COVID 19 - Impact On Indian Economy

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India faces a huge decline in Government revenues and growth of income for at least two quarters as the Coronavirus hits economic activity of the country as a whole. A fall in investor sentiment impacts privatization plans, government and industry. Economies of about 100 countries have been destroyed out of which some of them have asked for monetary help from IMF. 

There is a big shift in the world economic and the share market witnessed crashes day by day. Fear of corona virus has restricted the movements of the people. They are not even going out to buy essentials thus effecting the economy of the world as a whole. 

The lockdown in India have a sizable impact on the economy mainly on consumption which is the biggest component of GDP. It has disrupted the global supply chains and this is generating spill over effects throughout different levels of supplier networks. This will impact countries that are strong exporters (no output for their local companies), but also those that are importers (lack of raw materials). WTO expects global trade to fall up to 32% this year due to corona pandemic.

How much deep and long the downturn of the recession will take place depend upon the success of measures taken to prevent the spread of COVID-19, effects of Govt,. policies to alleviate liquidity problems in SMEs and to support families under financial distress. Also depends upon how companies react and prepare for re-start of economic activities. And, above all, depends upon how long the current lockdowns will last. 

Developing countries like India has more fragile economic and social fabric and the present situation will create more suffering for the labor and unorganized sectors. The bulk of relief measures consists of indirect support such as credit guarantees and liquidity infusion which have proved to be ineffective in generating credit growth. Credit offtakes from banks will remain muted in the near term because of the subdued credit demand. The point of massive liquidity injection is not understood when there is no demand of credit from consumers and businesses. In the absence of domestic demand, businesses will not undertake fresh investments, which in turn would curb employment and economic growth.     

As the weak investor interest growing, public sector banks may not be able to get fresh equity from the capital markets. Govt. should provide adequate capital support to banks to potential solvency risks. Govt. should set up specialized Development Finance Institutions (DFIs) that could offer long term funding on concessional rates for building public health infrastructure and supporting economic development programs. Public investment is a powerful element of the stimulus package to limit the economic fallout from the pandemic. Even as countries continue to save lives and livelihoods, they can lay the foundation for a more resilient economy by investing in job-rich, highly productive and greener activities.   

Tax revenues have fallen steeply since the virus outbreak. Both direct and indirect taxes are lagging behind targets. Same is the case with non-tax revenues giving rise to fiscal deficits. 

The lockdown imposed has resulted in the loss of millions of jobs and triggered a mass exodus of internal migrants from urban to rural areas. As far as the job losses are concerned, the pandemic has no parallel in the post independent India 

There is still time to course correction. In the light of economic, health and humanitarian crisis, Govt. should not shy away from higher public spending and an expansionary fiscal policy which will boost demand for goods and services. This in turn will restore output and create employment.   

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