COVID-19 has made a serious impact on the economy of the country and the world. If we talk about India, a 22 days’ of complete lockdown was declared on March 24, 2020, and this lockdown has been extended further for the next several days seeing the increasing cases of this deadly disease.
It is a well-known fact
The more the economic activities are there in a country the stronger the economy will be.
Since almost all economic activities have come to a standstill throughout the country owing to complete lockdown, the country has incurred a heavy loss and is likely to incur the loss manifold ahead. Keeping this in view, the national and global credit agencies have lowered its GDP growth to about 4.5% in this fiscal year 2020-21, which is an all-time low since ‘the Socialist rate of growth’ which was around 3%.
Note:
Credit agencies are such agencies that assess the ability of a country to repay a loan. There are a total of six such agencies in India like CRISIL, ICRA, CARE, SMREA, Brickwork Rating, and India Rating and Research Pvt Ltd. The Security Exchange Board of India (SEBI) regulates all such agencies. There are three main global credit rating agencies like Moody’s, Standards and Poors and Fitch, which control nearly the entire world market.
Such credit rating agencies have predicted a further decline in India’s GDP growth rate because of the extension of the lockdown in the country.
The former RBI governor Raghuram Rajan has said:
“Economically speaking, India is faced today with perhaps its greatest emergency since Independence. The global financial crisis in 2008-09 was a massive demand shock but our workers could still go to work.”
Gita Gopinath (Chief Economist of IMF) said-
The lockdown would give rise to
- Subdued demand
- Supply shock
- Production slowdown
- Supply chain disruptions
In such a situation, the dream of India’s being a 5 trillion dollar economy by 2025 seems to be getting shattered.
The UNESCO, which is the United Educational, Scientific and Cultural Organization, headquartered in Paris, France, has said that the developing countries of the world will be the worst affected by this pandemic caused by COVID-19. It has said that the UN will have to provide $ 2.5 trillion as a rescue package for such developing countries. Amid such despairs, it has also said that China and to some extent India will be exceptions.
There may have been many reasons why UNESCO has said it. One of the probable reasons may be India’s decision to consolidate PSU banks.
Banks are the backbone of the economy of any country. The stronger it is the stronger the economy will be. Unluckily, the Public Sector banks in India are undergoing a massive quantity of NPAs. The RBI report of the Financial Year 2018-19 reveals that more than 6,801 bank fraud cases took place, which caused the banks to incur a heavy loss of more than 70,000 crore rupees. Keeping this in mind, on April 1, 2020, 6 more banks were merged and thus at present, only 12 public Sector Banks are there as against 27 in the year 2017. After the merger, all the existing banks have become so big in terms of capital that they can compete directly with the global banks. Their lending capacity has increased manifold. The infusion of 55,250 crores in such banks has strengthened them further. They can now provide loans for big infrastructures in the country thus accelerating rapid growth and creating jobs and thereby paving a way for the country to be a $5 trillion dollar economy soon. After the lockdown, all these banks will become fully functional.
This lockdown has encouraged all the online businesses and transactions. The unorganized sector will be at the last rung of growth.
After the lockdown, work from home activities will increase; online businesses will soar; online banking will come into trend. Since the online trend will increase, the GST collections will also increase. The banks will have enough liquidity for a healthy business.
The Indian stocks experienced a sharp decline of 30% during the lockdown, which is the lowest ever. After the lockdown, the stocks will succeed in attracting investments but slowly as still China on April 12, 2020, indicated the re-spread of COVID-19, which would never allow the situation normal in the stocks of the world so soon. However, this is a ripe time that investors invested into the stocks for higher gain in future.
Other Sectors impacted by the Lockdown:-
- Moody’s cautioned that scarcity of resources to support Business will amplify the corona-induced shock in the emerging economies, such as India.
- The agriculture sector contributes nearly $ 265 billion to the GDP and employs 60% workforce will get serious effect. It is the critical time when the crops are to be harvested. The absence of labour force and transportation problems will serious implications.
- Real Estate and automobile sectors have had serious effect. According to CARE ratings ‘The automobiles could see volume decline by 15% – 16% in the current fiscal year.
- The unemployment rates were at a 45 year high. By the end of March 2020, the unemployment rate was 8.75 as against 7.16 in January.
Measures to be taken
The IMF Chief Economist Gita Gopinath said:
Central banks should be ready to provide ample liquidity to banks and non-bank finance companies, particularly to those lending to small and medium sized enterprises, which may be less prepared to withstand a sharp disruption. Governments could offer temporary and targeted credit guarantees for the near-term liquidity needs of these firms.
Raghuram Rajan has suggested targeted aid for SMEs. Nobel laureate Abhijit Banerjee suggested direct cash transfers to the most vulnerable and those living on the margins.
Measures taken and to be taken by the government to soften the impact of the lockdown:
- Cut in bank rates
- Relaxation of dates of filing taxes
- Immediate release of the refunds.
- Bail-out packages for bankrupted sectors
- Rearrangement of supply chains
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