49,436 positive cases of which 1,695 deaths (6th May, worldometer data) so far in India. The number continues to grow. To combat the spread of the virus, countries have initiated coronavirus lockdowns. India is currently in lockdown 3.0 version. The halt of all industrial work is expected to have a major impact on the Indian economic growth rate. Many economic and financial institutions like the International Monetary Fund (IMF), Moody’s Investor Service, United Nations Conference on Trade and Development (UNCTAD) and International Finance (IIF) have all revised their growth expectations for the global economy based on the effect of the coronavirus. And the general conclusion is that its effects will be similar to that of the 2008 financial crisis.
Impact of the pandemic on the Indian economic growth
The Indian economy was not in a good state even before the COVID-19 outbreak. The Economic Survey of 2018-19 data showed India’s total population employed in the informal sector to be around 93 percent. Which means, when the 21-day lockdown was announced by the prime minister, factories started to close down hence, most of the workers under this 93 percent would have lost their jobs. Thus adding further to the unemployment woes.
Aside from this, India’s economic growth hasn’t been positive because of rising unemployment, interest rates, and fiscal deficits. Before the onset of the coronavirus, the Indian economic growth was contracting with a reduction in GDP growth rate of 4.7 percent expected in Q3, 2020. With the pandemic expected to bite really hard, this has been revised downwards. As the economic impact of the pandemic depends on the magnitude and speed, estimates by Moody’s and ICRA project on India’s economic growth is cut down to 2 and 2.5 percent in 2020.
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How to revive the Indian economic growth post COVID-19?
By the time the coronavirus pandemic comes to an end, it is expected that the global economy will have contracted by at least 0.5 percent which amounts to a loss of 2.2 trillion dollars. For India, as stated earlier, the direct impact of the pandemic is a contraction of GDP growth rate to between 2 and 2.5 percent.
This negative impact on the Indian economy is not far-fetched as it is difficult to do business when there is a restriction of movement. And in this case, it is not just a restriction of movement for the sake of it, but a restriction of movement needed to prevent massive loss of life. The implication of this is that businesses will have to close up shop which will lead to a loss of revenue. The loss of revenue for businesses means workers would not get paid and unemployment will skyrocket.
To prevent a complete collapse of the economy due to the coronavirus pandemic, the economy has to be stimulated and injected with massive economic stimulus packages from the Indian government. This economic stimulus package must include considerations such as loan moratoriums, low-interest rates for start-ups and banks re-capitalization. Also, for a meaningful economic revival to take place, the government must be ready to relax tax compliance burdens for SMEs and offer wage subsidies to support businesses. This will help businesses to retain workers and free up capital needed for investment.
The state of the economy post-COVID-19 will require the government to ensure universal access to social safety nets, including healthcare, maternity, disability and pension benefits for all workers. If anything, the pandemic has emphatically underscored the need for, and importance of adequate healthcare facilities and services. Lastly, the Indian government must not also leave out education as students will have been at home for a long period due to the nationwide lockdown. Although this will demand greater funds, priority must be given to improve access to quality education.
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- Will COVID-19 Devastate the Indian Economy? by Venkatachalam Anbumozhi || April 14, 2020
- PM reviews impact of COVID-19 on the economy; 2nd stimulus in consideration by PTI || April 16, 2020
- The economic effects of COVID-19 around the world by Rosamond Hutt || February 17, 2020