ASSIGNMENT

IMPACT OF COVID-19 ON ECONOMY

Introduction

The COVID-19 pandemic has altered the way businesses operate as many companies have
realized the advantages of remote working on stressed cash flows. The pandemic-induced remote
working has blurred the age-old scepticism over the efficiency and dependability of contractual
or part-time employees, with companies increasingly looking to hire gig workers. The economic
impact of the COVID-19 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 Indian Economy contracted by 23.9% YoY in Q1 2020—the largest GDP contraction

recorded in a quarter. The industrial gross value added fell by 22.8% in Q1 2020. Almost all
sectors, except for the agriculture, forestry and fishing sector, have been hit hard because of the
nationwide lockdown. The manufacturing and construction sectors shrunk by 39.3% and 50.3%,
respectively, while the overall services sector contracted by 20.6%.
FDI equity inflow in India stood at US$ 49.97 billion in 2019-20, with service sector attracting
the highest FDI equity inflow of US$ 7.85 billion, followed by computer software and hardware
at US$ 7.67 billion, telecommunications sector at US$ 4.44 billion and trading at US$ 4.57
billion.
A 2020 survey by Flourish Ventures highlighted that over 90% Indian gig workers lost their
income during the pandemic. While they earned more than Rs. 25,000 per month before the
pandemic, by August 2020, ~9 in 10 were earning less than Rs. 15,000 per month and more than
33.3% were making up to Rs. 150 per day or less.
According to the survey, India stands to lose over 135 million jobs because of the pandemic and
this is likely to push the full-time workforce towards the gig economy

The impact of Covid-19 pandemic on major sectors is:

FOOD AND AGRICULTURE- Since agriculture is the backbone of the country and a part of
the government announced essential category, the impact is likely to be low on both primary
agricultural production and usage of agro-inputs. Several state governments have already
allowed free movement of fruits, vegetables, milk etc. Online food grocery platforms are heavily
impacted due to unclear restrictions on movements and stoppage of logistics vehicles.
AVIATION AND TOURISM- The contribution of the Aviation Sector and Tourism to our
GDP stands at about 2.4% and 9.2% respectively. The Tourism sector served approximately 43
million people in FY 18-19. Aviation and Tourism were the first industries that were hit
significantly by the pandemic. These two industries have been dealing with severe cash flow
issues since the start of the pandemic and are staring at a potential 38 million lay-offs, which
translates to 70 per cent of the total workforce.
TELECOM INDUSTRY- There has been a significant amount of changes in the telecom sector
of India even before the COVID 19 due to brief price wars between the service providers. Most

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essential services and sectors have continued to run during the pandemic thanks to the
implementation of the ‘work from home’ due to restrictions. With over 1 billion connections as
of 2019, the telecom sector contributes about 6.5 per cent of GDP and employs almost 4 million
people. Increased broadband usage had a direct impact and resulted in pressure on the network.
Demand has been increased by about 10%.
PHARMACEUTICALS- The pharmaceutical industry has been on the rise since the start of the
Covid-19 pandemic, especially in India, the largest producer of generic drugs globally. With a
market size of $55 billion during the beginning of 2020, it has been surging in India, exporting
Hydroxychloroquine to the world, esp. to the US, UK, Canada, and the Middle-East.
There has been a recent rise in the prices of raw materials imported from China due to the
pandemic. Generic drugs are the most impacted due to heavy reliance on imports, disrupted
supply-chain, and labor unavailability in the industry, caused by social distancing.
Simultaneously, the pharmaceutical industry is struggling because of the government-imposed
bans on the export of critical drugs, equipment, and PPE kits to ensure sufficient quantities for
the country. The increasing demand for these drugs, coupled with hindered accessibility is
making things harder.
OIL AND GAS- The Indian Oil & Gas industry is quite significant in the global context – it is
the third-largest energy consumer only behind USA and Chine and contributes to 5.2% of the
global oil demand. The complete lockdown across the country slowed down the demand of
transport fuels (accounting for 2/3rd demand in oil & gas sector) as auto & industrial
manufacturing declined and goods & passenger movement (both bulk & personal) fell. Though
the crude prices dipped in this period, the government increased the excise and special excise
duty to make up for the revenue loss, additionally, road tax was raised too.

2ND WAVE
Impacts of Resurging Covid Cases and Consequent Lockdowns

Highest Week-on-Week Decline as per NIBRI: The Nomura India Business Resumption Index

(NIBRI), is a weekly tracker of the pace of normalization of economic activity.

The index reached 99 points in February, 2021 but slipped down to 90.5 in the month of April,
registering its biggest week-on-week fall.
The reason for this downfall is mainly the second wave of Covid-19.

City-wise Impact: States like Maharashtra, Madhya Pradesh, Punjab, and Chhattisgarh, which
are witnessing the highest surge in COVID-19 cases, account for over 30% of India’s GDP.

Even partial lockdowns and curbs in these states will impact economic activity majorly and if the
lockdowns are extended further due to uncontrolled infections, the damage will be even more
extensive.

Contraction in Industrial Output: The Index of Industrial Production (IIP) has witnessed the
sharpest contraction in the month of February 2021 (since August 2020), at the rate of 3.6%.

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The recent spike in Covid-19 cases has raised concerns over the economic recovery, especially
with the imposition of harsher restrictions on activities now being a possibility.
The restrictions currently being imposed such as night curfews and weekend lockdowns are
economically less painful.

Manufacturing and Other Sectors: While manufacturing may not be directly hit due to partial
lockdowns, the impact on the contact services sectors like hospitality, travel, and tourism will
have a multiplier effect, as these sectors have strong backward linkages with other sectors of the
economy.

References:
1. Deshpande Sayali. (October 4, 2020). Readers’ blog SayaliDeshpande@MidWeekRead
https://timesofindia.indiatimes.com/readersblog/midweekread/impact-of-covid-19-on-indian-
economy-26770/
SME, IIT Jodhpur
New Delhi
2. Karloskar Alok (December 15, 2020). IBEF, Knowledge Centre, Kirloskar Brothers
Limited https://www.ibef.org/blogs/indian-economy-post-pandemic-recovery-and-
outlook
3. Shah Colin. (February 5, 2021). IBEF, Knowledge Centre
https://www.ibef.org/blogs/emergence-of-india-s-gig-economy
4. https://www.hindustantimes.com/india-news/how-will-the-second-covid-wave-affect-
india-s-economy-101618486569202.html
5. https://government.economictimes.indiatimes.com/news/economy/opinion-impact-of-
covid-19-on-the-indian-economy/75021731

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