Dear Reader
Hope you are safe and secure at your place and following guidelines issued by the government and local administration.
As we all are reading about it from various media sources regarding the impact of Global as well as the Indian economy. When I had decided to write on this topic, I had asked a few questions to myself such as:-
1. What is the current situation of COVID 19 in India?
2. Whether it is early to determine the whole impact of this epidemic on the Indian economy?
3. Whether another great depression of 1930 or 2008 downfall is on the way or COVID 19 impact will be different?
4. Whether Covid 19 is impacting all the industries and all the market segment (large corporates, MSME and Traders) equally?
5. What will be the pattern of the recovery curve of the economy?
We will try to find out the answers to these questions with this article.
When I am writing this article India has approx. 38,000 cases out of which 10,000 recovered. India has also conducted 9.76 Lakhs test as of now i.e. 708 per 1 million population. Migrant workers are moving to their hometowns and some of them have tested positive for Covid-19 in various states. In such a case, contact tracking would be a difficult task for the officials and it may lead to local transmission and new containment zones in upcoming days. India has not yet started cluster testing at a mass level so it is difficult to understand the impact of Covid 19.
On the other side, it is a good sign that India has a low rate of infection as only 3.89% cases found positive whereas neighbouring countries such as Pakistan and Bangladesh which have much higher infection rate 9.72% and 11.56% respectively. Whereas highly corona affected countries such as USA, Spain, Italy and the UK also have 16.76%,16.03%,9.91% and 8.63% infection rate. In case India is not able to control the spread of Covid 19 in the near future, India might have multi-fold absolute no of cases with such a low rate of infection. But till date, India has succeeded in controlling the spread of the virus at some level.
India has completed 40 days lockdown and it has been more than 60 days since the first case found in India. If we follow the timelines of other countries such as China, Italy, Spain from corona first case to slow-down of graph corona cases. We find that it takes 3-4 months to slow down the spread. India completed halfway of this curve period.
It is highly required to mention here i.e. Every country which has able control spread at some level has done mass testing, cluster testing and contact tracking in huge no of cases. Spain, Italy, France and Germany have conducted 41332,36244,16856 and 30400 tests per million population. Even some relatively high populated countries like the USA and Russia have also completed 21901,29465 tests per million population whereas India has just completed 708 tests per million population which is very low not even 5% of per million tests done by above-mentioned countries.
We may have to spend at least 2-3 months more in mild lockdown. In case any case found, there will be always the uncertainty of being declared any area as a containment zone. It will be a little early to decide life after Covid 19 pandemic. Many sectors will require even 1-1.5 years to come out of the direct impact of the epidemic.
The Indian economy was already suffering from economic slowdown even before corona pandemic. Generally, Many of my friends or experts on media are comparing this slow down with great depression of 1930 or 2008 downfall. But I have shared some different view. As John Maynard Keynes said “When facts change, I change my mind.” If we notice the main reason for both depressions were due to some large bank/corporations failed but on the other hand, now we have stopped the economy to function to deal with health emergency situations.
Now worldwide banks as well as Indian banks are more capitalised and enjoying sufficiently liquidity. Banks are a key pillar of the Indian economy. Indian economy is a bank driven economy. If bank flourishes, as the economy does the same. Now the Indian economy needs majorly four pillars to absorb the losses of this crisis Government of India, RBI, Banks and Society. If we burdensome only banks to take the shock of crisis the there might be some financial institutions may not take it and we might invite another financial crisis.
Covid 19 will impact each person, sector, business in a different way. Some business may be having a no impact, some less impacted, some highly affected and even some business may vanish. Based on GVA Agriculture and allied activities contributes approximately 15% of Indian GDP whereas directly and indirectly 50% of Indian’s workforce involved in agriculture and allied activities. In last season of wheat productions, hardworking Indian farmers have done a fair job. As per media reports Indian wheat production has record output of 113 million ton which is 10% more than the previous year. This segment of GDP has least impacted as agriculture-related activities were allowed during through-out the lockdown.
The large corporates have to take the heat but with sector-specific government incentives, it may take the stoke of the health crisis which turned into a financial crisis. The most affected the sector will be the SME sector, which will have less loanable balance sheets, higher fixed expenses, employee cost of lockdown period, Financial cost and market with less demand and high competition after this pandemic.
Another sector which needs urgent financial aid to survive is small traders who have barely Rs 20,000-1,00,000 working capital. This working capital has been consumed during the lockdown for essentials items and they don’t have any surplus to restart their business after corona pandemic. This sector doesn’t have direct access to mainstream financial institutions. Apart from this, I will write more specific issues and solutions regarding these sectors.
The last question was what will be the shape of the recovery curve of the Indian economy? Some experts claim to be a “V” shape, some “W”, some “U” shape, or even I had read somewhere that it will be “L” shaped. What’s your opinion on the same? The answer lies in the future. In my opinion, the Indian economy recovery curve should be in ‘U’ shape. Currently, we are living in a downfall situation. After touching the bottom, after a considerable time recovery phase will start. I wish India recover in ‘V’ shape but wishes are wishes 😊
Hope you liked the article. Please share your views in the comment section.
Thanks
CA Pankaj Sharma
The author can be reached at [email protected]
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