In the middle of this global Pandemic, governments across the globe struggling to reduce the health shock with various measures like testing contact tracing, isolation, quarantine, and implementing travel restrictions. Many nations including India implemented complete lockdown to reduce this health shock and relaxing the norms very slowly. But at the same time, we started facing another challenge, an Economic shock across the globe.
In the current scenario, we couldn’t forecast about the health risk of COVID -19, the economic impact also remains unpredictable. This uncertainty bringing challenges from individual households to policymakers of the country for preparing for the future. Here we are trying to analyze the micro and macro Economic Impact of COVID-19 in India.
Micro economic impact.
The COVID crisis and associated lockdown initially affected the supply side due to panic buy, production plunge across industries, and the restrictions in movement. But now they moved more towards the demand-side problem. The continued lockdown affected the income of daily wage earners, auto and taxi drivers, and migrant workers at the first level and then transferred to self-employed people like shop owners, etc. This impact from consumers will hurt business firms and their employees forming a cyclic effect in the market. Even many state governments themselves implemented salary cuts causing a cash crunch. More than 50 % of Indian households will face a serious income drop compared to last year.
In the next level, drastically reducing the purchasing power and fear about the pandemic will affect the behaviour of the citizens. At present, it is difficult to predict what all changes that COVID can contribute to the behaviour of people. But for sure the behavioural changes include people reducing or avoiding the trips to the market, unnecessary travels, entertainments and other social activities. These changes will significantly impact the money circulation in the market causing more job losses.
These microeconomic impacts will directly translate to the macro-economic effect in the long term. Currently, service sectors like aviation, transportation, tourism, entertainment, and Hospitality affected very badly. And gradually it will extend to FMCG, Real estate, mining, agriculture, manufacturing, etc. almost every sector of the economy. The overall economic impact of COVID will be very high in India compared to other countries.
After China and Italy, the disease spreading in countries like UK, USA, and Russia. In the current scenario, we can expect that the virus outbreak occurs on a rolling base across the globe. In a globalized world, the disturbance in any part of the world will have its impact on business at other countries in various ways like shortage of raw materials, delayed shipments, and production schedule and lead to serious financial problems. Small and medium industries will face more struggle for existence. Many companies forecast the demand side-impact, they will defer investments in expansion, capacity addition, and manpower. Same time many companies have passed through structural reformation as part of their survival strategy.
When many industries are badly affected in the scenario, demand for e-learning, online meetings, remote work, etc will increase. The businesses that are involved in e-commerce also expected to be benefitted by COVID 19. But these are not sufficient to match up the overall slump in the economy.
Impact in Indian Economy
The outbreak of covid -19 has significantly disrupted all the economies across the globe. In India, the problem is acute than in many other countries. The Indian economy was just recovering from the effects of the implementation of Demonetisation and GST. The current crisis is much severe than the former two. Because either Demonetisation or GST fundamentally affected the demand, supply, or even behavior of public.
With an increase in unemployment, lower consumption, and liquidity, the tax revenues of the government will decrease and at the same time, govt has to implement several packages to reform the economy. RBI and the government trying to reform the economy through various monetary policy measures. Estimating or measuring the COVID 19 impact or effect of an Economic package is very difficult in the current situation. Many economists projecting the GDP growth for FY20-21 will be between1-2%. But in my opinion, the overall economic Impact of COVID-19 and lockdown in the India will be much higher. We are expected to have the worst impact than the 2008 Global Financial crisis or even the Great Depression of 1929.
When things will become normal?
The right answer to this question depends on one single solution. A perfect vaccine for this pandemic. We are still searching in the dark for temporary solutions to prevent the virus. It may be a few months down the line or extend for a year or more to find a successful vaccine against this pandemic. But one thing for sure, a lot many things are going to change soon and the only solution that everyone can implement is to work together to transform this change as good for the future.