There is barely any country in this world which has remained unscathed of the novel coronavirus disease (Covid-19). Since its outbreak more than 2.2 million people have got infected and more than 1, 50, 000 peoplehave succumbed to this disease in the world by April 19, 2020.In addition to inflicting high and rising human costs worldwide, the protection measures to control this disease are severely impacting economic activities worldwide. Probably, for the first time in the world’s history, the world’s economy has witnessed unprecedented loss in outcome, income and employment in addition to loss of lives due to a pandemic.
The International Monetary Fund (IMF) projects that world output growth will contract by 3 per cent in 2020 as against 2.9 growth rate in 2019. The advanced economy where infections from Covid-19 are very high growth rate is believed to be decline by 6 per cent in 2020. The ILO believes that more than 195 million full-time workers will be out of work in 2020 because of this pandemic. The World Bank estimates that the number of people living in extreme poverty would rise by 434 million people to nearly 1.2 billion worldwide by the end of 2021 consequent to Covid-19.
All theeconomies have announcedin the early stage the stimulus package to tide over the crisis because all then have understood that the negative multiplier effect of this downturn will be huge in the long run if it is not contained at the earliest. The US government has agreed to provide stimulus package worth USD 2 trillion in response to the economic impact of Covid-19. This is the largest economic stimulus in the US history. The European Union approved Euro 500 billion in stimulus measures in view of the pandemic.This piece tries to understand the impact of Covid-19 on the economy of India.
India did not remain unscathed of this pandemic. In order to stop the rapid spread of this disease the government of India implemented lockdown on the entire states of India from March 25, 2020 through April 14, 2020. Given, no respite in the spread of this disease, the government extended the period of lockdown until May 3, 2020. Probably, for the first time in its history, India has witnessed such a long spell of lockdown. The number of infected persons have reached closer to 18, 000 with about 560 fatalities.
The number of infected persons and fatalities from this disease in India is far lower than many advanced nations, but the disease has severely impacted the economy. The lockdown has invariably hit all the sectors of the economy: agriculture and allied, manufacturing, services and foreign trade. Only, essential goods and services have been allowed to operate. More than 70 per cent economic activities in the country are non-operational. It is feared that each day during the period of lockdown, India’s economy is losing Rs. 45-50, 000 crore. That means in 41 days, India is going to lose about Rs. 18.5-20.5 trillion. Consequently, India’s economy is set to grow by a mere 1.9 per cent in fiscal year 2020-21. Nonetheless, if the lockdown gets extended for more weeks, there is very high probability that India’s economic growth will also be in negative.
The decline in economic activities consequent to the lockdown have severely impacted the workforce and their dependents. We presumed that almost the entire 93 per cent informally employed workforces of this country are now unemployed. These informally workers constitute those people who have no written work contract from their employers and hence are not liable to get any social security benefits from their employers (and also from the union and the state governments).
These informally employed workers work in both the organised and the unorganised sectors, from producing simple pins to assembling highly technological products in the global value chains. The government has requested the employers not to retrench the informally employed workers and also to provide full wages during the period of lockdown. In a country like India where a large chunk of workers get wages below the minimum fixed by the government it is utopian to believe that these workers have not been retrenched and are also being provided wages after the lockdown. Among the informally employed workers, the migrant workers are the worst sufferers during this period. Millions of them are stranded in makeshifts homes by the highways, slums and even under the open sky. Let alone the informally employed workers, many formally employed workers are also facing the impact of the lockdown as many of them have lined up to withdraw money from their employees provident fund accounts. By April 15, 2020, the Employees Provident Fund Organisation has received 3.31 lakh provident fund withdrawal claims.
The economic activities in India will start only if the government lifts the lockdown, and only then the people will go to work. Quite a few state governments have already announced to resume economic activities in select sectors from April 20, 2020. If there is a clear ‘flatteningin the Covid-19 pandemic curve’, the government may lift the lockdown, but if there is an upsurge in the spread of this disease, the lockdown may be extended for few more weeks. If the lockdown is extended, it will become very difficult for the government to provide succour to all the people suffering from the pandemic. The government has already announced Rs 1.7 trillion in stimulus package, equivalent to 1 per cent of India’s GDP to ease the pain and misery of the people including the informally employed workers. The government may have to announce second round of stimulus package that may cost dearly to its exchequer.
Even if the lockdown ends, the economic activities in the country will be slower because it is very unlikely that all the workers who have gone to their native places will come to work. Secondly, the producers may face the demand constraint. If there is demand constraint, it is very likely that all the persons willing to work will get to work.
Therefore, unemployment may rise in the economy. Uncertainty looms larger for the producers and the workers working for the global economy. If all this happens, the slowdown in the economy may continue. The government is aware of this situation.
The Reserve Bank of India by cutting the reverse repo rate twice in the period of lockdown is trying to stimulate economic activities. The reverse repo rate is now at a historical low at 3.75 per cent. But, it is less likely that the cut in the reverserepo rate will bring cheers in the economy in a short period. If the people’s behaviour is insensitive to the rate cut, it is highly unlikely that the economic activities will accelerate.
The government should also use fiscal measures to rev up the economic activities. The multiplier effect of monetary and fiscal measure augur very well for any economy witnessing slowdown.
Last but not the least, the government should implement some‘rights based’ policies and programmes that provide adequate social security benefits to all the people of India so that they could enjoy a decent standard of living and tide over any crisisthat may occur in the future.
(Amit K. Giri (Ph.D, IIT Roorkee)Assistant Professor, Xavier Institute of Social Service, Ranchi-834001,Phone No. 7579180303, Email: firstname.lastname@example.org.)