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Impact Of COVID-19 On The economy

This outbreak has led major institutions to cut their forecasts for the global economy.

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The buzz around the Indian economic slowdown has been going rounds for a long time. Indian Economy has been ailing with growth rates hovering at around 4.7% in the third quarter which is the six-year lowest growth recorded till date.

While Indian economy was expecting a surge in the growth rates in the fourth quarter, but the recent outbreak of the deadly COVID-19 pandemic seems to have wrecked such budding expectations. To contain the spread of this virus most governments have issued lockdown advisories including Indian Government which has issued a 21 day complete National Lockdown advisory. From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of disruption to economic activities from containment measures.

This outbreak has led major institutions to cut their forecasts for the global economy. China being the nexus of this deadly virus has recorded the largest downgrade in gross domestic product growth in terms of magnitude.

The current situation has brought the economy to a standstill with global economic growth projections being on the decline.

The outbreak of this pandemic has posed serious challenges to the Indian economy where revival seems to be a far-fetched dream. It has brought in severe disruptive impact on overall demand and supply which has the potential of paralyzing the economic growth story of the country.
While there has been a dip in demand in sectors like Retail, Tourism, Hospitality, Aviation, Real estate, Construction etc. because of the self-isolation advisories issued by the Government, consumption pattern has been impacted because of decline in income levels of people especially daily wage earners. This situation has eventually led to the postponement of buying decisions which in turn has contributed to the sluggish demand.

The burning question in the minds of everyone now would be how long will this pandemic last and how long will the companies continue to pay salaries. Many organizations are either cutting salaries or cutting their staff. The uncertainty in the minds of every individual has resulted in a dwindling demand and consumption expenditure. Most major players in the aviation industry have announced pay cuts in light of travel restrictions. Also many employee lay off decisions have been taken to deal with the low demand situations.  

One of the worst affected sector is Petroleum and Diesel industries as the reduction in economic activities have lowered the demand for oil resulting in oil prices hitting a low.

There has been a steady decline ever since the onset of this pandemic in India.                                  
Sectors like automobiles, pharmaceuticals, electronics, chemical products etc. are facing a shortage of raw material and components mainly because of the suspension of manufacturing activities in China.

Besides Demand, the supply side is also a matter of worry now. Most nations are concerned about the impact on their supply chains which begin or go through China. As a consequence, key business operations of most companies in India have been hit. Almost 80% Indian companies have reported a decrease in cash flow, as curfews and restrictions on movement in the wake of the COVID-19 outbreak have already starting to impact collections. This will have a direct impact on all payments to employees for salaries, Interest payments, loan repayments etc. The global economic slowdown has also impacted India’s export to other markets.

China has been a major market for many Indian products like jewellery, gems, petrochemicals, seafood etc. But due to the export restrictions to China, these sectors are likely to witness long term effects.

Choked with lockdowns across all states, Indian banks are bracing for a decline in collections and increased demand for working capital from borrowers. In light of the rising difficulties which the borrowers and banks may face, The India Bank’s Association has submitted a five-point wish list to RBI for the purpose of relaxing rules on loan so as to aid repayment of outstanding loans. The wish list includes extension of the time period for classification of Non-performing assets, deferment of instalments of term loans.

Fear surrounding the impact of COVID-19 on the global economy has hurt investor sentiment and brought down stock prices in major markets. It has taken a heavy toll on the Indian Share market as well which has logged its highest losses ever. Sensex has recorded the biggest ever single day fall. Not only in the Indian share market, this template is the same for most of the global economies. This situation is resulting in wealth erosion as more and more investors now want to resort to selling their holdings amid the scare of the rapid spread of this deadly virus.

Even though it is still not clear how long will this pandemic wreak havoc, but optimistically speaking there is a possibility that once the lockdowns are withdrawn the demand and supply would surge. Also as the epicenter of this pandemic is China, there is a possibility that export or import restrictions will continue to remain operational for Chinese products. This can be used as an opportunity by the Indian indigenous industries to catapult their operation leading to lesser reliance on imports.

In another scenario in case the lockdown continues indefinitely to contain the spread, there is a possibility of further collapsing of the economy where GDP growth rates could go down to 4%.
While situation seems to have settled in China, India still awaits to escape the wrath of this pandemic. But with the initiatives adopted by the government and the upcoming stimulus package promised by the government which is being worked out currently, it is expected that India will soon fight back and emerge as a winner in the global economic crisis scenario.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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coronavirus outbreak COVID-19

Gaurav Mohan

The author is CEO, AMRG & Associates

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