SHUBHAM RAJ

2001CE58
July 1, 2021

Economic impact on India due to Covid-19

Introduction
A novel coronavirus called ‘Covid-19’ began in the month of December 2019 near Wuhan
City of China. Later it spread to all over countries of the world and was declared Pandemic
by World Health Organization (WHO). In India first case was reported in the month of
January 2020 and the spread of the virus was so rapid that within 2 months covid cases in
India reached more than 10,000 cases per day. Lockdown was imposed in the country on 25
March in account of breaking the chain of propagation of the virus. On 26 march,2020, our
finance minister Nirmala Sitharaman released a total of ₹170,000 crore, it was the first
stimulus package to help the needy people. The whole country was under shutdown and the
economy of India started falling down. Covid cases kept on increasing day by day and the
Indian healthcare system started collapsing.
In India, where most of the people work in the unorganized sector like labourers, daily wage
workers etc., for them economic impact is more drastic. The World Bank and other rating
agencies has projected India’s growth for FY2021 with the lowest rating that India as ever
seen in last few decades. This pandemic has affected every sector of the country including the
healthcare system to tourism, from the private sector to transport, from big business to local
vendors. There was no source of income for many people but expenditure got increased.

Lockdown and Unlock

Taking account of spread of coronavirus , the nationwide lockdown in phase-wise manner was
imposed to break the chain of propagation and as a preventative measure against Covid-19.
Prime minister Narendra Modi announced 14 hours “Janta curfew” on 22 March and later on
lockdown in four phases were imposed phase 1(24 March-14 April),phase 2(15 April-
3May),phase 3(4 May-17 May)and phase 4(18-31 May).The process of unlock was started in
a several stages. These were Unlock 1.0 from 1 to 30th June, Unlock 2.0 from 1 to 31st July,
Unlock 3.0 from 1 to 31st August, Unlock 4.0 from 1 to30th September, Unlock 5.0 from 1 to
31st October, Unlock 6.0 from 1 to 30th November. The economic activity once again started
getting its pace.
From March 2021, India witnessed the second wave of Covid-19, partial or complete
lockdown was imposed in several states again.
Impact of Covid on different sectors
i. Migrant workers
Due to lockdown, factories and workplaces were shutdown, millions of migrants workers had
loss their income, food shortage and uncertainly about their future. Many workers and their
family started returning to their home state on foot only. Many of them died in road accidents
and died of hunger.
The government of India launched the Garib Kalyan Rojgar Abhiyan initiative to reduce the
impact of covid-19 on migrant workers. The central and state government together send a
relief amount of ₹1000 directly into their bank accounts and many funds were launched.
ii. Shutdown of factories, MSME, industries
MSME shares around 6.11% of the manufacturing GDP and major employment comes from
msme. MSMEs were affected adversely, as demands of order were reduced to range of 0% -
25%, the number of employees was reduced to 25% - 50%, small enterprises hit by zero cash
flow due to the national lockdown, revenues were also reduced. The supply chain was
hampered. The second wave of covid and complete lockdown would be a final blow to such
small enterprises.
Many enterprises hold on to their’s business growth and strategize innovative methods of
diversifying into new business activities to cope with the crisis. “Atmanirbhar Bhart” helped
many enterprises to support their business.
iii. Transport sector
Due to covid-19 movement of people were restricted and all means of transport either it
airways, railways, waterways or roadways were adversely affected which in return is
affecting the economy. The public transport and rental services companies adjourned their
services during the lockdown. The total of ₹6500 crore have been lost by Indian Railways on
revenue earned from ticket sales. Loss of $3-3.6 billion is to be incurred by aviation sector for
the June quarter. Toll collections for FY2021 would decrease in the range of 6.5% to 8%.
Many preventive measures are taken by the airlines, provides Personal Protective (PPE) kits
and masks and sanitizer are must for all. Cab services are taking precautionary measures.
Buses run on half of their limit. Initiatives like these would help to raise the market slowly
and steadily and firmly.
iv. Tourism, hotels and restaurants
Besides creating employment tourism also contributes in generating revenue. The
contribution of tourism to India’s GDP, mainly through foreign visitor spending is 12.8%.A
decrease in a number of foreign tourists lead to reduce in Foreign Exchange Earnings (FEE).
The arrival rate of foreign has decreased by 6.63% in February 2020 and further decreased by
66.24% in March. Interstate tourism also generates revenue and employment at the local
level.
Hotels and hospitality business produces large revenue but has taken a hit due to current
pandemic and has incurred a loss of ₹1.30 lakh crore in revenue for FY20-21. Employees
working there are losing jobs, facing salary cuts, and having nowhere to go as a result of the
financial crisis. Restaurants with a small number of clients are only authorised to offer dine-
in else only take away. Cities are still under night curfews and lockdown making many small
restaurants and local eating joints to shut down permanently while other struggling to keep
their business running.
The government has granted many funds in supporting people who are completely depended
on this sector. Many hotels and restaurants rents are waived off and has been granted a loa n at
very nominal rate and moratorium of existing loan was reduced. All these initiatives will help
to raise the market slowly and firmly.
v. Telecom sector
Due to pricing wars amongst service providers, significant changes were noticed in India's
telecom business even before the epidemic. Due to restrictions most essential services and
sectors continues to operate on, work from home. Contributing about 6.5% of GDP and with
over 1 billion connections as of 2019, and employing 4 million people. There has been a
surge in broadband usage which has directly impacted and increased pressure on the network
by about 10%. The service providers are not in the state of adding too many new users.
The system can afford the sector by cutting regulatory tariffs and offering spectrum dues
reduction. This amount can be used for network expansion.
Effect on Purchasing Managers’ Index (PMI)

Figure 1. India’s manufacturing PMI (source- IHS Markit)

Note - In the above graph, the figure above 50 means expansion and below means contraction in PMI.
India’s manufacturing activity swoop to a record low in A pril, 2020 resulting due to
lockdown imposed, this forced factories to shut down and demands also got reduced
drastically. The PMI for India fell down to 27.4 in April from 51.8 in March, 2020. After
boosting up in the fourth quarter, soon before the second Covid wave affected the country,
India's economy dropped by less than projected, In the fiscal year that concluded in March
2021, the rate was 7.3%

Effect on India’s GDP

Based on the data of Central Statistics Office India’s economic shrank by 7.3% in Fiscal year
2021. First quarter of quarter of the financial year 2020-2021, the growth rate touched to
negative numbers and for the April- June quarter GDP contracted to -23.9%. The basics
parameters such as construction, manufacturing, trade, hotel industry incurred decline and
went into negative. The growth manufacturing dropped to -39.3% , Mining growth dropped to
-23.3%, Construction growth dropped -50%, Trade & hotel industry growth dropped to -47%.

India’s GDP growth is predicted to decrease to 8.2% in FY21-22 due to highly infectious
second wave of Covid-19. During April-September of FY22, the economy would be followed
by lower base effect in the previous year however October-March period will have economy
spread due to increase in Covid-19 vaccination and better adaptability

Figure 2. India's GDP growth rate projections of 5 years (source: SAGE journals)

Boost to Indian Economy

Prime minister Narendra Modi has emphasized domestic products and “Atmanirbhar Bharat”
(i.e.self reliant). Atmanirbhar Bharat Abhiyan (ABA) are launched in several phases to help
the Indian economy. In ABA 1.0, 10% (₹20 lakh crore) of India’s GDP were announced and
were categorized to aid different sectors. On 12th October 2020, ABA 2.0 was announced for
boosting the market demand considering festive seasons. 12 November 2020, ₹2.65 lakh
crore a stimulus package was announced by the government of India, mainly targeting real
estate sectors. Main focus of government is over ‘local for vocal’ to sustain the business at
local level. The government took a number of steps aimed at boosting market demand and, as
a response, the economy.

Conclusion
The Indian economy, after the several lockdown is observed to rise in V- shape recovery
manner. In order to bring the economy on track the government should provide financial
support to hotels, restaurants, small msme, tourism and many such sectors. The government
should invest in infrastructure like in green energy and public transport as it creates more
jobs. The government can grant loan with nominal rate to small vendors to start their
businesses. The government should emphasize on ‘local for vocal’ to promote industries at
local level so people don’t have to migrate. The government should release another stimulus
package to aid the worst effected sectors. Each of these initiatives will support the Indian
economy in the following months.
References
The above study has been taken from the links mentioned below.
1.Source: Wikipedia https://en.wikipedia.org/wiki/COVID-19_lockdown_in_India
2.Source:Wikipedia
https://en.wikipedia.org/wiki/Indian_migrant_workers_during_the_COVID-19_pandemic
3.Source: nocci https://www.nocci.i/nImpact%20of%20Covid%2019%20on%20MSMEs.pdf
4.Source: Times of India https://timesofindia.indiatimes.com/readersblog/creative-
thoughts/impact-of-covid-19-on-the-usage-of-public-transport-21917/
5.Source: wiego blog https://www.wiego.org/impact-covid-19-street-vendors-india-status-
and-steps-advocacy
6.Source:tandfonline https://www.tandfonline.com/doi/full/10.1080/02508281.2020.1846971
7.Source: Wikipedia https://en.wikipedia.org/wiki/Economic_impact_of_the_COVID-
19_pandemic_in_India#Economic_recovery
8.Source: mint blog https://www.livemint.com/news/india/lockdown-impact-india-april-
manufacturing-pmi-at-record-low-of-27-4-11588569648675.ht