TASK -9

SREEJITH E M
JUNIOR RESEARCH ANALYST
22FMCG30B15
 CONNECTING MACROS
INTRODUCTION
Korea, and Japan. Compulsory
On 31 December 2019, Wuhan
screening of all international
Municipal Health Commission in China
passengers arriving in India was
reported a cluster of cases of
announced the next day. On 13 March,
pneumonia—the first reported cases of
all visas, except for diplomatic and
what later came to be known as
other official visas, as well as the visa-
Coronavirus disease 2019 or Covid-19.
free travel for Overseas Citizens of
In the wake of rising infection, the
India were suspended. Indians
World Health Organization (WHO)
returning from Covid19 affected
declared it a Public Health Emergency
countries were asked to be
of International Concern (PHEIC) on 30
quarantined for 14 days. By 16 March,
January 2020, and a pandemic on 11
all land borders with neighbouring
March. According to the WHO
countries were closed for passenger
Coronavirus Disease (COVID-19)
traffic. On 17 March, the Government
Dashboard, by the first day of summer
of India issued an advisory, urging all
2020 in the northern hemisphere, that
Indian states to take social distancing
is, 21 June, more than 8.7 million
measures as a preventive strategy for
people were infected by Covid-19, and
implementation till 31 March. The
about 5.3 per cent of them lost their
government soon realised the
lives.1 In India, the first confirmed
economic fallout of all these
case of Covid-19 infection was
restrictions and announced the
detected on 30 January in the state of
formation of the Covid-19 Economic
Kerala. India began taking
Response Task Force. The government
precautionary measures early on. For
also announced complete lockdown in
example, thermal screening of
selective districts and cities where
passengers arriving from China was
confirmed cases were reported. On 21
introduced on 21 January, initially at
March, the Prime Minister announced
seven airports. It was later expanded
the first phase of nation-wide
to more airports and passengers
lockdown for 21 days to contain the
arriving from Thailand, Singapore,
pandemic. Later, this lockdown was
Hong Kong, Japan, South Korea, Nepal,
extended till 3 May with conditional
Vietnam, Indonesia, and Malaysia as
relaxations in areas with a lower
well. By early to mid-March, the
spread from 20 April. This lockdown
government had drawn up plans to
was further extended twice until 17
deal with a worsening of the pandemic
and 31 May respectively. The first
in the country. On 3 March, the Indian
phase of lockdown was successful in
government stopped issuing new visas
the sense that the doubling rate had
and suspended previously issued visas
slowed to six days from the earlier
for the nationals of Italy, Iran, South
figure of three days by 6 April.
RELATION BETWEEN GDP AND COVID-19
The annual growth rate of real GDP continuously declined since its peak in the first
quarter of 2018. The real GDP increased by only 3.1 per cent in the first quarter of
2020 over the corresponding quarter of 2019. While the outbreak and the measures
to prevent it in the month of March may have been partially responsible for this
significant dip in the growth rate, the declining trend that started much earlier
indicates serious problems elsewhere that had already been weakening the
economy. This performance of the economy can be further evaluated by looking at
the changes in various components on the expenditure side as well as on the
production side (that is, the demand and the supply side). On the expenditure side,
private consumption spending increased only by 2.7 per cent over the first quarter
of 2019 and this growth is substantially lower than the growth rate of 6.6 per cent
in the fourth quarter of 2019. Inventories were growing at half of a percentage as
compared to a growth rate of 1.1 per cent in the previous quarter. This also indicates
that firms were downsizing production in expectation of low future demand. The
gross fixed capital formation fell by 6.5 per cent over 2019:Q1. This suggests a larger
decline in business investment than a decline of 5.2% in 2019:Q4. India also
experienced significant decline in international trade: exports fell by 8.5 per cent
and imports by 7 per cent (MOSPI 2020).

RELATION BETWEEN INFLATION AND COVID 19

The rate of inflation, another measure of the overall health of the economy,
increased significantly during 2019. For quite some time, particularly after the
adoption of inflation targeting monetary policy strategy in 2014, India’s consumer
price index (CPI) inflation more or less remained within the target band of 2 – 6 per
cent. Compared to the immediate aftermath of the global financial crisis, CPI
inflation was on a downward trend due to a number of push and pull factors and
market imperfections, it is sometimes difficult to see what drives inflation in a
country like India. However, in a crisis like the present, inflation should remain
dormant so that the central bank has some flexibility to go for accommodative
monetary policy. That the sharp increase in inflation has somewhat dissipated on
the eve of the Covid-19 outbreak is a relief.
RELATION BETWEEN BUDGET AND COVID-19
The government budget deficit as a percentage of GDP jumped by more than a
percentage point from the fiscal year of 2018-19 to 2019-20. Increased government
spending and reduced tax revenue during the last fiscal year have contributed to
this significant fiscal gap. The recent budget deficit has already breached the target
of 3 per cent set in the Fiscal Responsibility and Budget Management (FRBM) Act of
2003.

RELATION BETWEEN IIP AND COVID-19

India’s Index of Industrial Production (IIP), which stood at 134.2 in February 2020,
fell to just 54.0 in April 2020. While it rose after April till July 2020, it fell again in
August 2020 and continued to be considerably below the levels for February 2020 or
August 2019. In a survey by the Federation of Indian Chambers of Commerce and
Industry (FICCI) in March 2020, about 53% of the businesses had responded that the
impact on them was either “very high” or “high”. About 73% of the businesses
experienced a “big” reduction in orders; 35% reported a rise in inventories; and 81%
reported a “significant” impact on cash flows. About 52% indicated that the delay in
sourcing products was more than four weeks.

RELATION BETWEEN CRUDE OIL AND COVID-19

The pandemic COVID-19 severely hit the demand for crude oil due to lockdowns. The
coronavirus pandemic has almost induced the travel industry across the globe, to a
standstill, reduction in the demand for the commodity which has fallen by almost a
third this year. Analysts expect demand to remain subdued due to Covid-19 impact
and this could see crude prices falling further. In a few of the countries like the US,
the price of the crude oil became negative during the last week of April 2020 due to
running out of storage options. In this way, this pandemic COVID-19 might bring a
leverage effect on the price volatility of crude oil in India also. . Moreover, large
fluctuations in prices could be seen after March 12, 2020 which shows that there is
an existence leverage effect of COVID-19 on the price of crude oil. Though the
COVID-19 entered India during February 2020 its significant impact on crude oil price
can be seen after March 12, 2020.
RELATION BETWEEN REPO RATE AND COVID-19
The Reserve Bank of India (RBI), through its monetary policy and other crisis
management tools, tried to mitigate the financial and monetary system stresses.
Among the measures the central bank announced, it reduced the repo and reverse
repo rates and provided liquidity of INR ₹3.74 trillion (US$52 billion) to the financial
system. In order to relieve fiscal stress of the state governments, RBI announced
ways and means advances (WMA) and other short-term liquidity to those
governments. It relaxed repatriation limits to exporters, provided special finance to
the National Bank for Agriculture and Rural Development (NABARD), Small Industries
Development Bank of India (SIDBI), National Housing Bank (NHB), and Export and
Import (EXIM) Bank to help the respective sectors these banks serve. To provide
relief to the borrowers at the time of reduced income, RBI put equated monthly
instalments (EMIs) on hold for three months. The overarching goal of these targeted
programs was to provide short-term relief and to reduce stress among the groups
that are perceived to be most vulnerable in the wake of the considerable uncertainty
brought upon them by this unexpected event.

RELATION BETWEEN CURRENT ACCOUNT AND COVID-19

India reported a current account surplus of 0.9 per cent of GDP in the pandemic-hit
FY21, as against a deficit of 0.9 per cent in FY20. The country’s current account
deficit widened to USD 8.1 billion or 1 per cent of GDP for the March quarter, as
against a surplus of USD 0.6 billion or 0.1 per cent of the GDP in the year-ago period
and a deficit of 0.3 per cent in the preceding December quarter, as per the central
bank data. The CAD, the gap between the country’s overall foreign receipts and
payments, is an important factor representing a nation’s external sector’s strength.
The Reserve Bank of India said the current account balance swung into the surplus
territory on the back of a sharp contraction in the trade deficit to USD 102.2 billion
from USD 157.5 billion in 2019-20.
RELATION BETWEEN CRR AND COVID-19
As a one-time measure to help banks tide over the disruption caused by COVID-19,
it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis
points to 3.0 per cent of net demand and time liabilities (NDTL) with effect from
the reporting fortnight beginning March 28, 2020. This reduction in the CRR would
release primary liquidity of about Rs.1,37,000 crore uniformly across the banking
system in proportion to liabilities of constituents rather than in relation to holdings
of excess SLR. This dispensation will be available for a period of one year ending on
March 26, 2021. Furthermore, taking cognizance of hardships faced by banks in terms
of social distancing of staff and consequent strains on reporting requirements, it has
been decided to reduce the requirement of minimum daily CRR balance maintenance
from 90 % to 80 % effective from the first day of the reporting fortnight beginning
March 28, 2020. This is a one-time dispensation available up to June 26, 2020.

RELATION BETWEEN BALANCE OF PAYMENT AND COVID-19

India’s import bill is quite likely to bounce back once the covid impact subsides, the
pandemic appears to be permanently re-ordering India’s BOP dynamics in three
ways. One, India's merchandise exports have always been hyper-sensitive to demand
and growth in destination markets. Here, the WTO's forecast that global trade could
shrink by a third in 2020, as well as rising protectionist tendencies in key markets
like the US, could pose challenges to a quick revival in merchandise exports,
particularly for discretionary items like jewellery and apparel. Apart from getting
battered MSMEs critical cogs in the export supply chain back on their feet in short
order, diversifying India's export basket may now be essential for export revival.
Two, India's services exports driven by IT and IT-enabled services have traditionally
weathered crises by leveraging their labour cost advantage, to grab a bigger share
of the global offshoring pic. But this time around, curbs on global travel and rising
barriers of protectionism threaten the offshoring model itself. Three, inward
remittances from NRIs particularly in West Asia have been a key safety net on India's
BOP position during past crises.
RELATION BETWEEN UNEMPLOYMENT AND COVID-19
The Centre for Monitoring Indian Economy (CMIE) recently released the
unemployment status report for India for December 2021. According to the report,
the unemployment rate in the country was 7.91% in December. It was 7% in
November. The highest unemployment rates were reported in Haryana (34.1%).
Rajasthan(24.1), Jharkhand (17.3%), Bihar (16%), and Jammu and Kashmir (15%).On
the other hand, states such as Karnataka (1.4%), Gujarat and Odisha (1.6%), and
Chhattisgarh (2.1%) reported the lowest unemployment rates in India. High
unemployment rates can be attributed to a combination of delayed economic
recovery. a surplus of labour, and a slow agricultural season. The COVID-19 pandemic
has had a detrimental effect on the labour market worldwide, causing many
individuals to lose their jobs and businesses to close. The CMIE also reported that
the unemployment rate for the urban areas increased from 8.21% to 9.3%, and from
6.44% to 7.28% for the rural areas. Imposed restrictions could explain these statistics
because of the rising Omicron cases since December 2021. Many services such as
schools, gyms, and movie theatres were forced to shut down in various states
temporarily. This had a significant impact on economic activity and contributed to
a rise in the unemployment rate.

RELATION BETWEEN FISCAL DEFICIT AND COVID-19

In the year 2019-2020, Indian economy was already at its trough and the incidence
of coronavirus pandemic in 2020-2021 has further deteriorated the economic
condition, limiting the fiscal space of the government. As the need of the hour was
to take some supportive measures to handle such an unusual situation, therefore
various monetary and fiscal measures were taken by the government to overcome
the impact of the pandemic. This resulted in overshooting of the fiscal deficit target
set under the Fiscal Responsibility and Budget Management (FRBM) Act (2003) and
made the govemment revise its fiscal deficit target of 3.5% of Gross Domestic
Product (GDP) in the 2020-2021 Budget Estimates (BE) and 9.5% in 2020-2021 Revised
Estimates (RE), and further, it is projected as 6.8% of GDP for 2021-2022 (BE). After
an estimated 7.7% pandemic-driven contraction in 2020 2021, India's real GDP is
projected to record growth of 11.0% in 2021-2022 and nominal GDP by 15.4%.The
government is expected to generate 23% more revenue and has budgeted to increase
its spending by only 0.95% in FY22 as compared to FY21 (RE).In order to deal with
the pandemic situations, economists have suggested more active, counter-cyclical
fiscal policy to enable growth during the economic downturn. However, due to the
lack of revenue sources, it also becomes important to strategies the path for fiscal
consolidation for the ensuing years.

RELATION BETWEEN MONETARY POLICY AND COVID-19

Monetary policy and liquidity operations during 2020-21 were geared towards
mitigating the impact of the COVID-19 pandemic. The monetary policy committee
(MPC) cut the policy repo rate by 115 basis points (bps) from March-May 2020, on
top of a cumulative reduction of 135 bps from February 2019 to February 2020.
Backed by conventional and unconventional liquidity measures, these actions
bolstered financial market sentiments while ensuring orderly market conditions
Interest rates and bond yields declined across market segments and spread narrowed
with a distinct improvement in monetary transmission. Monetary policy and liquidity
operations during 2020-21 were geared towards mitigating the adverse impact of the
unprecedented economic devastation brought by the COVID-19 pandemic on the
Indian economy. Supply disruptions imposed persistent upside price pressures, with
inflation ruling above the upper tolerance band for six consecutive months from
June-November 2020. Surplus liquidity conditions, coupled with the external
benchmark-based pricing of floating-rate loans, led to a considerable improvement
in monetary transmission during 2020-21.