. This works to alleviate some of the pain, not
counter it. My 2 cents (or one barrel of oil) on what the government ought to do:

Loosen its purse and spend money on infrastructure development –  ‘Rebuild India,
Rejuvenate India’
Public sector financial institutions need to be further capitalized and nudged by the RBI to
lend out low-ticket loans below INR 1 Crore in the form of working capital to ensure that
liquidity comes back into the system
Banking sector needs to be nudged to pass on rate cuts induced by RBI to the borrowers
Personal tax cuts & tax holidays for 6 – 12 months can be adopted to revive consumption,
which will help spur economic growth

These are not an exhaustive list of measures but could help alleviate the impact of COVID-19 on
the Indian economy while stimulating growth.

This may be the time to reset. Never before has the world come to a standstill where one can pick
apart the many moving pieces – like Tom Cruise in Minority Report. We have the opportunity to
rethink everything. If we do things right, we may be able to fix challenges that face humankind –
environmental damage, inequality etc.

More importantly, we must ensure something like this never happens again. History says that
humankind has never learnt from history. Let’s hope that it’s a thing of the past.

Steps taken by the Reserve Bank of India (RBI)

The RBI, on 27.03.2020, also announced a Regulatory package to mitigate the burden of debt
servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the
continuity of viable businesses. Such steps, inter alia, include:

All commercial banks (including regional rural banks, small finance banks and local area banks),
co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance
companies) ("lending institutions") are permitted to grant a moratorium of three months on
payment of all instalments falling due between 01.03.2020 and 31.05.2020. The repayment
schedule for such loans as also the residual tenor, will be shifted across the board by three months
after the moratorium period. Interest shall continue to accrue on the outstanding portion of the

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term loans during the moratorium period.

In respect of working capital facilities sanctioned in the form of cash credit/overdraft ("CC/OD"),
lending institutions are permitted to defer the recovery of interest applied in respect of all such
facilities during the period from 01.03.2020 upto 31.05.2020 ("deferment"). The accumulated
accrued interest shall be recovered immediately after the completion of this period.

In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing stress
on account of the economic fallout of the pandemic, lending institutions may recalculate the
'drawing power' by reducing the margins and/or by reassessing the working capital cycle.

Wherever the exposure of a lending institution to a borrower is Rs. 5 crore or above as on

01.03.2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall
inter alia include borrower-wise and credit-facility wise information regarding the nature and
amount of relief granted.

On 09.04.2020, the RBI has also published its Monetary Policy Report in which it has commented
on different aspects of economy, be it be forecasting under uncertainty in a cyclical downturn,
issues in supply management, media sentiments on economic growth, factors affecting rural
demand, augmenting Quarterly Projection Model etc. which also do not seem very encouraging.
Specifically, in relation to Impact of COVID-19 on Global Growth, the said Monetary Policy
reports as under:

"In the initial weeks of February, most forecasts of global output loss due to COVID-19 were in
terms of the outbreak being confined to China and being brought under control by March/June. It
was, however, acknowledged that even in the limited scenario, the economic impact would be
significant as China is a much larger player - both in terms of economic size and its role in global
value chains - now than in 2003, the period of the SARS epidemic. Owing to extended lunar new
year holidays as also government-imposed factory shutdowns and travel restrictions in a number
of regions, China's manufacturing/services activity declined sharply in February. In the latter part
of February, a rapid surge of infections and fatalities around the world began to surface, even as
the spread of the virus in China began to plateau. Lockdowns were/have been imposed in most
countries. Travel bans have created distress for airlines, tourism and hospitality industries. In the
commodity and financial markets, crude oil prices have been on a downward spiral; with West
Texas intermediate (WTI) crude prices crashing below USD 20 per barrel on March 30, 2020.
Equity markets have suffered major losses, while gold, fixed income assets - mainly government
debt, and the US dollar gained ground due to safe haven demand, but later corrected significantly
on profit-booking and flight to cash. With the pandemic still looming, the estimates of the
downward drag on global growth are being continuously revised. The consensus, however, is that
there will be a recession in 2020."

On 27.04.2020, RBI decided to open a special liquidity facility for mutual funds of Rs.50,000
crores which shall be used by banks exclusively for meeting the liquidity requirements of mutual
funds by extending loans, and undertaking outright purchase of and/or repos against the collateral
of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of

19
Deposit (CDs) held by mutual funds.

In view of the demands of the general public regarding opening of certain activities as also
considering the condition of COVID-19 in particular areas and in order to improve the
deteriorating condition of the economy, the Central Government and/or State Governments have
announced certain relaxations from time to time in order to restart the economic operations,
particularly relating to healthcare, agriculture and allied, as also small mohalla shops dealing with
books and electric fans, services by electricians, plumbers or water purifiers etc.

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 Conclusion

This Corona Virus pandemic may wreck the Indian economy. The level of GDP may further fall,
more so when India is not immune to the global recession. Infact, it is believed that India is more
vulnerable, since its economy has already been ailing and in a deep-seated slowdown for several
quarters, much before the COVID-19 outbreak became known. The Prime Minister of India has
already spoken of setting up an Economic Task Force to devise policy measures to tackle the
economic challenges arising from COVID 19, as also on the stability of Indian economy.
However, the concrete plans would have to be kept in place to support the economy and its
recovery.

As the disruption from the virus progresses globally as well as within India, it is for us to forget,
atleast for the time being, all talking only about economic recovery, and instead join hands whole
heartedly to tackle the outcome of COVID-19.

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https://government.economictimes.indiatimes.com/news/policy

https://www.indiatoday.in/business/story/india-s-gdp-projected-at-4-8-covid-19-to-have-adverse-
impact-globally-un-report-1665035-2020-04-09

https://www.jagranjosh.com/general-knowledge/what-is-the-impact-of-coronavirus-on-indian-
economy-1582870052-1

https://www.mondaq.com/india/operational-impacts-and-strategy/936014/coronavirus-covid-19-
and-indian-economy

https://m.economictimes.indiatimes.com/

https://www.peoplematters.in/article/talent-management/impact-of-covid-19-on-the-indian-
economy-workforce-25114

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