Rayees Masroor writes about the impact COVID-19 would have on the Indian economics
The 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.
The major institutions and banks have already cut their forecasts for the global economy. Also, the coronavirus impact and the subsequent lockdown on the global economy has rocked markets worldwide.
Amid 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 lower industrial output and profits, all of which are 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.
Also due to the outbreak of the virus 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 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 of China. Similarly, 90 percent of certain mobile phones come from China besides a significant share of automotive parts, fertilizers, and organic chemicals are also imported from China.
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 the coronavirus pandemic becoming more threatening by each passing day, India’s economy which was already going through a six-year low slowdown with a growth rate of mere 4.7 percent seems to have no chances of recovery in the near to 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 become vulnerable amid this unprecedented lockdown in the country. The coronavirus pandemic amid an economic slowdown has also hit revenue at Indian retailers selling non-essential items like clothes and jewellery 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 countrywide lockdown, the adverse effects of the coronavirus on the economy have already begun to show the footprints.
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 other sectors of the economy are likely to see a big hit to their revenues in the coming weeks. INR to the USD exchange rate is already nearing the psychological barrier of Rs 75 per US Dollar.
If the barrage of capital outflows from India continues, the 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 thus the economy on a downward spiral cannot find the bottom until the pandemic is contained globally. Although to mitigate the risk associated with the lockdown, the finance minister came up with certain measures but it is widely felt that the steps taken by the Government of India are too little and late.
It is 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 investors has revised down its growth forecast for India to 5.3 percent from its earlier estimates of 5.4 percent in February. Let’s hope against the hope and expect the present situation to pass through without much catastrophic consequences.
(Rayees Masroor is a columnist and can be reached at firstname.lastname@example.org)