Economic Impact of Covid-19

Primary Sector (Agriculture and allied activities)

The lockdown imposed in March 2020 coincided with the peak of harvesting season of Rabi crops in India mainly in the north‐west which posed significant losses to the farmers. Although there were relaxations to the agriculture sector during lockdown but transport constraints, mobility restrictions and lack of labour due to reverse‐migration of labour to their native places were the major problems faced by the farmers. Farmers in Maharashtra called it a worse situation than that occurred during the demonetization in 2016.

Rabi harvesting has gone well and MSP hike has also been announced for the Kharif crops which assures farmers a 50–83% return on their production cost. With declining demand and reduction in exports of fruits and vegetables, horticulture is hit hard. Similarly, floriculture has been affected because of less demands due to shut down of religious places, postponement of marriages, and so forth. In livestock (milk, meat, eggs), milk is the major contributor that has been impacted and fortunately, had stability during the lockdown.

Fishing and aquaculture are expected to have a high negative impact, food grains and livestock low, and horticulture medium, relatively. Agriculture seems to be a bright spot in India amid the COVID‐19 crisis and CRISIL expects agriculture to grow at a rate of 2.5% in FY2021.

Secondary Sector (Manufacturing sector)

The manufacturing sector is the major contributor of GDP and employment in the secondary sector as it has strong linkages with other sectors. Overall, the manufacturing sector is going to be affected badly by demand–supply disruptions and global value supply chain.

The 50% contributor to the manufacturing sector, the automotive sector was suffering before COVID‐19 too due to low consumer demand, inadequate credit facilities, and more problems due to the NBFC crisis. As per the latest assessment related to the impact of COVID‐19 done by SIAM, the auto sector is expected to have a decline between 22% and 35% in various industry segments conditioned with GDP growth of 0–1% for FY21. said Rajan Wadhera, President, SIAM.

The micro, small and medium enterprises (MSMEs) as a whole form a significant share of manufacturing in India and play a crucial role in providing employment opportunities and also in the country’s exports. As indicated by recent reports MSMEs contribute 30% in India’s GDP and 50% in the employment of industrial workers. But this sector has issues like the non‐availability of adequate, timely, and affordable institutional credit. Although all the businesses and sectors are affected due to the pandemic, this sector is badly hit due to reduced cash flows, supply chain disruptions, shortage of migrant workers due to reverse migration, less demand, and so forth. Like China, India is also expected to have major destructions in this sector with more challenges to small firms as compared with upstream firms. India’s Sherpa to the G20 also said that small industries are most vulnerable and it is difficult for them to survive without financial assistance because of their incapability to deal with such sudden disruptions.

Tertiary Sector (Financial market and institutions)

The financial sector who has got the most important role to play in the crisis times has also been having huge problems in India like Twin Balance Sheet (TBS), high levels of non‐performing assets (NPAs) and an inadequately capitalized banking system. In the private corporate sector too, firms are financially weak and over‐leveraged. Some more problems like IL&FS crisis, decline in commercial credit of around 90% in FY2020‐first half, and a near‐demise of a well‐known and reputed private bank—Yes Bank, and so forth.

To what extent the financial market will be affected depends on the severity and longevity of the crisis, effectiveness of the implementation of fiscal and monetary policies and central bank’s reactions.

There is no such impact on the banking sector, but because banks are at the forefront of public attention the indirect impact of several other sectors that are hit by the pandemic is likely to be on the banks and other financial institutions. Banks are the major source of help in times of crisis, therefore when all other sectors are hit badly, banks will also face the brunt. The already existing problems in the financial sector are expected to multiply due to this draconian crisis. The stock market has also seen the worst in March, 2020 due to the lockdown and collapse of various business activities.

Other important dimensions of service sector like aviation, transport, travel, and tourism are worst hit not only in India, but globally. The loss to this sector too will be based on the severity and longevity of the crisis. A report by KPMG indicates that around 38 million job losses are expected in India’s travel, tourism and hospitality industry.

Poverty

According to the World Bank (2016) report, every fifth Indian is poor with around 80% population residing in rural areas. At least 49 million individuals all over the world are expected to dive into “extreme poverty” as a direct result of the destruction caused by the pandemic and according to World Bank, India is estimated to have its 12 million citizens pushed in extreme poverty.

Unemployment

According to the Centre for Monitoring Indian Economy (CMIE), in India more than 122 million people lost their jobs in April 2020, out of them largely were the small traders and wage‐labourers. According to a phone survey of 4,000 workers conducted by Centre for Sustainable Employment, around 80% of urban workers in the sample lost jobs with a sharp decline in the earnings of farmers and those who were self‐employed in sectors other than agriculture.

Migrant Labourers

As indicated by the Census of India, 2011 Delhi and Maharashtra had the most extreme number of the flow of migrants for the most part from the states of UP, Bihar, Rajasthan, Odisha, Assam, Punjab, West Bengal, Madhya Pradesh. And at present Maharashtra is followed by Delhi in the highest number of COVID‐19 cases. (Ministry of Health and Family Welfare, Government of India). Now, due to COVID‐19 there is mass reverse migration due to limited employment opportunities, fear of more destruction due to the uncertainty of future crisis, financial crisis, health crisis, and so forth. The extent of this reverse migration was such that the efforts of government through policies could not match this crisis. (Mukhra, Krishan, & Kanchan, 2020)

Singh (2020) studied the impact of the coronavirus pandemic on the rural economy of India mainly about the plight of migrant workers and the short run‐long run implications of COVID‐19 on the rural economy. He stated that COVID‐19 is going to affect the rural economy in both the short run and long run with reverse migration exerting excess pressure on the agriculture and rural economy that will significantly affect the poverty and will put a greater number of people into abject poverty. He also discusses that although the government is announcing schemes and helping in many ways. But mass corruption in the system is the biggest challenge in the effective implementation of plans.

Soon after the nationwide lockdown was announced in late March, FM Sitharaman announced a ₹1.7 lakh crore spending plan for the poor. To help provide jobs and wages to workers, the average daily wages under the MGNREGA were increased to ₹202 from the earlier ₹182, as of 1 April. On 14 May, FM Sitharaman further announced free food grains for the migrant workers, targeting 80 million migrant workers by spending ₹35 billion.

Railways transported 48,00,000 migrants back to their homes in the special Shramik trains allocated for them between 1 and 27 May.  On 20 June 2020 the government launched the Garib Kalyan Rojgar Abhiyaan for the welfare of migrants. In July, Livemint reported that companies were having difficulties in bringing back the workforce. Even after incentives, many labourers are reluctant to travel back to urban areas.

Leave a Reply

Your email address will not be published.