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International Review of Business and Economics

31.COVID – 19: IMPACT ON THE INDIAN ECONOMY


Mrs. A. KAVITHA, Ph.D Research scholar, of Department of Economics, Quaid E
Millath Government College for Women (Autonomous), Anna salai ,Chennai- 02

Dr.J.MAHESWARI, Assistant Professor of Department of Economics, Quaid E


Millath Government College for Women (Autonomous), Anna salai,Chennai- 02

ABSTRACT But, in our view, the most probabilistic

T he onset of COVID-19, the global


economy is set to undergo a
sharp double-dip recession. As many
recovery could see an elongated U
shape.

international agencies have already INTRODUCTION


forecasted, the global growth could be COVID-19 pandemic, which as of end
-3 per cent in 2020, which is a decline April,2020,has affected 210 countries
of about 6 percentage points from and territories around the world and
the baseline projection of positive 3 infected more than 3 million people,
per cent growth with no pandemic. of which more than 0.2 million people
Such swings in growth forecasts are have died, is spreading like a wild fire
unprecedented, and this is due to both with such a fury that has compelled
health scare with lots of deaths and the government across the world to
infections and also due to the lockdown revoke autarky as well as shut down
of a major part of the global economy. of the national economy in order to
Added to this, the pandemic appears save their citizens from this contagion,
to be more severe in the industrialized The strategy of isolation at all levels
economy. While the forecasts for 2021 – local, regional, national, towards the
suggest a sharp rebound, the trends containment and mitigation of COVID
suggest that the world may need to – 19 . As the crisis depends, two
endure this for a longer period than important realizations, inter alia, have
expected. Unlike the global economy, come to the fore.
Indian economy was already in a
slowdown phase before the pandemic OBJECTIVES
affected and there were expectations 1, There are also early signs in India
that the economy is on a recovery path. to suggest that it is quite close to
But, with the COVID-19 such hopes ‘flattening of the curve’, which has
are not only dented rather down turn become an important objective in
turning out to be much deeper. There these fights against COVID-19.
are various forecasts that suggest a
sharper slowdown. Some forecasts 2, There is a need to reprioritize,
even suggest a negative growth, recalibrate and frontload the
which was not heard in the past five expenditure lines especially if they
decades. With the lockdown and with are meant for rural, agriculture, and
increasing infections, the uncertainty in informal sector.
the economy has increased manifolds.
There are also discussions about the 3, The government must come
shape of the recovery – V or U or W. forward with innovative long term
Volume 4, Special Issue No.1, July 2020 178
ISSN: 2474-5146 (Online) 2474-5138 (Print)

tax concession schemes on the value Universal Basic Income (UBI) type of support
of sub-contracts given to the MSME as was declared in the US (10 per cent of
sector. GDP) and other Scandinavian countries. Does
India have such fiscal space to go for such
4, One way to finance the discrepancy mega fiscal support? Or, what India should do
in cash balance position is to release to ensure both lives and livelihood and help
the GST compensation fund in advance post-pandemic economy recovery? It is also
to the needy states and this part could important to understand what needs to be
be monetized by the RBI. done to revive the trade sector as well, which
is the backbone of not only for economic
POLICY OPTIONS growth but also for employment.
What are the policy options that India has in
order to overcome such uncertainty? FOCUS OF RECOVERY PLAN
Has India done enough to address this? India is no exception with various estimates
Based on the recent decisions, the answer suggesting a rise of unemployment to
is mixed and India may need to a lot more unprecedented high levels along with a
to overcome the distress that the pandemic fall in real GDP growth to a record low
has created across the sections of the society. level of less than 2 per cent in 2020. The
Indeed, India was relatively fast in declaring government has income forward with
national lockdown, and rightly so, and took economic packages to transfer income to
quick precautionary measures compared to the poorer segments in the economy along
most of the countries that are reeling with with complementary liquidity enhancing
exponential growth of the infections. There measures of monetary authority. But,
are also early signs in India to suggest that one must note that these are short term
it is quite close to ‘flattening of the curve’, economic measures to keep the demand
which has become an important objective reasonably high along with an incentive to
in these fights against COVID-19. While the MSME sector to carry on investment.
this should minimize the loss of lives, there Though these are necessary steps in the
are concerns that there could be severe right direction (and need additional support
second round impact through its adverse in the coming days), one cannot expect
impact on livelihoods. The Government and such policies to continue indefinitely by
the RBI have taken various measures on a recourse to deficit financing. One needs
regular basis not only to ensure liquidity in long term planning to sustain the growth.
the financial markets but also transferring The advantage of involving MSMEs is to
money to Jan Dhan accounts to partially create concurrent jobs in related services
mitigate the income losses to the poor and like transport, sales, repair, telecom,
daily wage earners. The government has travel and tourism, finance, etc, without
already announced a fiscal support of Rs 1.7 confronting difficult labour laws. The other
lakh crores, which is in addition to the support important policy is to invest heavily
measures that other state governments have on infrastructure like power, roads,
taken so far. However, as it might turn out, the ports, water, etc.. India has successfully
measures taken till now may not be sufficient controlled the transmission of COVID-19
enough if the lockdown is extended further till date, thanks to our well-coordinated
or for the post-lockdown economy. This is steps to tackle the Corona pandemic.
more so to the sectors such as MSMEs that India’s prowess in pharmaceuticals and
are already struggling with two major shocks health science; mass public awareness
in the form of demonetization and messy GST with the help of digital systems; and a
implementation. There are also demands for central command with strong participation
distribution of free food grains to poor and of states; among others, indeed helped
destitute and some have further argued for in containing the spread so far.

One Day Online International Conference Organised by IRBE Publications, Denver, USA 179
International Review of Business and Economics

Table 1: Fiscal Stimulus Packages Announced

Country Amount (US$ billion) Share of GDP (%)


India 24 0.8
Bangladesh 8 4
Thailand 58 2
USA 2000 11
Malaysia 84 0.7
Singapore 42 2
Japan 990 20
Indonesia 26 2.6
As on 30 April 2020
Source: several secondary sources

Chart 1: Fiscal Stimulus Packages Announced

South and Southeast Asian countries house of SAARC leaders met through
have been following a similar approach a video conference on 15 March 2020
in containing the COVID-19. All of them to discuss the scope and possibility of
have introduced stimulus packages, a joint action. Among other decisions,
particularly to support the heavily South Asian leaders have decided to
affected people, MSMEs, agriculture, launch a regional fund to deal with
exports, health, rural community, the crisis. An electronic platform with
informal sector, etc. For example, health experts has been launched,
Bangladesh has introduced over US$ and a follow-up video-conference of
8 billion stimulus package, India US$ senior health officials was organised
24 billion, Thailand US$ 58 billion; to thereafter, where countries have
mention a few (Table 1). discussed several important issues
ranging from specific protocols dealing
REGIONAL COOPERATION INITIATIVES with the screening of goods and
While each of the South Asian countries people at entry points and contact
has undertaken drastic measures to tracing to online training capsules for
save its nation from COVID-19-driven emergency response teams. Steps
pandemic, regional cooperation is felt are also proposed to foster technical
important to effectively handle the cooperation, training and capacity
common challenge. For example, a full building, among others. While the

Volume 4, Special Issue No.1, July 2020 180


ISSN: 2474-5146 (Online) 2474-5138 (Print)

need to fight the pandemic is vast, this Bengal, there are allegations that food
regional effort is a good beginning not is not reaching the target group with
only to share the responsibilities but local counsellors and party leaders
also to reactivate the SAARC process. siphoning-off the food meant for the
Few days later, the leaders of G20 poor. At the time of COVID-19, the
countries had an online summit and government (both central and states)
pledged to infuse over US$ 5 trillion should keep aside politics and focus
into the global economy to minimise on economics. The benefits are both
the economic and social impact of immediate and long term.
the COVID-19. India also had a
teleconference with some of the Indo- EXPECTED LONGER RECOVERY
Pacific countries on issues related On the trade front, as WTO as already
to countering COVID-19. Indian predicted, the world trade expected to
diplomacy has responded brilliantly. decline by 13 to 32 per cent, the impact
However, the same initiative is yet to on India’s trade sector is expected to
occur in case of BIMSTEC or between be very devastating. As the empirics
India and ASEAN. On the other hand, suggest, India’s exports depend heavily
ASEAN and EU convened a high-level on the external demand and much less
video conference on 20 March 2020 to on the domestic factors. While the
discuss the COVID-19. external sector is expected to have a
V-shaped recovery, this should also
OPPORTUNITIES AND AN ACTION reflect on India’s exports. However, the
PLAN fear is that post-pandemic recovery
The aftermath of the lockdown offers may see the countries adopt stringent
a unique opportunity. Due to lack of protectionist policies, thus restraining
other economic activities, and lack of any recovery in the exports. One way
human traffic on roads, railways, and to overcome this could be for domestic
airways, suddenly the infrastructure industries to focus more on improving
space has become efficient in terms productivity that strengthen India’s
of goods movement. In spite of these competitiveness in the International
there will be a cluster of poor families markets. Further, focusing more on
who may not be able to get any help. services and its exports could help
The Odisha model has shown the recover some of the lost ground in
importance of direct cash-transfers merchandise exports. But if one looks
and efficient mobilization of the public at the other transmission channels,
distribution system (PDS). PDS is a way the overall external sector could face
to procure food grains from the farmers many more headwinds in the coming
at the price higher than the market quarters. Many countries (recently
price and distributing the same at a by India also) started introducing de
lower price to the poor. As part of this facto and de jure measures on foreign
welfare measure, Pradhan Mantri Garib capital. There are risks on the invisibles
Kalyan Yojana is clubbed with the PDS and the last World Bank study says the
system, where the central government remittances to India could drop by 22
promised to give an additional 5 kg per cent. And there are already capital
of food grains per person and 1 kg of outflows from India. Overall,
pulse to a poor household family over unfortunately, it would take longer
the next three months, starting April time for the external sector to recover.
2020, Many market aggregators and But then it majorly depends on how
leaders of worker unions are politically the global institutions are going to
connected and donate generously to help improve cooperation coordination
the party fund. For the State of West among the countries.
One Day Online International Conference Organised by IRBE Publications, Denver, USA 181
International Review of Business and Economics

THE TRIGGER POINT part could be monetized by the RBI.


Even though the major symptom of There is another source for the states to
COVID-19 is common-cold and flu-like tap the resources. It is the local bodies
symptoms, we are more concerned (especially the rural local bodies) that
with its economic symptoms and are known for holding unspent balances
impact. It does have the potential of especially after the recommendation of
slowing down not only the Chinese the 14th Finance Commission. Here, as
economy but also the global economy the end to the pandemic is not sure,
and the tremors are already felt. China it may be wise for the governments to
has become the central manufacturing think of having a ‘COVID Responsive
hub of many global business operations Budgeting’ so that it would not affect
and a slowdown in Chinese production allocations for other sectors.
will naturally have repercussions in
other countries. The intensity of such CONCLUDING REMARKS
repercussions would obviously rely on Overall, COVID-19 has brought untold
how dependent the industries of other misery to a large section of low income
countries are on Chinese suppliers. We individuals across the globe. The
do some casual empirics to figure out uncertainty about future looms heavily
the possible conduits and the extent, in the mind of both consumers and
which is presumably worse than producers. But, the concerted action by
what we observed during the Great the countries in the world will surely turn
Depression of the 1930s. Here, we the tide. India has great opportunities
analyze nine countries. Except India, in this context, especially looking at
all these countries feature amongst the composition of global value chains
top ten countries affected by the in the world trade. The MSME sector,
COVID-19 (excluding China). First, especially in our competitive engineering
we check whether the outbreak has goods manufacturing, provides great
anything to do with the number of prospects for employment and growth
Chinese immigrants to those countries. in the economy. The need of the hour
And then we move to the dependence is to carefully chalk out plans for the
on Chinese imports. future resurgence of economic activity
SUGGESTED MEASURES in the nation.
In the fight on pandemic, the states are REFERENCES
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need for the Centre to ensure sufficient “COVID-19: Impact on the Indian
resources at the states/ districts. Economy”, IGIDR Working Paper- WP-
However, with the declining divisible 2020-013
2.McKinsey & Company (2020), “Getting
pool as well as in GST collections, states
ahead of the next stage of the corona
may not be in a position to enhance virus crisis”, New York.
expenditure for health. Although RBI 3.Sen, A. (2020), A better society can
has already suggested a 60 per cent emerge from the lockdowns. Financial
hike in the ways and means advance Times. April 15.
to the states and also extended the 4.Irons, John (2009), “Economic scarring:
overdraft time, it is still at a cost. Here, The long-term impacts of the recession”,
the Centre and the RBI need to observe Economic Policy Institute (EPI),
the States’ cash balance positions Washington, D.C.
and accordingly handhold them with 5.Varonfakis, Yanis (2020) “The EUs new
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the discrepancy in cash balance position enemies”, The Guardian, April, 11,
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in advance to the needy states and this
Volume 4, Special Issue No.1, July 2020 182

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