Part 1: The Impact
Today the entire world (no exceptions included) is facing the wrath of COVID 19, its impacts and economic disruption. Irrespective of a developing economy or a developed economy all are facing the repercussions. Looking into the projections provided by World Economic Outlook the future of the current financial year is looking grim.
Now if concentrate on India and look closely into its forecast, India’s projection at 1.9 even though better than all the developing economies still poses a lot of challenges which needs to be tackled.
The GDP of India for the period January – March as per the details released by the Indian Government shows a growth of 3.1%, thus resulting in an annual rate of 4.2% for the fiscal year 2019-20 which is the lowest for past 11 years. The National Statistical Office (NSO) in an official statement released informed that the lockdown induced because of COVID 19 has resulted in restricted flow of data from few regions. “Some of these units are yet to resume operations and owing to the fact that the statutory time-lines for submitting the requisite financial returns have been extended by the government, these estimates are based on the available data.” So, based on this the growth rate shown might not give the complete picture of the actual GDP for the quarter ending March’20. This steady decline of the GDP for the past 8 quarters does not post a good picture of revival and makes it even more difficult to predict a growth rate in the next fiscal cycle. Let’s take an example to understand these things in a much better way. Taking an example of the contribution on infrastructure sector by few of the important states, we can understand how big an impact the phased lockdown is having on these states and thus on the overall GDP.
Based on the data published in CRISIL as on 26th May, approx. 23% of all infrastructure spending across states is handled by mainly the 4 states Maharashtra, Gujarat, West Bengal and Andhra Pradesh with maximum red zones. A summarized view is shown in tabular form below
| States\Stats | % of Red Zones | % investment in Infra allocation by all states |
|---|---|---|
| Maharashtra | 49% | 7% |
| Gujarat | 27% | 7% |
| West Bengal | 43% | 4% |
| Andhra Pradesh | 38% | 5% |
Until and unless this % of Red zones doesn’t improve situation will remain challenging. A look into the major Industrial sectors and COVID-19’s impact on those is discussed below:
- Financial Services: An increase in the number of bad loans/NPS is one of the direct outcomes of this pandemic. Inability to pay the EMIs and the loan amount has posed a higher challenge for the RBI. Even though RBI has taken few decisive steps like reversing of Repo rates, rate cuts, interest deferment on working capital and 3 month moratorium on all term loans to offset these impacts, still a lot many such relief measures need to be taken by the Indian Government and RBI in order to provide relief to financial institutions
- Manufacturing Sector: Large scale industries like TATA, Aditya Birla Group, L&T had to either temporarily suspend operations or in case of impossibility of suspension they were carried out at a very reduced scale. This has resulted in a huge movement of migrated laborers from the city/state where they are working to their homeland thus creating cheap labor scarcity once the lockdown eases out
- Agricultural Sector: Initial study by Public Health foundation, Harvard T H Chan School of Public Health and the Centre for Sustainable Agriculture report that 10% of the farmers could not harvest their crops and those who did a good percentage of those reported loss. This also led to huge food wastage and all this was mainly due to logistical problems and disruption of the supply chain mechanism.
Part 2: Road Ahead
At this point a very beautiful thought comes to my mind “The path will always be challenging, but a positive vision and a stable mind is the one which will help overcome this challenge”. If we have our heart and mind set in the right direction, then any challenge can be taken up and handled in a much better way.
The picture posted above might give an indication they things are looking gloomy, but “NO” its all about using the resources in the correct direction. Lots of steps have been taken either by the government or responsible organizations in all the sectors to ensure that post this pandemic life returns to normalcy as smoothly as possible. There are few more opportunities which India could prioritize in my opinion to ensure a proper help is reached across all the sectors thus resulting in generation of employment and growth of the economy:
Steps which can be taken…
- Physical Infrastructure: As the lockdown is being relaxed in many states, many sectors like healthcare, manufacturing, transportation and logistics would require improved infrastructure to handle any such type of calamity in future, thus generating employment and income for the lower-class laborers
- Digital Infrastructure: A developing country like India, for the past few years has seen exponential growth in internet usage, thus making it one of the leading countries with most smartphone users. This has ushered for a rapid investment in digitalization to ensure that the demands of the customers are met. As the government is planning to bring in 5G network and connectivity to link rural areas this digital infrastructure is sure to change the face of communication and e-commerce industry as well as generate employment to a great extent
- HealthCare Infrastructure: Another sector which will require rapid improvement and innovation is the healthcare sector. A robust healthcare system will ensure better handling of such situations in the future. Helping in the healthcare infrastructure growth will for sure help the country to ensure many healthy citizens as well as helping in creating a strong defense against diseases which could be prevented and handled with better facilities.
- Resetting the Energy Sector: A current look into India’s electricity breakup shows that 56% India’s electricity comes from Coal, 36% from Oil & gas and rest from renewable energy. Solarizing of unelectrified health sub-centers will help to a great extent serving the huge rural population. This is a great opportunity for India to ensure that the spending which includes subsidies as well in this sector is redirected in a proper and more efficient way. One of the possible ways could be increasing investment in the renewable energies. Usage of Solar powers will help reduce the cost being invested in energy and in turn lessoning the financial burden on MSMEs. If some efforts are directed towards renewable energies sector, for sure will help in improving the unemployment in the country.
This is the beginning of a long battle for survival and revival. Channelizing efforts in the right direction will help every country in this race. Though this was an unexpected situation but now has become an opportunity, so the Govt of India needs to keep their focus and investment in the right direction and for sure we will be out of this with a more stable and sustainable economy.
References
- https://www.sundayguardianlive.com/business/deconstructing-indian-economy-long-walk-redemption
- https://www.indiainfoline.com/article/news-sector-cap-goods-eng-infra/infrastructure-to-drive-economic-growth-in-the-post-covid-19-markets-120061000323_1.html
- https://agreenerlifeagreenerworld.net/2020/05/15/analysis-reboot-indian-economy-in-clean-mode-after-covid-19-crisis/
- https://www.ideasforindia.in/
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