TITLE – COVID AND IT’S IMPACT ON INDIAN ECONOMY

SPECIALIZATION – FYMCOM(ADVANCE ACCOUNTANCY)

NAME – SIMRAN MANOJ RAJPAL

ROLL NUMBER – 97
 H.R. College of Commerce & Economics

FYMCOM(ADVANCE ACCOUNTANCY)

SIMRAN MANOJ RAJPAL

COVID AND IT’S IMPACT ON INDIAN ECONOMY

“I declare that this project is composed by myself , free from plagiarism and is submitted

in partial fulfillment of the requirements of the Degree of M.COM of the University of

Mumbai”

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 INDEX

SR NO CONTENTS Page No

1 Introduction 3

2 Method of data collection 6

2 Objectives 7

3 Problems faced by the Indian 9

Economy
4 Impact of coronavirus in India’s 13

GDP
5 Steps taken by government to 32

balance economy
6 Government policies 39

6 Interpretation based on Article 42

7 Conclusion 44

8 Bibliography 45

Introduction

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The outbreak of Coronavirus disease 2019 (COVID-19), first identified in Wuhan, the

capital of Hubei, China, in December 2019 and since then having spread globally, has

been recognised as a pandemic by the World Health Organization (WHO) on 11 March

2020. India is widely affected by this pandemic. As on 29.04.2020, more than 31000

cases of Coronavirus have been confirmed in India with more than 1000 deaths.

Taking into consideration its severe intensity, seen in the context of India having the

highest rate of density population in the world, the Governments, both at Union and State

levels, commenced necessary actions on war footing to prevent the spread of this

pandemic. It was all the more so when it is known that this deadly disease has no

medicinal cure.

The effect of Corona virus is badly felt and noticed in the world's most developed

countries like USA, Britain and Germany etc. Obviously, India was bound to be affected

not only because of its domestic slowdown but also because of international recession.

Learning the lessons from the developed countries like Spain and Italy, India put all its

machinery and material into motion to curb and/or prevent the disease. What started as

one day Janta Curfew on 22.03.2020 by the Prime Minister of India and lockdowns by

some of the state governments, the entire country was declared to be under lockdown

from the midnight of 24.03.2020, and the same continues to be so till now or atleast till

03.05.2020, unless extended.

Resultantly, everything and every activity, barring the activities relating to and

concerning with the essential supplies came to a complete grinding halt. Though the

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improvement in the environment due to such a lockdown was a silver lining, however the

toll on economy due to this lockdown is too early to be estimated.

While presenting the Finance Bill for the year 2020-21, the Union Government on

01.02.2020 had reasonably estimated India's nominal GDP growth rate (i.e., real growth +

inflation) of 10 percent, however, the same now seems far from reality and certainty. The

slowdown in demand, closure of production activities, fall in the global price of crude oil,

ban on foreign trade, price decrease in the commodities like energy, metals and fertilizers,

restrictions on the aviation industry as also on tourism, amongst others, are bound to exert

downward pressure on the inflation, thus adversely affecting the economy chart. It is

believed that India's aggressive lockdown could bring the country's growth down to 2.5

percent from 4.5 percent it had earlier estimated. However, as per a statement released by

Chief India Economist of Goldman Sachs on 09.04.2020, the economic growth of India

has been estimated at a low figure of 1.6% only

Overall uncertainty and lack of demand, coupled with no investment seen in near future,

the Indian stock markets crashed. A UN report estimated a trade impact of more than

USD 350 million on India due to this outbreak, making India one of the top worst

affected economies across the world. During the same time, Asian Development Bank

estimated the loss to Indian economy due to this outbreak upto USD 29.9 billion. The

worst crash of Indian stock market by 2352.6 points on one single day on 12.03.2020 is a

cause of concern for all the Indian economists and economic advisors. However, after the

declaration of complete lockdown, Sensex and Nifty gained a little, adding a value of

about USD 66 billion to investors' wealth. The trend however reveals that the curve has

been meandrical with absolute uncertainty.

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Corona virus had its impact in the industry in general, which has seen, not only cutting

the salaries but also laying off its employees. The hotels are vacant and airlines have

closed their wings. The live events industry has also estimated a loss of more than Rs.

3000 crores.

The Economic Impact of 2020 Coronavirus Pandemic in India has been largely

disruptive. India’s growth in the fourth quarter of the Fiscal Year 2020 went down to 3.1

% according to the Ministry of Statistics. The Chief Economic Advisor to the

Government of India said that this drop is mainly due to the Coronavirus Pandemic effect

on the Indian Economy. Notably India had also been witnessing a Pre-pandemic

slowdown, and according to the World Bank, the current Pandemic has “Magnified Pre-

existing risks to India’s Economic Outlook.”

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 Method of Data collection

Secondary data is used for collecting information

Secondary data is the data that have been already collected by and readily available from

other sources. Such data are cheaper and more quickly obtainable than the primary data

and also may be available when primary data can not be obtained at all.

it is economical. It saves efforts and expenses.

It is time saving.

It helps to make primary data collection more specific since with the help of secondary

data, we are able to make out what are the gaps and deficiencies and what additional

information needs to be collected.

It helps to improve the understanding of the problem.

It provides a basis for comparison for the data that is collected by the researcher.

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 Objectives

To find whether corona virus will have an impact on Indian Economy or not

India's limited presence in global supply chain network could help India with only a

marginal impact on its economy and could benefit from fall in global crude prices and fall

in US treasury bond yields, according to Bloomberg Economics, a Market Intelligence

wing of Bloomberg News.

The caronavirus is slowly spreading to the rest of the world which was largely

concentrated in China, and is expected to have adverse economic consequences. If

China's economy slows to 1.2 per cent in Januar India's limited presence in global supply

chain network could help India with only a marginal impact on its economy and could

benefit from fall in global crude prices and fall in US treasury bond yields, according to

Bloomberg Economics, a Market Intelligence wing of Bloomberg News.

The caronavirus is slowly spreading to the rest of the world which was largely

concentrated in China, and is expected to have adverse economic consequences. If

China's economy slows to 1.2 per cent in January -March quarter, the GDP shock to India

from the demand side could be about 0.4- 0.5 per cent, the report said. But the rest of the

world slows if China slows, particularly many South Asian and European economies.

" The Indian economy is relatively insulated "said Tom, Orlik, chief economist at

Bloomberg Economics." It is not majorly integrated into the global supply chains and not

a major exporter to the global markets.

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Indian businesses could benefit from a fall in crude prices by way of lower fuel and input

costs. Besides, the cost of overseas borrowing would also decline as the yields on US

Treasury bonds fall, according to Orlik.

Central banks globally are expected to ease policy in anitcipation of a slowdown in the

global economy. The US Fed has already announced a 50 bps reduction of its key policy

rates.

The report looks at four different scenarios, assuming a limited impact on China in the

first quarter, another one assumes the impact to continue in second quarter, another

assuming crisis in high risk country and the fourth assuming all countries face a

disruptive outbreak and that this prompts a GDP drop in all economies matching China’s

experience in the first quarter of 2020. Global growth grinds to a halt for 2020 as a whole

-- a cost of $2.7 trillion in lost output even if the pandemic passes and the level of world

GDP recovers by the fourth quarter.

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 Problems faced by the Indian Economy due to Coronavirus

When pandemics spread, they bring on an economic contagion, beyond the morbidity and

mortality of the disease itself. Economic activity has been curtailed to enforce social

distancing — an indispensable bullet in the coronavirus disease (Covid-19) war.

The World Bank and the International Monetary Fund (IMF) warned that the virus is

pushing the world economy into a recession worse than that after the 2008 financial

crisis. Moody’s downgraded India’s GDP growth rate forecast for 2020 from 5.5% to

2.5%. A United Nations Conference on Trade and Development (UNCTAD) report titled

The Covid-19 Shock to Developing Countries pleaded “governments to do whatever it

takes” to stop economic contraction becoming a recession or worse, a prolonged

depression, and to protect the poorest.

United Nations secretary-general António Guterres called for a large-scale, coordinated,

comprehensive and multilateral response based on solidarity and shared responsibility.

His proposals for a “double-digit-percentage” of global GDP investment, massively

increasing resources to developing countries by augmenting IMF capacity including

through Special Drawing Rights’ issuance and of MFIs like the World Bank are critical.

The G20, representing world’s most powerful economies, expressed its resolve to defeat

Covid-19, but so far, concerted global action and cooperation, and enhanced liquidity and

funding has not materialised. Significant national relief and stimulus packages announced

by the United States, Europe, China and India are expected to help staunch the economic

haemorrhage and finance the coronavirus war.

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Developing countries, including India, face several economic challenges. These include

volatility and precipitous fall in financial markets and commodity prices, and financing

gap due to shrinking fiscal revenues and Covid-19 expenditure. Liquidity crunch,

disruptions in international trade, and transport, depletion of foreign exchange reserves,

devaluation of their currencies, fall in export revenues due to export controls and

contraction in global markets and economic engines also causes for concern.

They also face the prospects of a global food, pharmaceuticals and medical supplies crisis

as producing countries impose export control and stockpiling. India could face a

remittances crisis due to coronavirus-related redundancies in major labour export

markets.

The economic impact on India needs to be assessed by what some Harvard economists

call the “shape of the shock” and it’s “structural legacy”. These will depend on the nature

and extent of the disease burden, resources deployed/diverted for treatment/care/ vaccine,

the trajectory of the pandemic, the collateral damage to sectors, state of the pre-crisis

economy, policy responses and special measures taken.

Resilience and rebound will depend on the duration of the lockdown, the stage at which

the lockdown was imposed— in India’s case it was early enough — and social distancing

compliance by citizens. Reducing uncertainties around health security driven economic

decision-making will help and slightly longer lockdowns seem better than stop-go

options.

India has to ensure that in this interregnum, a banking/credit crisis does not occur,

liquidity at household and corporate level is maintained, there is minimal disruption in

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capital formation and investments. Labour displacement is to be minimised and migrant

labour encouraged to stay in place or return after the lockdown including though

repurposing for the corona war.

Skill atrophy should be prevented, output and supply maintained through targeted support

to strategic sectors, SMEs, SHGs. Providing social protection to poor and vulnerable

farmers and workers is critical. Prime Minister Narendra Modi’s economic relief and

stimulus package seek to achieve these objectives and will continue to evolve.

If the lockout lasts for months, there is risk of a prolonged freeze in the real economy and

recessionary prospect. We have to keep essential sectors firewalled through protective

measures/PPE gear and affordable, rapid status tests and protocol until we open all

sectors.

Walden Bello, the author of Deglobalization: Ideas for a New World Economy notes that

Covid-19 dealt a second big blow to globalisation and connectivity. With China, its flag

bearer,becoming the epicentre of the crisis and economic contagion, there is rethink on

the global risks of over reliance on this “undisputed workshop of the world”, the largest

trader and exporter. Countries everywhere are considering diversification strategies away

from China and rooting for autarky in strategic areas.

Global investor reassessment about putting all their eggs in the China basket, presents an

unmissable opportunity to attract them to India. Although no one should underestimate

China’s enduring comparative advantage and resilience we should leverage India’s large

market, human resources and diversified production base to become a manufacturing,

services, research and development, and technology hub.

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Pharmaceuticals, biotech, medical supplies and equipment and related infrastructure for

health sector capacity, supply and value chain is a vital multisectoral cluster to create with

all stakeholders — private and public. Consumer durables, construction materials,

electronics, engineering goods, IT, speciality textiles and garments, AI and robotics are

other promising areas.

Article XX of GATT / WTO permits countries “to take any actions it considers necessary

to protect it’s national security interests”. We can use trade restrictions, TRIPs, TRIMs

exemptions to support domestic value and supply chains to protect our health, food and

economic security.

A “new India” industrial and trade policy is needed to incentivise our entrepreneurs to be

makers, not just traders. They must build a Make in India hub to meet domestic and

global Covid-19 related demand and subsequent rebound and revenge consumption. The

adversity bought on by the virus can become a transformative economic opportunity to

“Build Back Better”.

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 IMPACT OF CORONAVIRUS IN INDIAN ECONOMY

The number of coronavirus cases in India rose to 29, including 16 Italians tourig through

Rajasthan, the government said on Wednesday. The trade impact of the coronavirus

epidemic for India is estimated to be about $348 million. The country now figures among

top 15 economies most affected by the manufacturing slowdown in China, says a UN

report. This is how Confederation of Indian Industry put forth the impact analysis for

various sectors:-

 Auto

The impact would depend on the extent of their business with China. The shutdown in

China has prohibited import of various components affecting both Indian auto

manufacturers and auto component industry. However, current levels of inventory seem

to be sufficient for the Indian industry. In case the shutdown in China persists, it is

expected to result in an 8-10 per cent contraction in Indian auto manufacturing in 2020.

However, for the fledgling EV industry, the impact of coronavirus may be greater. China

is dominant in the battery supply chain, as it accounts for around three-quarters of battery

manufacturing capacity.

 Pharma

Though India is one of the top formulation drug exporters in the world, the domestic

pharma industry relies heavily on import of bulk drugs (APIs and intermediates that give

medicines their therapeutic value). India imported around Rs 24,900 crore worth of bulk

drugs in FY19, accounting for approximately 40 per cent of the overall domestic

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consumption. With India’s API imports from China averaging almost 70 per cent of its

consumption by value, importers are at the risk of supply disruptions and unexpected

price movements. For many critical antibiotics and antipyretics, dependency on imports

from China is close to 100 per cent. These APIs require large capacities of fermentation

boilers, a USP of Chinese manufacturers, giving an upper hand to Chinese manufacturers.

Delivery and tracking of consignments are still uncertain within China whether inward or

outward.

 Chemicals

Local dyestuff units in India are heavily dependent on imports of several raw materials,

including chemicals and intermediates, from China. Delayed shipments from China and a

spike in raw material prices are affecting the dyes and dyestuff industry, especially in

Gujarat. Nearly 20 per cent of the production has been impacted due to the disruption in

raw material supply. China is a major supplier of specialty chemicals for textiles,

especially Indigo required for denim. The business in India is likely to get affected and

people are securing their supplies. However, it is also an opportunity since the US and the

EU will try and diversify their markets and mitigate China risk. Some of this business can

be diverted to India if taken advantage of.

 Electronics

China is a major supplier both for the final product as well as the raw material used in

electronics industry. India’s electronics industry is fearing supply disruptions, production

reduction, impact on product prices due to heavy dependence on electronics component

supply-directly and indirectly-and local manufacturing. The spread of coronavirus could

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have pushed down the sales of top electronic companies and smart phone makers which

have major supplies to India.

 Solar Power

Solar power project developers in India continue to source solar modules from China.

Modules account for nearly 60 per cent of a solar project’s total cost. Chinese companies

dominate the Indian solar components market, supplying about 80 per cent of solar cells

and modules used here, given their competitive pricing. Chinese vendors have intimated

Indian developers about delays happening in production, quality checks and transport of

components, due to the outbreak. As a result, Indian developers have started facing a

shortfall of raw materials needed in solar panels/cells and limited stocks.

 Information Technology

The extended Lunar New Year holidays in China have adversely impacted the revenue

and growth of domestic IT companies, operating out of China. IT companies are heavily

dependent on manpower and are not able to operate due to restriction in movement of

people arising from lockdown and quarantine issues. Consequently, they are not able to

complete or deliver the existing projects in time and are also declining new projects.

Further, the global customers for Indian IT companies in China have started looking for

other service providers in alternate locations such as Malaysia, Vietnam, etc.

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  Shipping

There have been complaints of shipment delays between India and China, there are

serious concerns regarding the overall earnings of Indian shipping companies in the first

quarter of 2020. There has been a sharp drop in the dry bulk cargo movement since the

third week of January 2020, as the shutdown in China has meant that ships cannot enter

Chinese ports.

 Tourism & Aviation

The aviation sector has also been impacted by the spread of coronavirus. The outbreak

has forced domestic carriers to cancel and temporarily suspend flights operating from

India to China and Hong Kong. Carriers such as Indigo and Air India have halted

operations to China. The temporary suspension of flights to China and Hong Kong would

lead to domestic carriers missing out on gross revenue targets.

 Textiles

Many garment or textile factories in China have halted operations owing to the outbreak

of coronavirus, adversely affecting exports of fabric, yarn and other raw materials from

India. The disruption is expected to slow down cotton yarn exports by 50 per cent,

leading to a severe impact on the spinning mills in India. Due to this slowdown in the

flow of goods and hence revenue, textile units may be hampered in making annual

interest and repayments to financial institutions, thereby defaulting their dues. This will

also adversely impact the demand from cotton farmers, who were already witnessing

subdued prices and fear that the said price may fall further if the China crisis continues

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unabated. It may be mentioned that India already has a price disadvantage against

countries like Vietnam, Pakistan and Indonesia which have duty free access to China for

export of cotton yarn. On the other hand, the coronavirus issue in China unfolds a big

opportunity for all those industries where China is a major exporter.

 Slowdown in demand & supply

Coronavirus has disrupted the demand and supply chain across the country and with this

disruption, it can be seen that the tourism, hospitality, and aviation sectors are among the

worst affected sectors that are facing the maximum impact of the current crisis. Closing

of cinema theatres and declining footfall in shopping complexes has affected the retail

sector by impacting the consumption of both essential and discretionary items. As the

consumption of any product or services goes down, it leads to an impact on the

workforce. In the current scenario, with all the retailers closing down their services, the

jobs of the employees are at a huge risk.

The financial market has experienced uncertainty about the future course and

repercussions of COVID-19. An estimated Rs 10 lakh crore of market cap was reportedly

wiped off due to the fall of sensex in the second week of March 2020. The fall has

continued till date as investors resorted to relentless selling amid rising cases of

coronavirus.

The supply-side impact of shutting down of factories resulted in a delay in supply of

goods from China which has affected a huge number of manufacturing sectors which

source their intermediate and final product requirements from China. Some sectors like

automobiles, pharmaceuticals, electronics, chemical products etc were impacted big time.

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The United Nations Conference on Trade and Development (UNCTAD), has suggested

that India’s trade impact due to the COVID-19 outbreak could be around US$ 348

million. India is among the top 15 countries that have been affected most as a result of

manufacturing slowdown in China that is disrupting world trade. For India, the overall

trade impact is estimated to be the most for the chemicals sector at 129 million dollars,

textiles and apparel at 64 million dollars, the automotive sector at 34 million dollars,

electrical machinery at 12 million dollars, leather products at 13 million dollars, metals

and metal products at 27 million dollars and wood products and furniture at 15 million

dollars. As per UNCTAD estimates, exports across global value chains could decrease by

US$ 50 billion during the year in case there is a 2% reduction in China’s exports of

intermediate inputs.

 Implications on the workforce

Job losses and salary cuts are likely in the high-risk services sector, including airlines,

hotels, malls, multiplexes, restaurants, and retailers, which have seen a sharp fall in

demand due to lockdowns across the country. If the current global and domestic

economic slowdown persists, it will impact demand and realization.

Undoubtedly, with this crisis impacting the business around the country, it will create

very challenging situations for the workforce. Companies are not meeting the revenue

targets hence, forcing employers to cut down their workforce. The World Travel &

Tourism Council has predicted 50 million tourism jobs getting eliminated because of the

pandemic. Not only the employees of multinational companies, but daily wage workers

have been impacted the most during this crisis.

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The International Labor Organization has called for urgent, large-scale and coordinated

measures across three pillars - protecting workers in the workplace, stimulating the

economy and employment, and supporting jobs and incomes.

According to a preliminary assessment report, nearly 25 million jobs could be lost

worldwide due to the coronavirus pandemic, but an internationally coordinated policy

response can help lower the impact on global unemployment.

While on one hand, Indian employees are losing their jobs and receiving a salary cut,

there is also an assumption that the majority of expats have gone back from India and

they will take time to return. Different sectors such as automobile, banking and

manufacturing employ a large number of expats. Indian companies need expats for

several industry verticals and job functions such as after-sales services, business

development and market audits.

 Customer acquisition capabilities

The company is the leading player in open market customer acquisitions in India,

operating out of 133 Indian cities. Support of a strong brand and pre-eminent promoter.

Being a Subsidiary of SBI it has access to its extensive network of 22,007 branches across

India.

 Robust topline growth

Total income of the company increased from 34,710.38 million in fiscal 2017 to

72,868.34 million in fiscal 2019 at a CAGR of 44.9% and the revenues from operations

19
have increased from 33,462.03 million in fiscal 2017 to 69,991.11 million in fiscal 2019

at a CAGR of 44.6%.

 Firm bottomline growth

Net profit of the Company increased from 3,728.59 million in fiscal 2017 to 8,627.19

million in fiscal 2019 at a CAGR of 52.1%. Return on average equity has remained stable

at 28.5% in fiscal 2017 and 28.4% in fiscal 2019, while their Return on average assets

increased from 4.0% in fiscal 2017 to 4.8% in fiscal 2019

 Diversified portfolio

Credit card portfolio includes lifestyle, rewards, travel and fuel, shopping, banking

partnership cards and corporate cards covering all major cardholder segments.

Some risks are...

> Inability to manage credit risk could be a potential risk.

> Regulatory cap on MDR Charges to remain a key concern.

> Retaining existing co-branding partners to remain an overhang.

> Brand "SBI" is not owned; the parent has provided only non-exclusive license to use the

same.

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  Bleak picture

Reactions to the coronavirus will probably cause a big short-term economic decline

followed by a rebound, says billionaire investor Ray Dalio. He, however, feels there

won’t be a big sustained economic impact.

In his latest blog, he shared his thoughts on coronavirus and its impact on economy,

market and investment.

 Idle cash

The world is now leveraged long with a lot of cash still on the sidelines -- ie, most

investors are long equities and other risky assets and the amount of leveraging that has

taken place to support these positions has been large because low interest rates relative to

expected returns on equities and the need to leverage up low returns to make them larger

have led to this.

 No V-shaped recovery

The actions taken to curtail business activities will certainly cut revenues until the virus

and business activity reverse, which will lead to a rebound in revenue. That should (but

won’t certainly) lead to V- or U-shaped financials for most companies. However, during

the drop, the market impact on leveraged companies in the most severely affected

economies will probably be significant.

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  Who will win, who will lose?

The markets will probably not distinguish well between those which can and cannot

withstand well the temporary shock and will focus more on their temporary hit to

revenues than they should and underweight the credit impact — eg, a company with

plenty of cash and a big temporary economic hit will probably be exaggeratedly hit

relative to one that is less economically hit but has a lot of short-term debt.

 Once in 100 years catastrophe

It seems that this is one of those once in 100 years catastrophic events that annihilates

those who provide insurance against it and those who don’t take insurance to protect

themselves against it because they treat it as the exposed bet that they can take because it

virtually never happens.

 Coronavirus fallout

Those who sold deep-out-of-the-money options planning to earn the premiums and cover

their exposures through dynamic hedging if and when the prices get near in the money,

etc. The markets are being, and will continue to be, affected by these sorts of market

players getting squeezed and forced to make market moves because of cash-flow issues

rather than because of thoughtful fundamental analysis.

 Ineffective central banks

As far as central bank policies are concerned, interest-rate cuts and increased liquidity

won’t lead to any material pickup in buying and activity from people who don’t want to

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go out and buy, though they can goose risky asset prices a bit at the cost of bringing rates

closer to hitting ground zero.

Top choice

Multinational companies looking to diversify their supply chains away from China due to

trade protectionist measures and rising risks because of coronavirus could look at India as

an alternative. A UBS report last month said initial signs showed that India is the top

destination for companies moving out of China.

 FDI pipeline doubles

The Swiss bank estimates that India’s foreign direct investment (FDI) pipeline has

doubled to $175 billion versus $87 billion last year from sectors like construction,

electronics, infrastructure, textiles, food processing and pharma.

What makes India attractive?

“Given India’s competitive advantage in terms of land and labour availability, exports has

always been a big hope historically but it is now seeing a turn as global manufacturers

long settled in China are looking to diversify their manufacturing base. India has scale

advantage and key success factors locally are also improving,” UBS said in a report

specially examining the factory relocation theme.

 Covid-19: An advantage?

The spread of coronavirus, which originated in China, could also hasten this move by

multinationals. Bankers said India can take advantage if the authorities move fast.

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India must act fast

“If India can make like-for-like replacement possibilities make land and electricity

available and all clearances are in place to (help companies) de-risk on a permanent basis

(it is an opportunity). The government has helped with this 15% taxation which together

with this narrative if we now get to the administrative side to offer a plug and play model

with our advantages it is an opportunity for us. But we have to be faster and better than

other competing countries,” said Hitendra Dave, head global banking and markets at

HSBC India.

 Structural shift likely

UBS surveyed 450 senior executives between December and January and found that, 76%

of the respondents have either shifted their supply chain or are planning to shift in

response to protectionist policies. Overall, a high number of respondents are looking to

diversify, suggesting a manufacturing shift from China is more structural and longer term

in nature.

 India a preferred destination

“India continues to be among the top destinations in Asia for manufacturing shift. Trade

data confirms market share gains for India in exports to the US, for tariff-imposed

products,” UBS said. Researchers analysed earnings transcripts of 44 global companies to

spot nuances in language that signify a potential relocation of manufacturing to India.

There are increased references to ‘India’ and ‘trade war’.

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Who'll benefit most?

Bankers said the immediate benefits are going to come in the telecom industry. “Already

a couple of big majors, including the Chinese manufacturers, are setting up plants in

India. If a combination of telecom, electrical, and electronics come in over the next 18-24

months, it is only a matter of time before semiconductor manufacturing follows. You

would have some big companies working with the government to set up manufacturing

bases in India and make the country a global supplier base,” said K Balasubramanian,

head corporate banking group at Citibank India.

 Signs of green shoots

UBS said there has already been an increase in manufacturing of electronic equipment to

Rs 4.58 lakh crore in fiscal 2019 from Rs 1.90 lakh crore in fiscal 2015. Out of the 1

billion mobile handset target, 600 million units will be for exports valued at about Rs 7

lakh crore, UBS said.

 Yields rise in EMs

Global investors have gone into a risk-off mode in the past two weeks as the coronavirus

has spread across the world. The resulting outflow had kept benchmark bond yields

elevated in emerging markets. India is no exception to this as a selloff by foreign

investors and concerns over a slowdown in the local economy have prevented any sharp

fall in the benchmark yield. Following are some reasons why India’s 10-year bond yield

remains elevated.

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  Risk-off scenario

The global risk-off scenario has widened credit spreads in all emerging markets from

Indonesia to India and Malaysia to Mexico. Only so-called safe haven investments like

10-year US treasuries have gained.

 Growth uncertainties

Uncertainty over India’s growth outlook has also clouded investment perception about the

country. Investors are shying away from buying India’s bonds till there is clarity on

recovery for the country’s GDP.

 Possibility of RBI rate cut

However, all these uncertainties could hasten the RBI’s move to cut rates. The central

bank has already said it will do all in its power to revive growth and the risk-off due to

coronavirus could force RBI to cut rates in April, sooner than previously thought.

 Beating the blues

Coronavirus has managed to extend its arms across the globe, including in India. The

stocks have been beaten blue in all world markets. The risk-off sentiment has sparked a

rush towards safe-haven assets. Amid all this, three Indian billionaires have managed to

hold their ground and have rather added some billion dollars to their kitty.

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  Losing original identity

Some of the cryptocurrency identity crisis lies in the fact that bitcoin was originally

conceived as a means of payment, but now rarely bears the hallmarks of dollars, euros or

pounds. It's of little use as a store of value because of its volatility, and is hampered as a

means of exchange by its slow network and high transfer costs.

Character clues

A booming bitcoin lending market is offering clues to its character. Bitcoin lending offers

lines of credit to crypto firms earning money in cryptocurrencies, such as payment

processors or miners, looking to secure traditional money for covering expenses. Also,

traders who don't want to sell their bitcoin holdings use them as collateral to borrow cash

for use in algorithmic or high-frequency trading. For those lending money, relatively high

yields are an attractive proposition in an era of rock-bottom rates.

Key characteristics

Key characteristics of this market, such as market-led price discovery and the motivation

to seek liquidity, mirror that of commodities leasing, according to market players and

economists. "The commodities markets (analogy) is very fitting," said Deeksha Gupta, an

assistant professor of finance at the Carnegie Mellon University in Pittsburgh who has

researched crypto. "One of the biggest similarities is that they are also driven by people

wanting to be able to get liquidity."

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  Lack of transparency a concern

The bitcoin lending market has grown quietly as an opaque corner of the cryptocurrency

sector, which itself is notorious for its lack of transparency. While there's little data with

which to gauge the size of the lending market, it is widely seen to have expanded rapidly

over the past year.

 Borrowing costs

New York-based Genesis Capital, one of the biggest lenders in the market, said its

outstanding loans soared late last year to around $545 million compared with $100

million a year earlier. Implied interest rates in these markets - the price of borrowing

bitcoin - stand at around 4-5%, Genesis CEO Michael Moro said. On platforms for people

to lend cash against bitcoin, rates are as high as 8%.

 Financial instruments

Cryptocurrencies' kinship to securities arises largely from their issuance and function in

initial coin offerings, or ICOs, where they are used to raise traditional money. ICOs are

often held by companies seeking to raise funds for blockchain-related or other online

projects. They raise capital by issuing digital coins, which grant holders access to the new

system or software or a share in profits generated. For instance, Switzerland-based

Aragon - a management platform for decentralised organisations - raised about $25

million in 2017 issuing tokens that gave voting rights on how the system is developed.

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  The regulatory view

Regulators may choose to treat different cryptocurrencies differently, depending on their

specific characteristics, an approach taken by Britain last year. Some players say any

designation of cryptocurrencies as financial instruments akin to securities may be

positive, with burdensome oversight balanced by the potential to allow funds to market

cryptocurrencies to a wider pool of investors. "If they were somehow classified as a

financial instrument, then that would have the knock-on effect that they would be eligible

for retail funds," said Nic Niedermowwe, CEO of crypto fund Prime Factor Capital in

London.

 Under Virus Attack

The haven status of the dollar and the yen came under question in February, with both

wobbling as the coronavirus outbreak threatens the two economies.

 Haven Supreme

While the yen rebounded in the last week of the month, showing its historic correlation

with market volatility, the dollar has continued to weaken. A closer look at some of the

fundamentals though suggest that the greenback should reign as haven supreme if the

virus-driven risk aversion turns into panic

 Foreign-exchange reserves

The dollar’s haven status is most evident in the foreign-exchange holdings of global

reserve managers, among the most conservative investors in the world. The greenback

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accounted for 62 per cent of total holdings, compared with 20% for the euro and just 6%

for the yen, according to the latest data from the International Monetary Fund.

“If risk aversion turns into market panic, the dollar will live up to its safe haven status

again,” Georgette Boele, a senior foreign-exchange strategist at ABN Amro Bank NV in

Amsterdam, wrote in a note Thursday. “At times of panic, cash in a liquid currency or US

Treasuries are the most sought after investments.

 High on Liquidity

The extensive use of the dollar in everything from international trade to commodity

pricing to foreign-exchange transactions shows the greenback is a must-have currency not

only for investors but also for businesses and official entities.

The dollar’s share in global foreign-exchange turnover is more than five times the yen’s

and almost three times the euro, according to data from the Bank for International

Settlements.

The US currency also offers the most liquid bond market in the world, meaning that

currency holders have no difficulty in parking their cash.

Still, Japan’s position as the world’s most indebted developed nation means its net

international investment position can’t be chalked up as a clear victory for the yen.

“We have never regarded the yen as a safe asset,” Makoto Noji, chief currency and

foreign bond strategist for SMBC Nikko Securities Inc. in Tokyo, wrote in a research

note. “Given Japan’s fiscal deficits and the lack of measures to finance its debt as

population ages, its currency can’t be seen as a haven.

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  Yield differential

Another key factor in favor of the US currency is that Treasuries are seen as the world’s

best risk-free asset and yet still yield more than their European and Japanese counterparts.

Even after its fall to record lows, the yield on the 10-year Treasury benchmark is well

over one percentage point above these peers.

 OPEC faces oil slip

With crude oil prices down 25 per cent since the start of 2020, there is no shortage of

topics to discuss when members of the Organization of the Petroleum Exporting

Countries and its allies including Russia - known as OPEC+ - meet in Vienna on

Thursday and Friday.

The group has already slashed oil output by 1.7 million bpd under a deal that runs to the

end of March. In an initial response to counter the hit of the virus, an OPEC+ committee

has recommended deepening output cuts by 600,000 bpd. But that figure is now seen as

not enough by some in the group.

Saudi Arabia, the biggest OPEC producer, and some other members are considering an

output cut of 1 million barrels per day for the second quarter of 2020, according to

sources.

India has heeded its central bank’s call for easier fiscal policy to a

boost a flagging economy. In February, it announced cuts in personal taxes that will cost

the government $5.6 billion in revenue, a few months after a similar $20 billion handout

to companies. The tax cuts will likely lead to India missing the targets on what it calls a

31
fiscal “glide path,” which is supposed to bring the central government’s deficit below 3%

of GDP by March next year.

Steps taken by Government to balance India’s Economy

Modi government and RBI are trying to cushion an economy that was slowing even

before the coronavirus outbreak.

Here’s a guide to the measures announced so far:

For Banks:

CHEAPER CASH: A series of steps announced this year aim to encourage banks to

lend.

 Banks don’t need to set aside cash reserves for loans given to small businesses

between Jan. 31 to July 31, or for credit to help consumers buy a car or home

(announced Feb. 6)

 Policy lending rate -- the repurchase rate -- cut by 75 basis points in a single move

this year. However, the effective deposit rate has been slashed by 115 basis points

to discourage lenders from playing safe and parking the cash with the RBI (March

27 and April 17)

 Cash Reserve Ratio reduced to 3% from 4% (March 27)

 Liquidity Coverage Ratio lowered to 80% from 100% (will be restored to 90% by

Oct. 1 and 100% by April 1, 202

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LOAN FREEZE: RBI Governor Shaktikanta Das has stopped the clock on loan

repayments amid an unprecedented three-week lockdown announced by Prime Minister

Narendra Modi

 All lenders can freeze repayments for three months on term loans outstanding

March 1

 Lenders allowed to suspend interest payments on working capital facilities for

three months; accumulated interest can be paid later and the loans won’t be in

default

 The steps add to previous measures which allow a one-off restructuring of loans to

small businesses that were in default as of Jan. 1

 Loans to commercial property projects that are delayed for reasons beyond the

control of the developer are allowed to be treated as standard for another year

REGULATORY DEFERRALS: Implementation of stricter regulations have been

delayed

 Rules requiring banks to fund their activities through stable sources has been

deferred to Oct. 1 from April 1

 Completion of Capital Conservation Buffer pushed to Sept. 30 from March 31

 Lenders allowed an additional 90 days to reach a resolutio n plan on large

accounts in default (April 17)

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PECIAL WINDOWS: These include support for corporate borrowers as well as rural

industry

 TLTRO 1.0 -- Rs 1 lakh crore of targeted long term funds from the central bank to

banks for investing only in corporate bonds, aimed at easing cash crunch at firms

(on April 15, RBI announced new rule capping the exposure of any bank to a

single entity at 10% of TLTRO funds invested)

 TLTRO 2.0 -- initial Rs 50,000 crore , with at least half going to lower rated firms

(April 17)

 Special refinance to umbrella organizations -- Rs 50,000 crore to go to pan-India

financiers like Sidbi, Nabard, NHB that affordably fund the rural sector and

agriculture (April 17)

HIGHER PROVISIONS: Banks ordered to maintain higher provision of 10% on all

frozen loans spread over the January-March and April-June quarters, which can be

adjusted later against actual slippages (April 17)

DIVIDENDS HALTED: Banks can’t pay dividends for the year ended March 31 to

conserve capital. Decision will be reviews on the basis of their financial position on Sept.

30

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Sovereign Bonds and Rupee:

MORE MONEY: The RBI has been injecting additional liquidity in the banking system

to keep down bond yields

 At its February policy review, the RBI said it will provide 1 trillion rupees of one-

and three-year cash at the policy rate via long-term repo operations to help

monetary transmission (Feb. 6)

 The RBI ramped up these measures in March and April

 Two variable rate repo operations of 500 billion rupees to fine -tune liquidity at

the financial year end

 Enhanced a temporary liquidity tap for primary bond underwriters to Rs 10,000

crore from Rs 2,800 crore

Rs 1 lakh crore of LTROs

Open market purchase of govt bonds worth 100 billion rupees March 20; another total Rs

30,000 crore of OMO purchases March 24 and March 26

1 trillion rupees via 16-day variable rate repos

INVITING FOREIGNERS: India opened up a wide swath of its sovereign bond market

to overseas investors, taking its biggest step yet to secure access to global indexes as the

government embarks on a record borrowing plan

35
LIMIT BORROWING: India announced a fiscal first-half borrowing number that’s

lower than what traders expected, as it seeks to check any rise in yields amid a global risk

aversion that’s sparked outflows from emerging markets

MORE DOLLARS: RBI pledged to inject dollars through dollar-rupee swaps

— Two $2 billion swap lines each for March 16 and March 23 provided $2.7 billio

SHORTER TRADING HOURS: Trading in sovereign debt and the rupee will be held

from 10 a.m. to 2 p.m. Mumbai time starting April 7 through April 30. These markets

normally worked from 9 a.m. to 5 p.m.

For Capital Markets:

Allows companies additional 45 days for declaring their quarterly and annual results;

extends the date for submission of corporate governance report by a month; company

boards exempted from provision of maximum time gap between two meetings (March 19)

Trading margin in stocks increased, market-wide position reduced to ease volatility in

stocks (March 20)

Compliance requirements relaxed for ReITs, InVITS, extends deadline for risk

management rules for liquid mutual funds; timeline for filing debenture and preference

share issues extended (March 23)

Raised the threshold of defaults needed to trigger insolvency proceedings to 10 million

rupees from 100,000 rupees (March 24)

Capital, debt market services exempt from lockdown (March 25)

36
Allows top 100 listed companies another month to comply with the requirements of

holding annual general meeting (March 26)

Shareholders allowed 45 more days to disclose their consolidated shareholding in

companies for the financial year ending March 31 (March 27)

Relaxed the recognition of default by local credit rating companies if a delay in payment

of interest or principal is due; allows foreign portfolio investors relaxation in document

processing (March 30)

Eased rules to fast-track rights issues, and also extended the validity of its observations

on public issues by six months from the date of expiry to help companies raise funds amid

the coronavirus pandemic (April 17)

For States and Wider Economy

EXPORTS: The time period for realization and repatriation of export proceeds for

shipments before July 31 extended to 15 months to provide greater flexibility to exporters

in negotiating future export contracts with buyers abroad

STATES’ BORROWING: State administrations have been permitted to borrow as much

as half their annual target for the year starting April 1 whenever they choose. In a typical

year, st strict rules would govern the timetable, which would include cash transfers from

the federal government that are now under threat as the lockdown erodes revenue.

RBI decided to increase the Ways and Means limit -- short term funding cap -- by 60%

for all states to enable them to “tide over the situation.” Revised limits came into effect in

April, and will be valid for six months

37
Eases states’ overdraft rules through Sept. 30 to handle cashflow mismatches

CROPS: State agencies will buy more oilseeds and pulses from farmers at government-

set minimum purchase prices

LOCKDOWN EASED: India allowed farmers and certain industries outside virus

hotspots to resume operations from April 21

For Consumers:

FREE FOOD AND FUEL: 800 million poor people will get 5 kilograms wheat or rice

and 1 kg pulses every month during April to June; 80 million families to get free cooking

gas

CASH TRANSFERS: 200 million women with basic bank accounts will get Rs 500 a

month until June; 30 million senior citizens, widows and disabled to get Rs 1,000; 87

million farmers will be immediately paid Rs 2,000 under an existing program

INSURANCE: 2.2 million health workers fighting COVID-19 will get an insurance

cover of Rs 50 lakh

JOBS AND WAGES: For people earning less than Rs 15,000 a month, government will

pay 24% of their monthly wages that feed into pension and provident fund accounts;

Wages under job guarantee program increased to provide annual benefit of Rs 2,000 to a

worker.

38
 Policies framed by Indian Government

Modi's Atmanirbhar Bharat Abhiyan

Government of India is taking several steps to ensure that we are well prepared to face the

challenges and threats posed by COVID-19. With active support of citizens of India, we

have been able to mitigate the spread of the virus so far. One of the most important

factors in the fight with the virus is to empower the citizens with accurate information and

enable them to take precautions as per the advisories being issued by different Ministries.

The COVID-19 Inter-Ministerial Notifications website serves this purpose efficiently by

providing COVID-19 related notifications from various Ministries in a format that is

accessible, built using the S3WaaS framework, that is secure & scalable.

The Five pillars of Atmanirbhar Bharat focus on:

 Economy

 Infrastructure

 System

 Vibrant Demography and

 Demand

The Five phases of Atmanirbhar Bharat are:

Phase-I: Businesses including MSMEs

Phase-II: Poor, including migrants and farmers

Phase-III: Agriculture

39
Phase-IV: New Horizons of Growth

Phase-V: Government Reforms and Enablers

The PM is a master sloganeer. The first one in public memory, ‘Zero Defect, Zero

Effect’, wasn’t very clear. That Indian firms should reduce defects in their manufactures

is obvious. But why should that have ‘zero effect’?

Then came the one that made waves: ‘Make in India’. It had a hoary history. Although

Jawaharlal Nehru had no slogan for it, favouring Indian firms and products and throwing

out imports and foreign products was done by Nehru’s and his daughter’s governments

for decades, leaving India far behind the more open economies of East Asia. ‘Beti

Bachao, Beti Padhao’ had relevance. But no action followed.

The latest, ‘Vocal for Local’, rhymes well, and ‘Atmanirbhar Bharat Abhiyan’ is good,

hard-to-pronounce Sanskrit. But both mean the same thing: Make in India.

Manufacture of ideas has fallen far behind the invention of slogans. And the idea remains

as wrong as it was half a century ago. India punishes import of consumer goods; they are

mostly made in India. Services are also kept out.

And imports of equipment and industrial inputs actually help Indian industry. Making

them in India would make it even less competitive. This time, too, the PM could not resist

his love of alliteration: land, labour, liquidity, laws. What about them? What do they have

in common? What will he do to them? The reforms of the last six years have made the

economy more resilient. If they have, why is it in such trouble?

40
He wants to make Indian firms adopt efficiency and quality and prepare India for

competition in the global supply chain. The industrial protection his government

introduced in the past six years has done precisely the opposite. But not a word from

Modi about dismantling it.

The poor have suffered a lot, we will increase their strength.’ But their sufferings peaked

with the lockdown, which his government imposed. Could he have thought about them

before acting so decisively? Finance minister Nirmala Sitharaman has the difficult task of

converting slogan into policy. But she loves detail. She is good at collecting ideas —

good, bad and indifferent ideas — from her colleagues and turning them into policies.

Some of them are brilliant, while some make no sense. Many are old policy

announcements once more repeated. News-pursuant FMs have created dozens of welfare

schemes over the years. Sitharaman has allocated varying amounts to some of them.

But its creation made them no less reluctant. GoI gave public sector banks order after

order to give MSMEs favourable treatment, with little effect. The way to promote smaller

firms is to

create competition in the credit market by allowing many more private banks and, above

all, by creating a vibrant equity market.

Nirmala Sitharaman’s intentions are good. But her analysis needs improvement.

41
 PM Modi Reviews Coronavirus Impact On Indian Economy

Published on April 16 2020, 5:54 PM

Latest update on April 16 2020, 6:58

PM Prime Minister Narendra Modi on Thursday assessed the novel coronavirus’ impact

on Indian economy and the possibility of a second stimulus package to boost sectors hit

hard by the pandemic. Several multilateral agencies, including the World Bank and the

International Monetary Fund, have drastically cut their India GDP growth forecasts for

2020-21 after economic activity in the country halted due to the 40-day coronavirus

lockdown. While the World Bank expects India to grow at 1.5-2.8 percent in 2020, the

IMF predicts a 1.9 percent expansion. The global economy, meanwhile, is in the throes of

the worst recession since the Great Depression in 1930s, IMF said. The virus has so far

infected 12,380 people in India and the death toll is at 414.

State Of The Economy During his meeting with Finance Minister Nirmala Sitharaman

Thursday, PM Modi held detailed discussions on the state of the economy, sources said,

adding that resource mobilisation for taking on future challenges was also highlighted.

The government has constituted an empowered group—headed by Economic Affairs

Secretary Atanu Chakraborty—to suggest measures which can bring the economy back

on track quickly post the lockdown. It has also been asked to work on relief and welfare

measures for various sectors of the economy as well as for the poor and needy. In his

address to the nation on Tuesday, PM Modi had expressed concern over the problems

being faced by the poor, daily wage workers and farmers. "The government has made

every possible effort to help them through Pradhan Mantri Gareeb Kalyan Yojana. Their

42
interests have also been taken care of while making the new guidelines," he had said. To

ease the pain and misery, the finance minister last month announced a Rs 1.7 lakh crore

stimulus that included free foodgrains and cooking gas to the poor for three months, and

cash doles to women and poor senior citizens.

Saving On Costs The government has put in place restrictions on expenditure in a bid to

save resources. Funds are being diverted towards the fight against Covid-19. Besides, the

Union Cabinet has approved a 30 percent cut in salaries and allowances of Members of

Parliament for one year. The President of India, Vice President and state governors have

voluntarily decided to take a pay cut as a gesture towards concerted efforts to contain the

pandemic. Also Read: Tracking India’s Steps to Contain Economic Fallout of the Virus

The government, at the same time, has decided to suspend Members of Parliament Local

Area Development Scheme and funds would be directed towards improving medical

infrastructure. A Member of Parliament gets Rs 5 crore every year as part of the

MPLADS scheme.

My interpretation on this : India is facing challenges in every sector and in every part of

economy because of lockdown. The country is almost shut but after a period of time the

economy will have a boast after seeing the current scenario I feel there are chances that

the India will not face the problem of unemployment in future because of atmanirbhar

policy introduced by our Prime Minister this will help us to earn foreign currency by

exporting goods and this will help to boost our economy . Our Prime Minister has

gracefully tackled the current situation by keeping in mind all the possible problems faced

by every class of the member of the society . I feel the country’s economy will soon be

normal.Let’s not forget all the darkness deceminates to the original colours.. history says

43
that every black was a white first and every black becomes an output to different colours

soon will always remain to shine just your hopes should never refrain .

Conclusion

This Corona Virus pandemic may wreck the Indian economy. The level of GDP may

further fall, more so when India is not immune to the global recession. Infact, it is

believed that India is more vulnerable, since its economy has already been ailing and in a

deep-seated slowdown for several quarters, much before the COVID-19 outbreak became

known. The Prime Minister of India has already spoken of setting up an Economic Task

Force to devise policy measures to tackle the economic challenges arising from COVID

19, as also on the stability of Indian economy. However, the concrete plans would have to

be kept in place to support the economy and its recovery.

As the disruption from the virus progresses globally as well as within India, it is for us to

forget, atleast for the time being, all talking only about economic recovery, and instead

join hands whole heartedly to tackle the outcome of COVID-19.

44
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the Indian Economy, Washington: Brookings Institution.

http://www.brook.edu/views/papers/20060803india.

Das, Dilip K (2006) China and India: a tale of two economies, Routledge studies in the

growth economies of Asia. 175 pp. Routledge.

Dunaway, Aziz and Prasad eds. China and India learning from each other: reforms and

policies for sustained growth. 281 pp. IMF.

IMF (February 2007) India: 2006 Article IV Consultation - Staff Report; Staff Statement;

and Public Information Notice on the Executive Board Discussion.

http://www.imf.org/external/pubs/cat/longres.cfm?sk=20445.0

Jha, Raghbendra ed. (2005) Economic growth, economic performance and welfare in

South Asia. 407 pp. Palgrave Macmillan.

Kapur, Ashok (2006) India: from regional to world power, India in the modern world.

253 pp. Routledge.

Maddison, Angus (August 2003) The World Economy: Historical Statistics, OECD.

Mattoo, Aaditya & Stern, Robert M. eds. (2003) India and the WTO. 388 pp. World

https://government.economictimes.indiatimes.com/news/policy

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