Blog

Impact of Covid-19 on Indian Economy An Ariel View

Whenever a natural disaster struck, it causes social and economic distress. The coronavirus outbreak is a human tragedy, affecting hundreds of thousands of people across the globe. It is also having a growing impact on the global economy. This article is intended to provide students a broader perspective on the evolving situation and implications on businesses. As the developed economies were recovering from the economic shock of 2008, they now find themselves in a deep pit. Developing countries like India and the epicenter of virus China both are struggling to keep their economic health on track. However, it doesn’t seem that simple. It is now clear that the global economy is staring at another recession as the novel coronavirus pandemic has forced businesses across the world to suspend operations. When businesses get shut following are the impacts:

1) Job loss
2) No wages to workers
3) No income leads to less demand for all goods and services
4) Less demand means less production that further leads to shutting production of goods and fueling unemployment 
5) This circular chain starts with a multiplier effect leading to recession

It is worth noting that sectors like automobiles, restaurants, hotels have zero business. The medium scale businesses in these sectors cannot sustain with their manpower for long. This is a different situation than any other slowdown or recession that India has faced in the last three decades. Earlier there was a recession in Asian or global markets. By the end of the 20th century during the Asian currency crisis, India escaped because there were little capital account convertibility and no build-up of short-term debt. India could let its currency depreciate without being concerned with the impact on its financial sector. In the case of the 2008 crisis, India’s internal buffers ensured that it was not too affected by the financial crisis of 2008, even if our GDP growth slipped from 8.5 percent to 6.5 percent. 

But the present crisis is different altogether. This time, given the pre-existing economic slowdown India is facing, the COVID-19 crisis may lead the fears where GDP growth falling below 4 percent. The national market is shut and the global demand is at an all-time low that means the population of India which used to be a strength in terms of market size is unable to boost the demand immediately. Moreover, the pundits are not counting on exports soon as well. Sectors like travel & tourism are the worst-hit sectors. India’s forex reserves used to get crucial support with foreign tourists which are now under the shadow of Covid-19 spread. In such a scenario the biggest saving grace has been technology. With the internet and telecommunication, a lot of people are working around the globe without compromising or running a risk to their own and other people’s health in their pursuit to keep working and the economy ticking.

But make no mistake. The scenario is particularly challenging for developing countries like India, which do not have efficient public health systems, response capacity, or social security. But the seeds of recovery are always embedded within a crisis. History has enough examples to demonstrate that after a time of economic crisis, industry and countries have always bounced back. So let’s hope for the best.

Till then stay home stay safe!