By Sofiya Syed
Even before the spread of COVID 19, Indian economy was struggling and facing the heat of economic slowdown supported by the fact that our Investment is lowest in 17 years, manufacturing growth is lowest in 15 years, GDP is lowest in last 11 years, Tax growth is lowest in 10 years, Industrial production is lowest in 8 years, Construction growth is lowest in 6 years, Unemployment is highest in 45 years, Trade deficit is highest in 7 years, Food Inflation is highest in 6 years, Bank NPA’s rose to 11% of total bank lending’s. Now due to the countrywide lockdown which occurred after the outbreak of COVID 19 our economy may see a worst face of recession from slowdown.
The government of India had projected a GDP growth of 6-6.5 % for 2020-21 in the Economic Survey which was released a day before the Union Budget and Moody’s Investors Service projected India’s GDP growth for the Calendar Year 2020 at 5.3%.
After the announcement of first nationwide lockdown of 21 days from 25th March to 14th April due to COVID-19 outbreak, which was announced on 24th of March by our Prime Minister Sh. Narendra Modi, the credit rating agency Moody’s has sharply slashed India’s GDP projection to 2.5% from its earlier projection of 5.3% and when the 21 days lockdown extended to 40 days, another report of the credit rating agency came on 28 April 2020 wherein it has slashed the earlier projected GDP growth rate of 2.5% to 0.2% holding that the economic costs of coronavirus crisis amid the near shutdown of the global economy are accumulating rapidly.
International Monetary Fund (IMF) cuts India’s GDP growth to 1.9% and According to Kristalina Georgieva, Managing Director of IMF The outlook for global growth for 2020 is negative and a recession at least as bad as during the global financial crisis or worse is coming.
According to one of the Chief economist of UBS Securities, the Indian economy has been hit by coronavirus pandemic, the damage is expected to be limited if the situation eases by mid-May. The GDP growth may see an upside of 4 per cent for the fiscal year 2020-21 if the situation normalized by May. However, this situation seems unlikely as government has already extend the nationwide lockdown till 17th May and few reports are suggesting that this disruption is likely to last till September. The World Health Organization has warned that developing a vaccine could take 12 to 18 months and as per US researchers report Coronavirus Pandemic could continue till 2022 so till now there is nothing can be seen which would suggest that situation is going to get normal in near future.
And in such scenario the biggest fear is that the consumption would be negatively impacted on account of possible job losses and reduced incomes and India may witness a negative GDP growth for the first time since the financial year 1980 in a downside scenario.
According to Former Reserve Bank of India Governor Raghuram Rajan the Indian economy is facing the ‘greatest emergency’ since independence, more acute than the global financial crisis in 2008-09. In a blog titled ‘Perhaps India’s Greatest Challenge in Recent Times’. Raghuram Rajan said that “The global financial crisis in 2008-09 was a massive demand shock, but our workers could still go to work, our firms were coming off years of strong growth, our financial system was largely sound, and our government finances were healthy,” unlikely with present situation.
The lockdown in India is negatively impacting the economy and it is entering into a depressing loop. The investment of many businesses and spending of many households depends largely on cash flows. Since there would be less spending as there is no income of many households during lockdown there would be large drop in demand, which will force these businesses to close which ultimately would lead to rise in lay-offs and a further drop in consumption. Even, after the lockdown and when restrictions on business activity and mobility would be lifted, recovery of businesses would not be easy.
Probably recovery would be uneven across sectors, as the fear of contagion will likely alter consumer behavior. Impact of this pandemic Covid-19 would be more on service sector as compared manufacturing sector. Especially services that can be ignored or delayed and which require high degree of human contact such as aviation, tourism and hospitality, which includes dining out, going to theaters, functions etc. These kinds of services are unlikely to fully normalize until the Covid-19 is eliminated from most of the world completely or its vaccine or proper treatment is available. In this situation many businesses will struggle to sustain and some of them will be eventually closed.
It is not easy for Indian government to implement correct policies for fighting the disease, saving the economy, and keeping the society in untroubled state at the same time. Though, lifting the lockdown could easily risk triggering a fresh wave of Infection but a complete lockdown for a longer period will end up destroying both livelihood and lives, and without livelihoods, life itself matters less.
The author is a Chartered Accountant