It wasn’t long ago when the COVID-19 pandemic abruptly spread across the world, with uncertain circumstances ahead. The pandemic has aggravated the existing tensions concerning healthcare, education, politics, and the economy as a whole. As the virus spread, restrictions were imposed and the global economy came to a standstill, with an unprecedented recession. Within no time, the health crisis transformed into a global humanitarian, economic, social, or political crisis. Albeit widespread, the impact of this crisis was evident in different countries according to their pitfalls, challenges, and level of resilience. However, its global effects remain indeterminate, with a high level of uncertainty as to how, when, and what possibly could be the extent of the backdrop. Economic growth holds its prerequisites, and considering that the Indian Economy plays an important role not only at a domestic level but globally as well, it becomes crucial to analyze and assimilate major issues, drivers of growth, and possible reforms to the ongoing economic setback.
The coronavirus pandemic disrupted the global economy, and among all the nations, India being a developing country, faced one of the biggest economic crises due to emerging coronavirus cases and lockdown. According to the IMF projection, among all the South Asian Countries, India’s GDP contraction by 10.3% for this fiscal year will be the biggest. The pandemic turned out to be more intense for developing countries due to their daunting vulnerabilities. In order to revive the economy and figure out the possible reforms to reinstate the global economy from the pandemic, it is important to understand the impact of the coronavirus pandemic on the economy. Besides, it is also imperative to understand that the Indian Economy is a wider term, that includes every little aspect of an economy ranging from Gross Domestic Product, Migrant Labourers, Businesses and Corporations, Industries, and Micro, Small and Medium Enterprises. Leaving no specific domain behind, the pandemic caused an obstruction, by enraging the economy of India. The economic headwinds were triggered by pressure on healthcare facilities, loss of trade and tourism, tight financial conditions, and subdued capital flows. The repercussions of the economic slowdown have been majorly highlighted by slow potential growth and productivity growth. However, the major grounds of the economic crisis could potentially be the unorganized lockdown circumstances. Moreover, the COVID-19 pandemic worsened the existing vulnerabilities in the Indian Economy, id est, downward slope of GDP due to the demonetization and GST.
Major sectors of the economy- Manufacturing, Services, Trade, etc.,- have shown a steep decline in India. According to the NSO Report, Gross Value Added growth in the manufacturing sector contracted 39.3% in the first quarter this fiscal year. On the other hand, only the agriculture sector registered a positive growth of 3.4%. Indian Economy showed a decline of negative 23.9% in its GDP in the first quarter of 2020-21. This contraction indicates a substantial portion of the workforce moving to unemployment, owing to a decline in the total production. Inevitably, the consequences were a significant loss of incomes, due to a decline in consumption and a rise in indebtedness. Another major outcome of the immediate lockdown was intense pressure on the lower-income section of the society- migrant and daily-wage laborers who were left stranded and jobless. According to the reports, around 40 million people faced job loss due to the pandemic. The labor sectors are associated with the construction companies and daily wage earners, and as travel restrictions were imposed, industries fell short of labor, affecting the supply chain and triggering sales across technology, automotive, consumer goods, and pharmaceutical industries. Impact on both organized and unorganized sectors could be seen, with losses from the organized sector amounting to nine trillion rupees in late March. Segments like consumer retail were expected to witness sharp falls ranging from 3 and 23% depending upon the market. In the first quarter of 2020, private consumption declined by 27%, while investments from private businesses declined by 47%. Several Indian companies were shut, funding on young startups fell, and the stock market observed their worst losses in history on 23rd March 2020. Though, on 25th March, SENSEX, and NIFTY observed their biggest gains in 11 years. No doubt, with the advent of the lockdown, many sectors shifted their work or services online, giving rise to the digital infused technological gain.
However with time, as the unlock process commenced, the economy moved back to stabilization. To develop a coherent economic recovery strategy, the government has to act fast, given the magnitude of the economic and health crisis.
Undeniably, the Government of India has been quick to release its massive package for economic recovery, along with various steps taken to recover the best from the economic consequences of the pandemic. Modi Government and the Reserve Bank of India announced various monetary as well as fiscal measures to cushion the economy. The economic recovery gained momentum with the implementation of the Atmanirbhar Bharat package and the unlocking of the economy.
PM Narendra Modi, while addressing the key challenges of the economy- land, labor, liquidity, and simplification of laws, announced a fiscal stimulus package of Rs.20 Lakh Crore, under his Atmanirbhar Bharat Abhiyaan. The total package includes Rs.8.01 lakh crore of liquidity measures, and Rs.1.92 lakh crore package of free food grain and cooking gas to the poor. Besides, Rs.5.94 lakh crore was utilized for providing credit lines to small businesses and support banks and electricity distribution companies. The second tranche of the package included free food grains to stranded migrant workers for two months, the third tranche being spending on Agri infrastructure, and the fourth and fifth included funding for structural reforms. However, the package was criticized on various fronts, and economists and politicians believed to have a neutral stance on it. The Government of India could focus on tackling the short term impact, by providing direct cash to the lower section of the society.
Apart from this, Modi emphasized on the word “Self-reliant” or “Atmanirbhar”, which holds greater significance and implication. A repackaged version of Make in India, self-reliance, and vocal for local would act as a catalyst to drive India ahead of the global superpowers, in terms of manufacturing, and a safer place for investors to invest. In the light of Vocal for Local, and security concerns, India also took a step ahead and banned 224 Chinese Apps. No doubt, the policy too gathered different viewpoints and criticism of India promoting deglobalization, however, it was elucidated that the aim was to spur growth and welcome investments and technology, certainly not isolating away from the world. As the world turns its back against China, and due to the ongoing US-China Trade War, India visualized its opportunity to attract companies that are wishing to move out of China. The Indian Economy is not yet competitive enough, although India realizes the fact and hence, aims to make itself globally competitive to face any challenges backfired by China. In the present debilitating situation, the steps taken by the government would help fill the gap between demand and supply of goods, providing assistance and support to migrant workers, and to give a push to Indian manufacturing industries and across different sectors.
Amidst the GDP slow down, and several steps taken by the government, it is also important to analyze the debatable topic of whether the recovery will be V-shaped or U-shaped. In the V-shaped recovery, post-economic decline, the economy recovers quickly and strongly, which is generally prompted by a rapid increase in consumer demand, and long-term capital investment. Alternatively, U-shaped recovery takes much more time, wherein employment, GDP and industrial output sharply decline and remain depressed over 12-24 months. It is still uncertain as to which shaped recovery will take place, whilst few economists argue that the economy is recovering at a faster pace, job loss and sluggish economic growth before the pandemic fully supports U-shaped recovery. Seemingly, India’s economic recovery is likely to be a U or W shaped, rather than a V-shaped.
The Government has to put in efforts on both fiscal and monetary side, with emphasis on tilting the composition of the financial support towards direct spending and tax relief measures, and reducing the interest rates if required. Aside from these reforms, the quality of governance institutions, the legislature, the executive, and the judiciary also play an important role in economic performance. To shore up the economy, India has to invest in sustainable infrastructure and build resilience for the most vulnerable.
Countries like India, with a fragile economy, and the present scenario might create more suffering for different sectors across the country, and therefore, the Government of India needs to work towards supporting people and businesses. India, currently in Atmanirbhar Bharat Abhiyaan is seeking a way out of the deep economic slowdown, it’s suffering from the pandemic and years of a slowdown before COVID-19. Although the roadmap has been laid, implementation at ground level rather than on paper is what matters. It is also imperative for economists, politicians, and other stakeholders to understand that no recovery can take place before the pandemic is countered. Hence, India has to build a holistic approach to tackle both its health and economic crisis.