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The Impact Of Coronavirus Pandemic On The Indian Economy

Expert analysts are in fact suggesting a Global financial crisis and India would not be far away from the same, considering we are an emerging market.

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As the scientific name for Coronavirus evolved in no time (currently called, the SARS-CoV-2) and so did its impact over the globe in terms of a pandemic & a health disaster, it has equally spelled disaster for the financial backbone of the world. With the offensive virus affecting over 228,020 people across 176 countries & territories, the pandemic fear of insurmountable proportions has gripped the world resulting into an impending collapse of the global financial markets and India is no exception to that! In no time the Indian cases have also risen to almost 200 now. While much of the epidemic is contained in India and we as a country are taking necessary steps to combat the great disease, it could pose a significant challenge to the Modi government due to its complexities integrated to the world economy. And if the remarks by the IMF MD are to be looked at closely, those too are far from being motivating.

The struggling Indian economy with rise of unemployment, rising interest rates and fiscal deficit affected further by the anti CAA protests could be severely affected. While there was a modest rise in Q3 (4.5% to 4.7%), the disrupted global trade have resulted in nervousness of the Indian markets which has wiped out INR 12 lakh crores of investor wealth, with sensex bottoming out hitting almost a three year low. The sheer fluctuation and volatility in global stock markets, observed due to this pandemic, has caught investors off-guard over the past few weeks.

Economic pandits have already expressed their concern about the global impact of Coronavirus on the Indian economy. Early estimates by the government suggest that there will be a hit of 0.3-0.5% on the GDP in the next fiscal year and growth in the first two quarters of the next fiscal could be as low as 4-4.5%. Sectors such as tourism, aviation, hospitality and trade will face the first brunt of the impact and these sectors would be severely affected. As economic activity stalls, there would be a domino effect and all related sectors would also severely affected. China, which was the epicenter of the virus would see a contraction in its GDP in the first quarter and the US & Europe are expected to slip into regression by July dragging the overall global economy down. Though according to the RBI governor, India is insulated, but as a matter of fact it is integrated to the world economy and it will also see its low, considering there were already internal factors dragging it down.

India will be the 10th most impacted economy due to the supply chain disruptions in China with chemical, textiles & apparels, automotive industries and the medicinal & pharma companies bearing the brunt. Indian industries depending on Chinese imports are the worst affected. In imports, the dependency of India on China is huge. Of over the 20 products that India imports from abroad, China holds a lion’s share. India’s total electronic imports account for 45% of China. Around 1/3rd of machinery and almost 2/5ths of organic chemicals is purchased from China, by us. Around 65% to 70% of active pharmaceutical ingredients come from China! In terms of export too, India’s 3rd largest export partner is China. Hence overall the virus would definitely affect the core sectors, thereby impacting market, business & trade. Expert analysts are in fact suggesting a Global financial crisis and India would not be far away from the same, considering we are an emerging market.

What is of concern here is the deep impact that it would have in the medicinal & pharma industries, considering that I am from the healthcare industry and our patient treatments are the antidotes that we prescribe. According to the data available with Pharmexcil, the cost of a simple paracetamol and ibuprofens has gone up by 30% to 40%.  It is said that about a week ago, India, the world’s biggest supplier of generic drugs, limited the export of certain medicines including paracetamol. The Chinese shutdown has fractured the industry’s supply chain as many of India’s drug manufacturers source their basic ingredients from there. Having said, we can look at a silver lining – the situation can give an opportunity to India’s pharma manufacturer’s to grab share from their Chinese competitors. If the government should absorb the price differential it could improve the capacity utilization of these companies.

While all seems to be bleak but if our government support businesses providing interest free loan and tax waivers to the SME and MSME sector primarily depended on China. Opposition parties have still not called for any talks with the government over their preparedness and strategies for tackling Coronavirus nor have they discussed any possible tax relief measures to the affected companies in lieu of persistence low employment and decline in economic growth. As per the RBI governor, banks must prepare themselves against impact of coronavirus slowing global growth which will add to the stress of the Indian corporate balance sheets. There are several measures being taken to revive the banking sector and we are hopeful that such would be the case.
Whether the Indian economy fall is actually in response to panic or Coronavirus pandemic or other internal distracting factors, only time will tell, but till then let’s be prepared to fight Coronavirus and strengthen preventative measures against Coronavirus. After all prevention is better than cure!!

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.

Dr Inder Maurya

The author is Founder & CEO, Foreign OPD.

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