Success in containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced. The impact of the coronavirus is having a profound and serious impact on the global economy and has sent policymakers or government looking for ways to respond. Some Economist considers it as the worst phase in the economy. A member of IMF Kristalina Georgieva says “this could be a worst Economic Downturn since The Great Depression”.
Similar to the condition of the world India has also seen a complete lockdown for the last 35 days and this has impacted both macros as well as the micro-level of the economy to a large extent. It seems life has come to a complete halt especially for the unorganized sector. India before the lockdown had a dream of taking the economy to 5 trillion by 2022 but due to this unpredicted condition prevalent today the dream seems too far, the countries main priority seems to be saving lives and for this most of the state governments have decided to invest the whole budget of their state to save the lives of people from coronavirus pandemic. The COVID-19 pandemic and the consequent situation has shaken us all, but what we need now is a judicious mix of optimism and caution.
IMPACT ON THE WORLD ECONOMY
The coronavirus (COVID-19) pandemic has impacted both demand for and supply of commodities. The demand for various commodities like crude oil, coal, zinc, cement, electricity consumption, etc has decreased. Since the demand has decreased the industries producing these commodities are on the verge of shutting their production units. This is creating a huge burden on the manufacturing sector since they are not able to pay salaries to their employees.
Even the excess supply of certain commodities in the market has created a large variation in the price of some of the commodities like the crude oil, the price of which has lowered to a just $0.22 per barrel. The reason for the anomaly is because the consumption has decreased drastically due to production shutdown of most of the industries.
The next problem that seems too evident from the warning that comes almost three weeks after the International Labour Organization (ILO) has predicted that 25 million jobs will be threatened by a coronavirus. Workers in four sectors that have experienced the most “drastic” effects of the disease and falling production are food and accommodation (144 million workers), retail and wholesale (482 million); business services, and administration (157 million); and manufacturing (463 million). Together, they add up to 37.5 percent of global employment. The data shows that nearly 37.5% of people will have their jobs affected.
The final problem that the whole world is in the dilemma that when is this going to end and our lives would be normal as before. The school and colleges have been closed throughout the world. Everybody is wearing marks to protect themselves. Almost everyone has been quarantined in their homes. The virus has affected lifestyle people in every age group. The number of infected persons is growing day by day, hence the fight against corona seems to be a long one.
IMPACT ON INDIAN ECONOMY
The coronavirus has impacted most business sectors from aviation to hospitality, from real estate to construction, from agriculture to poultry and from petroleum to shipping. The list is long and no sector has been spared.
Using extraordinary innovation, train compartments have been prepared to serve as isolation wards
The effect on Indian economy can be analysed on both micro as well as macro scales.
MICRO-ECONOMICS OF INDIAN ECONOMY DUE TO CORONA VIRUS
Microeconomics can be defined as the study of decision-making behaviors of individuals, companies, and households with regards to the allocation of their resources. The Micro, Small and Medium Enterprises (MSMEs) sector, which contributes to 30% of India’s GDP, is one of the key drivers of the Indian economy. Today, almost all MSMEs are out of action due to the lockdown, they are unable to pay their employees and several don’t have the financial resources to re-start their businesses. These sectors will put people back to work and build some traction in the recovery of our economy. This may all sound simple, but obviously there is no easy fix to this unprecedented crisis.
For investors from India, expect a similar trend to play out for Indian banks. It is unlikely that the three-month moratorium of loan repayment that the Reserve Bank of India (RBI) issued will be sufficient for consumers and small businesses in India. Indian banks will likely face similar challenges as these US banks – the risk of nonperforming loans will increase significantly. As such, Indian banks with high lending exposure will face greater risk with expected high unemployment and slow economic recovery.
Unemployment numbers shoot through the roof. Unemployment is a leading indicator of future income. For large countries like India, large unemployment can have a snowball effect. As jobs are lost, the pool of unemployed workers will expand, while every year, a large number of fresh graduates enter the workforce (India will have an estimated 9.3 million fresh graduates in 2020-21).
This combination of large unemployment, a shrinking economy, and a large addition to the workforce every year can slow down employment recovery.
MACRO-ECONOMICS OF INDIAN ECONOMY DUE TO CORONA VIRUS
Macro-economics is the holistic study of the structure, performance, behavior, and decision- making processes of an economy, at a national level. Essentially macroeconomics is a top-down approach. It seeks to understand changes in the nation’s Gross Domestic Product (GDP), inflation and inflation expectations, spending, receipts, and borrowings at a governmental level, unemployment, and monetary policy. This is done to implement and know the state of the economy, so that policies can be formulated at a higher level, and macro research can be carried out for academic purposes.
As of India the GDP for the 4th quarter is expected to be 1.6%, which would be an all-time lowest GDP since independence. The next biggest challenge is that this year can also be a year of lowest inflation since most of the people are losing jobs and suffering reduced salaries. Inflation is expected to have a negative percentage. The government has created a new bank account called PM CARES FUND to collect money to fight the coronavirus pandemic and similar viruses in the future. India faces the lowest growth projectile in over a decade of under 5%, according to the Report from the central bank. Following the outbreak, in an emergency move, the RBI cut the debit rate by 75 basis points. Also, RBI implements several relief measures subsequently after the pandemic effectively hits the economy. Similarly, they induced restoring actions to input rupee and dollar liquidity in the markets.
It is expected that the course of economic recovery in India will be smoother and faster than that of many other advanced countries as said by WHO. The pandemic has affected educational systems worldwide, leading to the widespread closures of schools and universities. As the coronavirus spreads around the world, the markets have experienced their worst crash since 1987. Many countries with large economies, such as India have enacted quarantine policies. This has led to the disruption of business activities in many economic sectors. The impact of the coronavirus is having a profound and serious impact on the global economy.
The Indian government is doing its best with the limited resources to bring back life to normalcy. The government is trying its best to ensure that there is no shortage of food for the people and the policies like Pradhan Mantri Garib Kalyan Yojna, Pradhan Mantri Garib Kalyan Ann Yojna, Pradhan Mantri Ujjwala Yojna, etc has helped people below the poverty line.
NIT Srinagar students have also made a low cost and highly efficient ventilator- “RUDHAAR”. It would bring down the cost of the ventilator. DRDO has prepared Bio-suits for the health workers. The government has promoted various research and there are various ongoing programs like SAMADHAN by MHRD and MO Pavitra Programme by Orissa government.
Author: SHIVANSHU TRIPATHI (NIT SRINAGAR)