ECONOMY AND COVID-19

           

            The Indian Economy was already facing a severe slowdown even before Covid-19 hit the country. Now, with increasing number of Covid-19 cases and nation wide lockdown in place since 25th March things look too grim. Almost 70% of the economy is completely shut and only health care sector along with other essential supplies is functioning.
             The initial 21 day lockdown already costed India more than 8 lakh crore and now with the lockdown being extended for two more weeks, we can expect this figure to double and even go up. India's export dipped 34.57% in March whereas import dipped 28.72% during the same period. The dip in export is likely to be the sharpest dip since 2008-09 when export went down by 33.3%. What started as a health crisis in China has now become a financial crisis for the entire world and this crisis looks far more serious than 2008 crisis. In 2008, atleast everything was functioning and it was just a financial crisis. Now, its financial and health crisis. The Government will have to look at both the economy and the health sector and take decisions keeping an eye on both.
            The Agriculture sector, which have more than 50% of the population employed is one of the hardest hit sector. At a time when Wheat and Pulses are being harvested in North-West India, the harvesting activity is widely disrupted particularly due to non-availability of migrant labours. Prices of Wheat, Pulses and other vegetables have declined as we can see that retail inflation has came down in march to 5.91% from 6.58% in february particularly due to reduction in food prices. Despite prices falling, consumer are paying more and this is particularly due to supply chain disruption caused by lockdown. Maintaining smooth supply chain should be the top most priority of the Government because there is food available in the country and it should reach people on time to reduce the rising food insecurity. More than 2 million people died in the Bengal Famine of 1943 not due to lack of food availability but because of disruption in food supply chain.
           Although the lockdown has exempted farm operation but the labour shortage followed by supply chain disruption has hit the sector hard. Along with agriculture, poultry farmers have also been affected particularly due to rumors on social media that chickens are a potential carrier of Covid-19 but in reality this Covid-19 have nothing to do with food. Overall entire agricultural sector is affected badly particularly in terms of increasing unemployment.
          The Secondary sector employs nearly 30% of the population and accounts for almost 28% of the GDP. The entire sector is almost shut with only a few industry related to health care functioning and that too with limited staff. The Chief Mentor of Clothing Manufacturing Association of India (CMAI), Mr. Rahul Mehta says that he sees almost one crore job being lost in the entire textile supply chain if the government don't come up with something that helps the industry. One crore job loss is expected in just one industry, imagine the cumulative unemployment that is expected to rise across sectors.
          The Indian Exhibitions Industry Association (IEIA), the apex body for exhibitions and trade show in the country estimates the loss in the industry to be more than Rs. 3570 crore. An industry of Rs. 23800 crore suffering a loss which is 15% of its size is huge. The loss is mainly due to global and national events getting postponed or cancelled.
          The Manufacturing sector is eyeing a severe workforce crunch post Covid-19 which is very much evident due to migrant workers stranded in Delhi NCR, Surat and Bandra, just to name a few. When the lockdown will ease these worker will definitely be going their home and we can expect workers shortage in almost every industry. Even when the companies will start post lockdown, there will be certain restrictions in place and it will take a long time to come back to complete normal.
            The Tertiary or the Service sector employs the least number of people, around 25 of the population but it is the main contributor to the GDP, accounting for more than 50% of the national income. The impact of Covid-19 have not spared this sector too. During March India's Service sector contracted, particularly in the overseas market due to reduced demand. The IHS Markit India Services Business Activity Index was at 49.3 in March, down from February's 85 month high of 57.5. In PMI parlance, a print above 50 means expansion while score below 50 means contraction. The composite PMI output index that maps both the manufacturing and service sector fell to 50.6 in March down by 7 points from February 57.6 to signal a sharp fall in private sector output growth.
            The contraction of India's Service sector is the worst news for the economy because it is main contributor to the economic growth and if this sector contracts or slows down sharply then the GDP will fall more drastically than expected.
            The IMF has forecasted a growth of 1.9% for the financial year 2020-21 whereas World Bank has forecasted a growth of 1.5%-2.8% for 2020-21. But this only possible if the economy performs well post lockdown particularly in the second half of the year and returns to normal soon.
           On 27th March, 2020 the Government announced a stimulus package of $22.6 Billion(approx. Rs.1.7 Lakh Crore) which comprised of direct cash transfer and food security measures. Given the size of our economy this stimulus package is way too small accounting only for 0.8% of the GDP, whereas other countries have spent far more. A second stimulus package is on discussion and will be announced soon which is expected to help small and medium scale industries.