Introduction
The Covid-19 pandemic has impacted the Indian economy in unthinkable ways, especially when the lockdown was imposed which brought the entire nation to a halt. This has come at a time when the economy was in a poor state and was showing signs of slowing down, especially the financial sector combined with decreasing consumer demand for goods.
Many sectors like retail, logistics, tourism, transport, etc were performing poorly even before the lockdown. These are now struggling and almost crawling with the added impact of the coronavirus pandemic.
The Indian government strategized and came up with many efforts to control the virus spread especially with the implementation of strict lockdown measures. An economic contraction is expected to follow due to this.
Many countries across the globe including India have evaluated the risks of reopening the economy. These measures are aimed at protecting and restarting activity to return to a growth curve next year. This is being balanced with restricting the spread of the virus which means further lockdowns could be a reality.
The question remains, how will the Indian economy re-bounce and rebuild itself? Read on to find out the possibilities.
How will the economic performance of 2020 impact 2021?
The pandemic is redesigning the landscape; however, it is tough to come up with an economic blueprint for the future once COVID-19 has been wiped out. This is mainly because no one has ever experienced the kind of measures being implemented to control the spread, including suspended transport, inactive plants and halted projects.
The aftereffects may differ to a certain extent across various states since they follow region-specific economic strategies. Tourism is known to have been severely hit and may have to suffer even further. The impact on small firms, labour in tourism, and investment in the transport sector may be huge.
Some of the high-performing districts across India are impacted majorly due to the lockdown. Nearly 130 districts are marked as red zones and these account for about 41% of the nation’s economic activity. They contribute almost 38% to the industrial output of the country and are highly industrialised regions. The slowdown of economic activities in these regions has affected suppliers and their revenues have decreased drastically. The overall consequence of the impact on supply chains and travel are echoing across almost all economic sectors.
Expected Unemployment
There is an increase in unemployment levels which has resulted in decreasing demand. This, has, in turn, impacted production capacity as well as resource utilisation. It has started impacting corporate results which may underperform throughout the year. Migrant labourers have been majorly impacted due to this lockdown.
To reduce the impact, the Government of India has further increased the contribution to Mahatma Gandhi National Rural Employment Guarantee Scheme, which offers secured livelihood in rural areas via 100 days of covered employment for applicants who offer to do unskilled labour-intensive work. During Covid-19, migrant labour may feel much safer while working near their home instead of moving across states, but this could mean reduced availability of workers for many sectors and regions.
Potential Losses
Impact on working capital and heightened solvency risk may lead to loans defaults and increased NPAs in the banking sector. The quantum of losses will vary across sectors, but some of the impacted industries, such as airlines, automotive, real estate, construction, etc will have to continue to bear the impact well into 2021.
Covid-19 is unexpected, so it is difficult to make accurate projections as far as economic growth is concerned. However, it is possible to mark some of the key issues that may have an impact on the Indian economy throughout this year and next. It may take a lot of time, possibly another year, for migrant labourers to bring normalcy in their work and move to other states. This means, the financial impact on rural households is bound to increase and will be aggravated by a crawling job market.
Demand for various goods and services has fallen drastically since the beginning of the lockdown. As Covid-19 cases in India are expected to peak in September and onwards, the impact on tourism, retail and many other sectors is going to be huge. This may lead to job losses that will further push down demand. Given the uncertain situation, it is highly unlikely that full-scale operations will resume in many sectors this year. This will further impact the financial health of many businesses, resulting in decreased capital investment in 2021.
Tough Times Ahead - But There is Light at the End of the Tunnel
Falling corporate revenue, heightened unemployment, and lower profits are going to have an impact on tax revenues. The government has announced many support schemes post the onset of Covid-19 pandemic. Reduced tax income and higher expenditure on social and employment schemes will burden the government’s fiscal balance in 2021.
There are flickers of hope among all this. The Indian economy could benefit from reduced fuel prices which could benefit the import bill. This is, provided the ongoing crude oil prices stay unchanged.
Reports also suggest that many foreign businesses are considering India as an alternate manufacturing location for many sectors, including pharma, electronic components, etc. India will need to make the most of this potential opportunity and open up with many policy measure amendments which could attract foreign investments in 2021.
The COVID Impact Continues
Along with MSMEs, the aviation and tourism sectors have been facing major financial problems. This is primarily because of high fixed costs which have aggravated in the current situation. The revival of these sectors will take very long and this could have a cascading effect at a macro-economic level. While the economy struggles, the virus is gathering momentum in India and things look far from normal as far as the economic situation is concerned.
Covid-19 has adversely impacted the entire global economy and India is not spared. Looking at the current trend India is expected to enter a recession. Considering this, the recovery must focus on creating a more sustainable and resilient economy, pursuing opportunities to build back better and improve the life chances of all Indians.
End Note
India is a developing nation and recently had been passing through demand depression and high unemployment before the Covid-19 outbreak. The nationwide lockdown resulted in a slowdown of the economy and troubles have accelerated further. The situation has jeopardised the economic wellbeing of millions.
Experts are predicting that India may go into recession affecting the unorganized sector and semi-skilled jobholders losing their employment. This could be just one of the many impacts that the Indian economy will have to witness during this year.