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Impact of Covid-19 On Indian Economy

‘The supply side contagion effect’ will impact manufacturing, agriculture and the pharmaceutical industry. Coronavirus has brought various segments to stand still

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The World Health Organization (WHO) on 12th March announced the recent outbreak of the novel coronavirus disease (COVID-19) a pandemic, crumbling away Rs. 11.4 trillion of shareholders wealth. 

India’s economy has already been suffering from a slow down in the recent past. Moody’s has downgraded India’s growth to 5.3% in 2020 due to downside risks of Covid-19, the slowest in 11 years. According to an economist, ‘The supply side contagion effect’ will impact manufacturing, agriculture and the pharmaceutical industry. Coronavirus has brought various segments to stand still.

Sectors like tourism, aviation, hospitality and trade will face the first set of challenges; other sectors too will face the cyclic effect. As per reports, there has been 20 per cent reduction in domestic travel and about 75% reduction in international travel bookings. Hotel booking rates have also declined from 70% to 20%. There has been a down of 30-35% in the restaurant business. Sales of poultry sector have also come down by 80% losing business of approximately Rs 1,500 - 2000 crores daily. 

The virus outbreak has become one of the biggest threats to the global economy and financial markets. Being part of the global village India is not immune to the virus. While the Government of India, as well as State governments, are treating and monitoring the situation closely to control the coronavirus pandemic; it can take 1 - 2 months to get a clear picture of the problem. It is very important for every Indian to remain aware and alert.

India’s ongoing GDP loses are likely to be approx $5-10 billion (0.15 - 0.35 per cent of GDP), as per data. With more than 20% cut in benchmark indices; the Indian equity market has entered the bear market territory. New coronavirus has also driven investors to bid up bond prices, resulting in yields in major economies to inch lower. Making things worse is the crude oil war between Saudi Arabia and Russia, which has injected volatility into other assets. Sectors like paints, speciality chemicals, hair oil, cement, PVC pipes, etc will benefit due to falling in crude prices. The domestic consumption slowdown, triggered by the failure of large financial institutions has led to another situation in the form of Yes Bank crisis. While other commodities are down, gold has gone up because of the demand for a safe haven in uncertainty. 

RBI is taking the necessary steps to meet the crisis situation in the country. RBI came up with a Business Continuity Plan in the emerging situation and is sharing instructions, by devising strategies between the staff member and other customers. RBI has also started Open Market Operations from March 20 in the form of the purchase of an aggregate amount of Rs 10,000 crores of government securities. There are no notified securities amount mentioned, but RBI has a self-imposed ceiling of Rs 10,000 crore wherein they have the sole right to decide the purchase of individual securities, accept offer either less or higher than the amount of Rs 10,000 crores and accepting or rejecting the offer. 

As they say, every cloud has a silver lining. Prime Minister Modi assured that the government is with us and we need to help ourselves by undergoing self-quarantine. As citizens, we need to fight the global crisis with joined hands and follow basic health and hygiene instructions, directed by the Government of India. We will need to be careful towards our actions and together we will definitely overcome this virus and will make this planet a better place to live. Hope the market anxiety will die down soon and the economy will take an upside.

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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COVID-19 coronavirus pandemic coronavirus outbreak

Nitin Shahi

The author is Executive Director, Findoc Financial Services Group

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