This article focuses on the Impact of COVID-19 on Indian Economy. Because of COVID-19, up to 53 percent of companies in India will be affected. Specific companies such as hotels and airlines are slashing salaries and laying off employees. An annual loss of 3,000 crores (US$ 420 million) has been reported in the live events industry. Supply chains were also placed under pressure with the constraints on lockdowns in place and lack of consistency in streamlining what is “important” and what is not. People working in informal sectors or daily wage groups are at risk. There is also confusion facing a huge number of farmers across the world who cultivate perishables.
In March’s third week, Amazon and Walmart-owned Flipkart revealed it would stop selling non-essential goods in India to concentrate on essential deliveries. Many fast-moving consumer goods companies in the country have dramatically decreased activities and emphasis on necessities. Larsen and Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Company, Tata Motors, and Thermax have temporarily suspended or substantially reduced operations in India. iPhone manufacturers in India have stopped most operations. Young startups were affected as funding dropped. Indian capital markets reported their worst losses on 23 March 2020. On 25 March, one day after the Prime Minister declared a full 21-day shutdown, SENSEX and NIFTY reported their biggest gains in 11 years, adding a value of 4.7 lakh crore (US$ 66 billion) to investor wealth.
India’s government has proposed a number of steps to resolve the crisis, from food security and extra healthcare funds to sector-related benefits and tax extensions. On March 27, India’s Reserve Bank also announced a series of steps that would make available 374,000 crore rupees (US$ 52 billion) to the country’s financial system. On 29 March, during the lockdown, the government allowed movement of both necessary and non-essential goods. World Bank-funded $1 billion to help India to fight the coronavirus pandemic on 1st April. On April 3, the central government released further funds to the states to combat the overall coronavirus of 28,379 crore rupees (US$ 4.0bn). On 6 April a one-year salary cut was confirmed for president, prime minister, and parliamentarians.
The Press Information Bureau conducted a fact check on 24 March that reports about a financial emergency in India are false. A financial emergency has never been declared in India’s history. On 4 April, Indian leader Raghuram Rajan, former Reserve Bank, said that India’s coronavirus pandemic could be just the “greatest emergency since independence.”
Government actions for Impact of COVID-19 on Indian Economy
Timeline
On 21 March 2020, Union Cabinet approved 40,995 crore rupees (US$ 5.7 billion) incentives for electronic manufacturing.
Various state governments declared financial assistance for the unorganized sector’s people. On March 21, the Uttar Pradesh government decided to offer a direct money transfer of some 1,000 rupees (US$ 14) to all daily wage workers in the state, and on the following day, Punjab declared rupees3,000 (US$ 42) each for all registered state construction workers.
On 23 March it has been declared that Harayana workers, street vendors, and rickshaw drivers will receive assistance from 1,000 workers per week directly deposited in their bank accounts. Below Poverty Line families will be provided rations (including rice, wheat, mustard oil, sugar) free of cost for the month of April.
On 24 March, a 15,000 crore rupees (US$ 2.1 billion) healthcare fund was announced by the Prime Minister for the country.
On 24 March at 2:30 pm, the Minister of Finance made many economic notifications including the extension of final dates for the filing of GST returns and returns on income tax. The scheme 2019, tariff clearances and enforcement issues under the Customs Act and relevant regulations have now been extended to June 2020 for the purposes of Sabka Vishwas (Légacy Dispute Resolution).
On 25 March the Modi government declared 80 crores (800,000,000 people) across the country as the world’s largest food protection scheme. In a press conference, Cabinet Minister Prakash Javadekar declared a ration of 7 kg per month (including rupees 2.8 per kg wheat and a Rupees 3 per kg rice).
On 25 March in an order “Spitting Pan Masala will aid the spreading of COVID-19” the Uttar Pradesh Government prohibited the manufacture and sale of pan Masala.
A number of economic relief initiatives for the poor were announced on 26 March by the Minister of Finance. The Pradhan Mantri Garib Kalyan Yojana is financed in 170 000 crores (24 billions of US$) to provide both cash transfers and protection for food so that the lock-down does not lead anyone to hunger. Until at least three months, the beneficiaries of Pradhan Mantri Ujjwala Yojana will get free cylinders. This helps over eight crore families below the poverty line. State governments have been advised and directed by various orders, such as the allocation of district mineral funds for the health needs of the pandemic.
On 26 March the virtual ‘Extraordinary G20 Leaders’ Summit ‘was attended by India. To combat the pandemic effect, the G20 nations agreed to pump more than $5 trillion into the global economy. They decided to work together, improve, create a vaccine and make it available to the World Health Organization. They preferred to exchange knowledge, research and development materials and data on a timely and transparent basis. They also agreed to ensure seamless deliveries of vital supplies, in addition to increasing the manufacturing capacity for medical supplies.
On 27 March Governor Shaktikanta Das made a host of announcements, including three-month suspension of EMIs and a cut in repo rates, from the Reserve Bank of India (RBI). Many steps adopted would provide the financial system of the country with a total of Rs. 374,000 crore (US$ 52 billion). The government of Delhi has declared that they shall supply 400,000 food per day from the 28th. The Delhi government has founded over 500 hunger relief centers.
On 28 March in order to address these issues, the prime minister introduced a new fund called PM CARES.
On 30 March the UP government was announced to transfer around Rs. 611 crores (US$ 86 million) under the MNREGA scheme to 27.15 lakh employees.
On 1 April the RBI proposed further steps to counter the impact of COVID-19’s on Indian Economy. To provide relief to state governments, WMA and short-term liquidity were increased; exporters were also granted some relief in the form of relaxed repatriation limits.
On 2 April the World Bank has approved $1 billion in emergency funding for India to tackle the coronavirus label ‘India COVID-19 Emergency Response and Health System Preparedness Project’.
On 3 April To help counter coronavirus, the central government released about Rs. 17,287 crore (US$ 2.4 billion) to different states. The Ministry of Home Affairs approved Rs. 11,092 crore (US$ 1.6 billion) under the State Disaster Risk Management Fund for states as a relief.
On 6 April the President, Vice-President, Prime Minister, Governors, parliamentarians, and ministers declared a 30 percent annual pay cut for one year. It was also agreed to suspend the MPLADS for two years and move the money to India’s consolidated fund, around Rs. 7,900 crores (US$ 1.1 billion).
COVID-19 Economic Response Task Force for minimizing Impact of COVID-19 on Indian Economy
On 19 March 2020, Prime Minister Narendra Modi announced the creation of the COVID-19 Task Force for Economic Response. While there is no formal or official deadline for the preparation of aid plans, the mechanism for consultations with the relevant parties was begun immediately. The task force is chaired at the command of Finance Minister Nirmala Sitharaman. It was worried where the government would find funds to fight coronavirus and keep the economy going. Experts say the task force would have to investigate the NPA requirements for the non-organized industries, tax payment transactions, and income assistance. It has occurred in many countries, direct cash transfers are also considered for the most vulnerable. In consultation with RBI and ministries, the Ministry of Finance immediately began to review the sectors most affected such as aviation, lodging, and micro-sized companies. The Associated Chambers of Commerce and Industry of India (ASSOCHAM), an India-based leading trade group, sponsored the efforts entirely. In view of the effect of COVID-19, on 24 March, the Finance Minister made a series of economic announcements. On 26 March, among other statements, the Finance Minister announced further steps to help the vulnerable.
Economic Situation of Various Sectors / Industries
Manufacturing
Major Indian companies such as Larsen and Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group’s apparel, and retail arm, Tata Motors and Thermax have temporarily suspended or substantially reduced operations at a variety of manufacturing facilities and factories across the country. Almost all two and four-wheelers have stopped production until further notice. Many businesses, including Cummins which temporarily shut its offices across Maharashtra, decided to remain closed until 31 March at least. The shutdown facilities at Hindustan Unilever, ITC and Dabur India expect critical plants. After 21 days of lockdown orders, Foxconn and Wistron Corp, iPhone manufacturers, suspend their production. Because of the impact of COVID-19 on Indian Economy Manufacturing Industries are also affected.
E-commerce
Amazon revealed in the third week of March that it would stop selling non-essential goods in India so it could concentrate on basic needs. In Italy and France, Amazon also adopted the same approach. Walmart-owned Flipkart temporarily discontinued some of its offerings on its e-commerce website on 25 March, and will now sell and distribute essential products. BigBasket and Grofers also operated restricted services, with service delays due to the lockout. Delhi Police started issuing curfew passes for the distribution agents to make it easier for them to keep the supply chain open. E-commerce firms are still searching for legal clarification about what are essentials items. Because of the impact of COVID-19 on Indian Economy E-Commerce companies, are also affected.
Raw materials and spare parts
Because of the impact of COVID-19 on Indian Economy Raw material and spare part companies, they are also affected. Nearly 55 percent of India-imported electronics originate in China. In view of the coronavirus outbreak and subsequent lockout, these imports have now fallen to 40 percent. India is considering encouraging indigenous development as a countermeasure, in an attempt to minimize reliance on a single market. Furthermore, China is India’s third-largest export partner for exporting raw materials such as organic chemicals, mineral fuels, cotton, etc.; and a country lockdown is likely to result in India’s significant trade deficit.
Pharmaceuticals
The toll on the pharmaceutical industry is of major concern to India, as 70 percent of active pharmaceutical ingredients (API) are imported from China in particular. Such active pharmaceutical ingredients are important for a significant number of the country’s pharmaceutical manufacturing firms. As COVID-19 is rapidly moving across India, medication will be the number one customer demand, and as there is almost insufficient APIs to produce medicines, subsequent traders and the industry are witnessing rising prices. Vitamin and penicillin rates alone are now seeing a 50 percent raise.
Tourism
India is big on cultural and historical tourism, attracting domestic and foreign nationals throughout the year. It comes as no surprise that a great number of confirmed cases of COVID-19 in India include international tourists. But with visas suspended and tourist destinations shut down indefinitely, it is expected that the entire tourism value chain, which includes hotels, restaurants, attractions, agents, and operators will face losses worth thousands of crores. Experts agree that a huge impact is likely to take place in the tourism industry and it will end up destroying the industry for the near future.
Aviation
Because of the impact of COVID-19 on Indian Economy Aviation companies, are also affected. After the Government of India has indefinitely suspended tourist visas, airlines are said to be working under pressure. Close to 600 international flights to and from India were canceled for varying periods of time. Approximately 90 domestic flights were canceled, resulting in a sharp drop in airline prices, including on common local routes. Private airport operators have sought permission from the Government to introduce a small passenger facilitation fee on airfares to cover the increased cost of service.
Supply chains
Because of the impact of COVID-19 on Indian Economy Supply chains are also affected. After the lockdown, some key supply chains broke down. Britannia Industries, in support of the lockdown, urged the government not to hinder the interstate movement of raw materials for the food processing industry. The Managing Director of Britannia stated that “if even one link in the supply chain is broken, the country could run out of stock of packaged food in the next 7-10 days.” Although inter-state travel has been prohibited, it does not apply to essentials, and in places like Maharashtra, the state police are still in the process of streamlining the process, causing disruption of supply chains.
On 29 March, the Government allowed all essential and non-essential goods to move across the country during the lock-up. The milk and newspaper supply chains are also allowed to operate.
Impact of COVID-19 on Stock markets
Because of the impact of COVID-19 on Indian Economy Stock Markets are also affected. On 23 March 2020, India’s stock markets suffered the worst losses in history. SENSEX fell by 4000 points (13.15 percent) and NSE NIFTY fell by 1150 points (12.98 percent). However, on 25 March, one day after a full 21-day lock-down was announced by the Prime Minister, SENSEX posted its biggest gains in 11 years, adding a value of 4.7 lakh crore (USD 66 billion) to investors.
Estimation of Economic Loses
Barclays said that the cost of the 21-day shutdown will be around Rs. 8.5 lakh crore (US$ 120 billion) as well as the previous two shorter ones.
On 27 March, Moody’s Investors Service downgraded its estimate of India’s GDP growth by 2020 from 5.3% to 2.5%.
The Indian Industry Confederation (CII) has sought a fiscal stimulus package of 1% of India’s GDP, amounting to Rs. 2 Lakh Crore (US$ 28 billion). The fiscal package and fiscal policy approach is compared to what has happened in other countries, such as Germany, Brazil, and Japan. Jefferies Group also said the government could spend Rs. 1.3 billion lakh crore (USD 18 billion) to combat the impact of coronavirus. Bloomberg economists say that at least 2.15 lakh crore (US$ 30 billion) needs to be spent.
It is estimated that the tourism industry will lose 15,000 crores (US$ 2.1 billion) in March and April alone. CII, ASSOCHAM, and FAITH estimate that a large part of the country’s tourism workforce is facing unemployment.
Impact on Salaries
Because of Impact of COVID-19 on Indian Economy Salaries are also affected. On 19 March, the Prime Minister urged businesses and high-income segments of society to take care of the economic needs of all those who provide them with services. During the live broadcast, he also appealed to families not to cut the payment of domestic help. Following the lockdown, the government circulated advisories and directives ordering companies to continue paying employees, among other things. An Office Memorandum was issued by the Ministry of Finance on 23 March 2020:
Addt Sect, Dept of Expenditure, Ministry of Finance- “[…] wherever such contractual, the casual and outsourced staff of Ministries/Departments and other organization of Government of India is required to stay at home in view of lockdown order regarding COVID-19 prevention […] they shall be treated as “on duty” during such period of absence and necessary pay/wages would be paid accordingly.” These instructions shall apply until April 30, 2020.
A few days later, there was a growing concern about how wages could continue to be paid and whether or not the Directive was legal. Concerns have also been raised by migrant workers about the implementation of orders, as many day-to-day wage earners have no record of being sacked or salaries paid or deducted; concerns are also increasing to uncertainty about the government’s ability to enforce minimum wages under lock-up when it could not do so during normal times.
Migrant workers
As a result of the lockdown, many daily workers (urban poor and migrant workers) suddenly had no jobs. At the same time, the locking restrictions put a stop to the movement of busses and trains. Large numbers of migrant workers ended up walking back to their villages, some hundreds of kilometers long. Commentators commented on how the whole purpose of social distancing had been defeated.
Soon after the Central Government Directive at the end of March, state governments set up 21,000 camps to house more than 660,000 migrants and put an end to the exodus. The Delhi government provides 400,000 people with free food every day. Over 500 hunger relief centers have been set up by the Delhi Government.