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29 Sep 2020, Edition - 1904, Tuesday

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Columns

COVID-19 shock waves: Taking stock of the Indian economy

Amarjit Singh, Krishnakumar Ramachandran and Sabu S. Padmadas

The world is grappling with the COVID-19 pandemic which, in a relatively short timescale but with the speed of lightening, has left international business leaders, renowned economists and policy makers truly baffled about the sheer size, scale and lasting impacts of the outbreak on the global economy.

Whilst there is no comparable benchmark to the current crisis, it is expected to be far more severe than the global financial crisis of 2008-2009, as the current issues are wider in scope than mere liquidity shortages in financial markets. According to the International Monetary Fund (IMF), the coronavirus outbreak could trigger the worst economic recession since the global recession of the 1930’s Global Depression. Bringing the global economy to a sudden standstill, the IMF’s Managing Director, Kristalina Georgieva called it “humanity’s darkest hour” and said “this is a crisis like no other”.

India has now surpassed 10,000 COVID-19 positive cases, but with low levels of testing the true scale could be significantly higher. Of particular concern are people living in India’s dense metropolitan cities and suburbs where social distancing is challenging and could result in a sudden and devastating spread.

Moody’s Investors Service forecasts India’s GDP to fall from its current level of 5.3% to 2.5%, shortly after the nationwide lockdown. The worst scenario, as the World Bank predicts, could be an economic growth plummeting further to 1.5%. The situation could further deteriorate, depending on the period of business closures and restrictions on the movement of goods and people.

The economic bounce-back following the reversal of lockdowns will be wide ranging, as different economies have entered into national lockdowns at different times. Experts fear that millions will be pushed into poverty, further widening social and economic inequalities, over the next few months.

India’s unemployment rates were already high before the outbreak but this crisis could result in millions losing jobs following the suspension of business and factory operations, and closure of production units. There are serious concerns about the life and livelihoods of India’s informal economy. Even after the restrictions were lifted, severe labour shortages could further hinder the resumption of production facilities, as millions of migrant workers have either returned to their home villages, some permanently while others left stranded elsewhere.

The depth and duration of the crisis and consequential disruption is such that it is difficult to give any meaningful projections on likely economic outcomes or growth projections for the Indian economy at this turbulent time.

Impact on different sectors and industries

It is probably fair to say that no sector is immune to the adverse impact of coronavirus. Across the globe, we see a negative impact of the crisis on multiple sectors, exacerbated by the continuation of national lockdowns, which in India’s case has been extended until 3rd May 2020 for a second term.

We have seen unprecedented supply chain disruption, manufacturing slowdown in several industries and travel restrictions limiting the movement of people domestically and internationally in a scale never seen before. The extent of COVID-19 impact on the performance of informal sectors and small businesses is yet to be ascertained.

The most distressed and vulnerable sectors include real estate, construction, financial services, travel, tourism, aviation, agriculture and automobile production, among others. To overcome the crisis, these businesses and in some cases the self-employed will be left with no choices but will need to rapidly cut overheads, limit operations, manage cash flow and adapt their business models.

Taking India’s agricultural sector as an example, which employs some 60% of the nation’s workforce, there has been noticeable disruption. With the lockdown taking place at what would normally be India’s peak farming season (between April and June), the lack of available workers, transportation and distribution has caused slowdowns in farming and harvesting activities.

As to potential winners, the obvious ones include IT enabled services such as e-commerce and videoconferencing entities, medical equipment suppliers and service providers, and pharmaceuticals have seen a huge demand. For example, as one of the largest global producers of generic drugs and acknowledged as the ‘pharmacy to the world’, India is currently in demand for supplying essential medicines and pharmaceutical ingredients around the globe to help combat the virus and support wider humanitarian efforts.

COVID-19 and post lockdown considerations

Work place environments will need to permanently adopt effective procedures to safeguard the health of staff to ensure infection prevention and basic measures such as wearing masks at workplaces could become common practice in all organisations.

Given the magnitude of market disruption and potential business failures, it is possible that the post crisis framework of requirements and criteria for ordinary business transactions, valuations and bank credit availability could become more stringent and risk averse in a manner never seen before.

The post COVID-19 global outlook provides opportunities for business innovations and presents a significant opportunity for India to emerge as an alternative global manufacturing destination for raw materials and products, especially for those looking to shift locations to de-risk reliance on China. A definitive advantage for India is the scale of human capital and availability of skilled workforce. Against this background, the ongoing structural reforms, combined with the continued ease of doing business improvements, could result in India becoming an even stronger global powerhouse.

(Amarjit Singh is Chief Executive Officer of the India Business Group in London and Special Advisor for India to the University Of Southampton, United Kingdom, Krishnakumar Ramachandran is Vice-Principal of GRD College of Science in Coimbatore and Visiting Professor of Southampton Business School, and Sabu S. Padmadas is Professor of Demography and Global Health, and Associate Dean International at the University of Southampton)

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