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  • Economic Implications of Corona Virus

    Dr. Seema Jhala, Assistant Professor, IIMR

     The Pandemic created by Coronavirus ( COVID 19) outbreak has kept one third of the population in standstill all over the world, more than 1,34,178 people had died 2,056,055 people are infected .To minimize the effect of corona virus Indian Government has also locked down all its citizens for the safety of the people. No doubt social distancing was the only option available to the Government against the infection having a high mobility rate and seeing the severity of infection, a high incubation period of 14 days. But there is certain economic price of this lockdown for Indian economy.

    The lockdown resulted in cancellation of export orders, over 20 percent of the order canceled from the buyer of US, Europe and West Asia, In order cancellation, worst affected are engineering and life style products. It may result in job loss in export sectors and increasing NPAs of exporting units. Another problem in foreign trade are below capacity orders, below capacity cargo operations, not the availability of containers, packaging material along with certification requirement, it is becoming difficult to honor letter of credit.Besides these with the opening up of the market of china, there is a fear of losing markets to china.

    The lockdown may have long term effect on agriculture and industries. Regarding agriculture, March –April is the harvesting season of wheat and maize in India. This time is also when preparation of khariff season begins and harvest cycle covers potato and onions. These all are labour intensive work due to observance of social distancing, it became difficult for farmers to go for labour intensive crops.Besides this, shortage in supply of seed may lead to shortage of vegetables in June and July. India is a big exporter of many agricultural, dairy, horticultural products, but due to standstill in shipments, the exports will get affected.

    India has faced another problem of internal migration. According to 2011 census, the number of internal migrants in India was 450 million. The lockdown resulted in biggest internal migration in India since 1947. Millions of Indians who are already vulnerable due to poverty, they have to walk thousands of kilometers in the absence of any public transport. Without any formal contract, they are again vulnerable to joblessness.  According to international labour organization, around 40 crore workers of the informal sector will fall in poverty in India. In March 2020, the employment rate in Indian economy fall to an all time low of 38.2 percent, which was 42.7 percent in March 2019.

    Due to reduction in demand and lock down, many industries have scaled down their production. India’s coal imports dropped over 27 percent to 16 MT in March. Many steelmakers in India scaled down the production by 50 percent. One reason may be the import of raw material from China. Maruti cut production by 32 percent in, March. During January to March, housing sales fell by 60-70 percent in retail sector. All these may again lead to recessionary cycle of low demand, low production, low income and again low demand. According to ICRA, commercial vehicle sales likely to contract 8-10 percent further in FY 21.The sales of diesel declined by 26 percent and petrol by 17 percent. The refineries are operating below capacity.  The real estate sector which is already having 65 percent payment default in installment linked to loans can again suffer due to installment default. Besides this, other effects resulted in all time low value of Rs. 76.55 Rs./$,FDI outflow of 8.13$ in March 2020.

     We are witnessing decline in both exports and imports, which can improve current account deficit in balance of payment. Secondly, people are spending only on necessities. Individual saving may be good, but not nation as a whole. At this point of time consumption should be promoted after lockdown is over. There is and there will be demand-side constraints due to joblessness and problems in agriculture. People are uncertain and scared. There is no long term planning, which is reflected through decline in real estate and predicted sale of cars in future.  Thus the government should use its fiscal measure to keep demand creation. Though, Indian economy was not in a good condition even before COVID 19 outbreak.Government is working in this direction, appealing Private organizations also to let sustain employment of their employees. This is a need of the hour, where every employee whether in the formal or informal sector should be paid to sustain the economy. It has not only humanitarian implications but also economic implications at the same time should be considered accordingly.

     

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