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The economic impact of the 2019–20 coronavirus pandemic in India has been hugely disruptive. Coronavirus has worsened India’s financial position to an all-new low with country remains virtually shut since March 25 and businesses facing an uncertain future.

A BRIEF INTRODUCTION OF CORONAVIRUS PANDEMIC

The 2019–20 coronavirus pandemic is an ongoing pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The outbreak was identified in Wuhan, China, in December 2019. The World Health Organization declared the outbreak to be a Public Health Emergency of International Concern on 30 January 2020 and recognised it as a pandemic on 11 March 2020. As of 21 April 2020, more than 2.47 million cases of COVID-19 have been reported in 185 countries and territories, resulting in more than 170,000 deaths. More than 651,000 people have recovered, although there may be a possibility of relapse or reinfection.

The virus is primarily spread between people during close contact, often via small droplets produced by coughing, sneezing, or talking. While these droplets are produced when breathing out, they usually fall to the ground or onto surfaces rather than remain in the air over long distances. People may also become infected by touching a contaminated surface and then touching their eyes, nose, or mouth. The virus can survive on surfaces for up to 72 hours.

Recommended preventive measures include hand washing, covering one’s mouth when coughing, maintain distance from other people, and monitoring and self-isolation for people who suspect they are infected.

The Impact of Coronavirus Pandemic in India can be explained in following parts for better understanding and clarity:
 

  1. IMPACT ON GDP – WHAT INTERNATIONAL AGENCIES SAY?
    First of all, we should have a clear understanding of “what GDP is?” In simple terms, GDP is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.

    Most credit rating agencies have drastically cut India’s FY21 GDP forecast from their earlier projections. India’s forex reserves are drying, the rupee has taken a hit, and exports are refusing to pick up pace amid closed borders. The country remains virtually shut since March 25 and businesses face an uncertain future.

    According to World Bank,The COVID-19 outbreak came at a time when India’s economy was already slowing due to persistent financial sector weaknesses. According to his report, India is likely to record its worst growth performance since the 1991 liberalisation this fiscal year as the coronavirus outbreak severely disrupts the economy.

    India’s economy is expected to grow 1.5% to 2.8% in the 2020-21 fiscal which started on April 1, the World Bank said in its South Asia Economic Focus report.

    The Asian Development Bank (ADB) sees India’s economic growth slipping to 4% in the current fiscal, while S&P Global Ratings has further slashed its GDP growth forecast for the country to 3.5% from a previous downgrade of 5.2%.

    Fitch Ratings puts its estimate for India growth at 2%, while India Ratings & Research has revised its FY21 forecast to 3.6% from 5.5% earlier.Moody’s Investors Service has slashed its estimate of India’s GDP growth during 2020 calendar year to 2.5%, from an earlier estimate of 5.3%.

    Since the start of 21st century, annual average GDP growth rate has been approx. 6% to 7% annually. However, the International Monetary Fund projection for India for the financial year 2021-22 of 1.9% GDP growth is the highest among G-20 nations.

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  3. PRESENT SITUATION AND ESTIMATED ECONOMIC LOSSES
    In India up to 53% of businesses have specified a certain amount of impact of shutdowns caused due to COVID-19 on operations (FICCI survey).  Various business such as hotels and airlines are cutting salaries and laying off employees. On 4 April, former RBI’s Chief Governor Raghuram Rajan said that the coronavirus pandemic in India may just be the “greatest emergency since Independence”.

    Numerous companies are carrying out measures within their companies to ensure that staff anxiety is kept at a minimum. Hero Motocorp has been conducting video townhall meetings, Tata Group has set up a task force to make working from home more effective and the taskforce at Siemens also reports on the worldwide situation of the COVID-19 pandemic.

    The Indian economy is expected to lose over 32,000 Crore (US$4.5 billion) every day during the first 21 days of the lockdown, according to Acute Ratings,a RBI approved Credit Rating Agency. Barclays said the cost of the first 21 days of shutdown as well as the previous two shorter ones will be total to around 8.5 Lakh Crore (US$120 billion).

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  5. ECONOMIC IMPACT OF CORONAVIRUS PANDEMIC GLOBALLY
    Global stock markets fell on 24 February 2020 due to a significant rise in the number of COVID-19 cases outside mainland China. By 28 February 2020, stock markets worldwide saw their largest single-week declines since the 2008 financial crisis. Global stock markets crashed in March 2020, with falls of several percent in the world’s major indices. As the pandemic spreads, global conferences and events across technology, fashion, and sports are being cancelled or postponed. While the monetary impact on the travel and trade industry is yet to be estimated, it is likely to be in the billions and increasing. Some of the highlights are as follows:

    • The World Trade Organisation’s chief Roberto Azevedo said that projections show the economic downturn and job losses caused by the coronavirus pandemic would be worse than the 2008 recession.
    • As per the Bank of France,France is in its worst performance since 1945, the French economy shrank around six percent in the first quarter of this year as the coronavirus pandemic decimated business activity.
    • Apple is also no longer a $1 trillion company due to this Coronavirus Fears, this leaves Microsoft as the only US Company valued at $1 Trillion.
    • Marriott announces CEO Arne Sorenson’s salary will be suspended for the rest of the year and senior executives’ salaries will be reduced by 50% as the coronavirus ravages the hospitality industry. Norwegian Air to cancel 85% of flights and lay off 90% of staff.
    • According to United Nations, About 25 million jobs could be lost worldwide due to coronavirus pandemic.Tesla is also cutting salaries and furloughing workers to ‘manage costs’ during pandemic.

    Industries which have been hit hard during this period majorly includes Sports industry (postponement of major events like Olympic and IPL in India), Travel & Aviation Industry, Entertainment Industry, Hotel & Restaurant Industry& Real Estate Industry.

    On other side, some industries has gain a bit due to this pandemic which includes Pharmaceutical Industries, Online Education Industry, Digital Entertainment Industry (like Netflix, Amazon Prime, etc).

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  7. INDIAN ECOMMERCE MARKET
    In the third week of March, Amazon announced that it would stop sale of non-essential items in India so that it can focus on essential needs. Amazon has followed the same strategy in Italy and France. On 25 March, Walmart-owned Flipkart temporarily suspended some of its services on its e-commerce platform and will only be selling and distributing essentials. BigBasket and Grofers also run restricted services, facing disruptions in services due to the lockdown. Delhi Police began issuing delivery agents curfew passes to make it easier for them to keep the supply chain open. E-commerce companies also look for legal clarity related to what are “essentials”.
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  9. INDIAN STOCK MARKETS

    On 23 March 2020, stock markets in India post worst losses in history.SENSEX fell 4000 points (13.15%) and NSE NIFTY fell 1150 points (12.98%). However, on 25 March, one day after a complete 21 day lock-down was announced by the Prime Minister, SENSEX posted its biggest gains in 11 years, adding a value of 4.7 lakh crore (US$66 billion) crore for investors.On 8 April, following positive indication from the Wall Street that the pandemic may have reached its peak in the US, the stock markets in India rose steeply once again.

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  11. WHAT ABOUT SMALL BUSINESSES, SALARIESOF EMPLOYEES &OTHER OVERHEADS IN INDIA?
    The Prime Minister on 19 March urged businesses and high income segments of society to take care of the economic needs of all those who provide them services.During the live telecast he also appealed to families to not cut the pay of domestic help.Following the lockdown, the government circulated advisoriesand directives ordering companies to keep paying employees among other things.

    A few days later worries grew as to how wages could continue being paid and if the directive was legal or not.There were also concerns raised by migrant workers regarding implementation of the orders as many dailywagers have no records of being sacked or salaries being paid or deducted.The concerns also expand to uncertainty in the government’s ability to enforce minimum wages under a lockdown when it couldn’t even do so during normal times.

    LimitationsDistributing salaries is a prime concern for private sector basically those organisations running with a low margin of cash inflows or having nil or low balance in hand specially MSME’s. This is due to the fact that a majority or organisation in India runs with the help of debt or support from investors having already a burden of high interest or finance cost. Though government has tried to help by announcing various mortarium scheme for 3 months but survival after these three months is a big question in the event of lockdown where revenue has been blocked and even after uplifting of lockdown it will take a considerable time to generate reasonable revenue to bear the burden of pending finance costs and other fixed overheads.Eventually it can result into lay offs, cost cutting, etc which will surely impact especially the population of low income groups.

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  13. GOVERNMENT ACTIONSSO FAR
    The Government of India has announced a variety of measures to tackle the situation, from food security and extra funds for healthcare, to sector related incentives and tax deadline extensions. Following are some major announcements and action of the Central and Various state governments:

    • On 21 March,the UP’s Government has decided to give a direct money transfer of ₹1,000 to all daily wage laborers in the stateand the following day PunjabGovernment announced ₹3,000 each for all registered construction workers in state. On 23 March, it was announced that Haryana labourers, street vendors and rickshaw pullers will be provided an assistance of ₹1,000 per week directly deposited into their bank accounts.
    • On 24 March, in his address to the nation, the Prime Minister announced a 15,000 crorefund for the healthcare sector.
    • 25 Marchthe Modi government announced the world’s largest food security scheme for 80 crores (800,000,000 people) across the country. Cabinet Minister Shri Prakash Javadekar made the announcement in a press conference that the ration would be 7 kg every month (which includes wheat at a cost of ₹2 per kg and rice at ₹3 per kg).
    • On 25 March,the Uttar Pradesh government banned the manufacture and sale of pan masala, stating in the order that “Spitting pan masala can help in spreading Covid-19”.Following this, other states such as Andhra Pradesh, Rajasthan and Gujarat also banned spitting in public places.
    • On 27March,the RBI Governor Shri Shaktikanta Das made a number of announcements including EMIs being put on hold for three months and reducing repo rates. Other measures introduced will make available a total ₹374,000 crore (US$52 billion) to the country’s financial system. Delhi government announced that from the 28th they will be providing free food to 400,000 every day. Over 500 hunger relief centres have been set by the Delhi government.
    • On 30 Marchit was announced that the UP government would transfer 611 crore (US$86 million) to 27.15 lakh workers under MNREGA scheme.
    • On 1 April,the RBI announced more measures to deal with the economic fallout of COVID-19.WMA and short-term liquidity have been increased to provide relief to state governments; exporters have also been granted some relief in the form of relaxed repatriation limits.
    • On 2 April,the World Bank approved $1 bn emergency financing for India to tackle coronavirus labelled ‘India COVID-19 Emergency Response and Health Systems Preparedness Project’.
    • On 3 April,the central government released 17,287 crore (US$2.4 billion) to different states to help combat coronavirus. The Ministry of Home Affairs approved ₹11,092 crore (US$1.6 billion) for states as relief under the State Disaster Risk Management Fund.
    • On 6 April,a 30% salary cut for one year was announced for the President, Vice President, Prime Minister, Governors, Members of Parliament and Ministers. It was also decided to suspend the MPLADS for two years and transfer the money, about 7,900 crore (US$1.1 billion), into the consolidated fund of India.
    • On 10April,the Asian Development Bank assured India of ₹15,800 crore (US$2.2 billion) assistance in the covid-19 outbreak fight.
    • On 14 April,at 10am the Prime Minister made a public speech in which he announced the extension of the nationwide lockdown, as well as a calibrated reopening. “From the economy’s point of view, the lockdown undoubtedly looks costly right now, but compared to the lives of Indian citizens, it is nothing”.
    • On 15 April,as part of the new lockdown 2.0 guidelines, the Ministry of Home Affairs announced, among other things, that all agricultural and horticultural activities will remain fully functional. Information technology companies can function with 50% staff.The partial lift of restrictions will take place from 20 April.
    • On 17 April, RBI announced more measures to counter the economic impact of the pandemic including ₹50,000 crore (US$7.0 billion) special finance to NABARD, SIDBI, and NHB. Providing more relief to state governments, WMA limits have been increased by 60 per cent.

     

  14. PROS AND CONS
    Pros can be as follows:

    • Earth will heal and environment can be the biggest winner
    • Resistance for China has been increased gradually and there are rumours that major countries will shift their manufacturing/ production facilities from there – this can be emerged as a benefit for India due to “Make in India” initiative by Government of India
    • Work from Home culture will increase which eventually save organisation from various overheads. This will in addition lead to less traffic and low pollution
    • People will become more proactive in terms of health and safety thereby resulting a sharp increase in various life & medical insurance. Insurance Industry (Particularly life and medical) can see a terrific jump in business
    • Increase in online education
    • Healthcare industry will definitely see a high rise

    Cons can be as follows:

    • Bank’s NPA may increase
    • Tourism Income will get reduced
    • Aviation Industry can lose a lot (due to loss of tourism)
    • Huge Job Losses can happen
    • Indian Rupee can fall against USD
    • Export has been banned and even after upliftment it may take time to get back on track resulting in loss of foreign exchange receivables which can lower the reserve of Foreign Exchange
    • Import restrictions will cause a deficit of Raw material and thereby will result in lower manufacturing/ production
    • Social distancing will prevail even after some time and during this may spike the consumption of alcohol which can increase in depression in people
Disclaimer

The above content is integrated from various websites and reports and is true and correct according to best of the Author’s knowledge but at the same time, it could be prone to errors and might have some other missing key information. The same has been prepared to give a brief understanding of the scenario, situation or topic along with related improvements and impacts. So, keep it for simple guidance or as an understanding tool as Author doesnot assume any liability which may incur to anyone around the globe due to the content published above. Furthermore, conclusion drawn if any by the Author is based on his personal understanding free from any biasness whether imparted by on his own or by any third party specifically for causing any benefit or loss to any individual, group, community, religion, etc around the globe.

About the Author

The author is a Semi Qualified Chartered Accountant and currently practising in Various Direct and Indirect Taxes in India. He has a working experience of more than 8 years in the field of Accounting, Auditing and Taxation in India. He is presently consulting various corporates and assisting them in complying with their legal and statutory compliances prevailing under various laws as laid down by State and Central Government of India.