An analysis of the subprime mortgage crisis from the perspective of macroeconomics

Background:
The outbreak of the coronavirus disease began in December 2019 in the province of Wuhan in China. But, by
the beginning of the year 2020, it has already spread to other regions of the planet. There were a total of 200
nations that reported instances of covid-19. The World Health Organization upgraded the status of COVID-19
from emergency to pandemic within 42 days on March 11, 2020. This adjustment took effect immediately. On
January 30th, 2020, at Thrissur, Kerala, the first confirmed case of the disease was found. Within a week, there
were three reported cases, and all of the affected individuals were students who had recently returned from
Wuhan. The number of reported cases remained low throughout the month of February, but then began to rise
beginning in March. The 21-day lockdown that Prime Minister Modi stated would take effect immediately at
midnight on the 24th of March 2020 for all 1.3 billion people in India. This would mean that no one may leave
their homes for the next 21 days. As a direct consequence of the lockdown, all public areas, including schools,
offices, factories, parks, and temples, as well as railways, stations, and airports, were shut down. The
cancellation of the overseas flights will last for an indeterminate amount of time.

The magnitude of Covid-19's influence on the Indian economy can hardly be overstated. It resulted in a health
crisis as well as an economic crisis because it brought a halt to economic activities. It led to a decrease in both
the production of goods and services as a result of the temporary closure of factories and offices. At the same
time, there was a decrease in demand as a result of people beginning to save money in anticipation of unclear
future events. This led to a contraction in the market. Many lost their jobs as a result, which led to an increase in
the unemployment rate. It was believed that the financial impact that the epidemic would have on the Indian
economy would be problematic. According to the Ministry of Statistics, India's growth in the fourth quarter of
2020 slowed down to 3.1%. The Indian government took action to improve the situation on May 12 by
announcing a comprehensive financial package with a reported value of 20 lakh crore, which is equivalent to
10% of India's GDP. The impact of Covid-19 on India's economy was significant not only due to the lockdown,
but also due to the fact that India is connected with the rest of the world.

Influence on Business:

Before the epidemic, India's trade had already begun to slow down, particularly its exports. Nevertheless, the
pandemic intensified this fall, and Covid 19 contributed to it. The European Union (EU), the United States of
America (USA), China, and countries in Southeast Asia are India's primary trade partners for exports. They are
responsible for almost one third of India's total exports and imports between the two of them collectively. From
this list, the European Union (EU), the United States of America (USA), and China were significantly hit by
Coronavirus, which had an effect on 40% of export shares and 33.33% of import shares. The declining value of
the rupee made it less likely that exports would increase, and this was compounded by the fact that their
countries were experiencing some degree of recession as well as a large reduction in aggregate demand.

The decline in domestic demand for crude oil, gold, and other industrial productions caused by the coronavirus
pandemic resulted in India recording its first trade surplus in a long time in June 2020, when it posted a surplus
of 790 million USD. This was India's first trade surplus in a long time duration. All of them pointed to a
weakening of the economy. Since March of 2020, both India's exports and imports had been on a downward
trend. In addition, India-China ties had been deteriorating because of the Galwan incident. Also, dropping global
demand and disruptions in the supply chain put pressure on Indian trade.

The data that was provided by the Ministry of Trade and Industry revealed that merchandise imports decreased
by 47.59 percent in June to $21.11 billion when compared to June 2019. On the other hand, exports decreased
by 12.41 percent to $21.91 billion, resulting in a slight trade surplus. The overall value of merchandise imported
during this period decreased by more than 50 percent to $60.44 billion, while the value of merchandise exported
during this period decreased by 36.71 percent to $51.32 billion.
Impact on the rate of growth:

The Indian economy had reached its lowest point on the growth curve before the covid-19 due to a lack of
aggregate demand as well as a decline in consumption, private investment, and exports during the course of the
previous six years. This was the case before the event. As everyone was confident that things would start to turn
around, Covid-19 came along and made things much more difficult.
The gross domestic product (GDP) for the first quarter that concluded in June of 2020 showed a decrease of
23.9%, which was the biggest dip that India had experienced. Refer Exhibit 1.

As a result of the lockdown, several industries, such as manufacturing and construction, experienced significant
declines in the first quarter, while agriculture, on the other hand, experienced growth. Refer Exhibit 2.

Influence on Price Levels:

Even before the pandemic, India's food inflation had already surpassed the upper limit of 6% that was mandated
by the Central Bank of India. Refer Exhibit 3. However, as a result of the COVID-19 outbreak and the
subsequent lockdown, agricultural supply chain interruptions and a shortage of labour workforce led to an
increase in the price of food. In October of 2020, the rate of inflation for food reached 11%. In November of
2020, it dropped to 9.43. It had a detrimental impact on India's underprivileged population, which increased the
strain on their already stressed-out low salaries and diminished their household savings. Because of this, there
was an increase in both poverty and hunger.
It was also a big element behind inflation that the government decided to raise taxes on fuels, which had a
detrimental effect on millions of self-employed Indians and small enterprises, as well as on tens of millions of
informal sector employees who had been hardest struck by the pandemic. A number of factors, including
bottlenecks in supply chains and attempts by governments to raise gasoline taxes in order to boost tax
collections in the midst of an economic crisis, have contributed to the recent trend of increased inflation. In the
months that followed the lockdown, food prices continued to rise at a rapid pace, which coincided with an
upward trend in unemployment and a downward trend in rural earnings. After November 2020, the government
did not announce any plans to continue the Pradhan Mantri Gareeb Kalyan Anna Yojana initiative that provides
free grain to those in need. This resulted in a rise in the prevalence of nutritional poverty since low-income and
poor households were compelled to reduce the amount of money they spent on food as a result of the high
prices.

Influence on the labour market:

At Covid-19, limits on travel and movement of persons led to blocked workers under the rural jobs guarantee
plan; consequently, the daily wage workers had a great deal of difficulty. Daily wage earners, contractual
labourers, and self-employed workers in rural and urban areas lost their jobs as a result of enterprises pausing
their operations, which led to an increase in the rate of unemployment. MNREGA has a total workforce of 266
million individuals, of which 128.1 million are actively employed. Prior to the implementation of covid,
however, MNREGA only had 77.5 million workers on its payroll. Because of the increase in unemployment,
there was a smaller overall distribution of income. It also meant that we had less power to buy things.
Individuals would put money aside in preparation for unknown events in the future, which would result in
decreased spending on consumer goods.

Because so many people who were looking for jobs decided not to look any longer because of the lockdown, the
number of persons actively looking for work decreased throughout March and April of 2020. Even though there
was some growth in the labour force in May 2020, the total size of the labour force in October 2020 was still
13.2 million people less than it was in February 2020. Subsequently, there was a decrease in the number of
people holding jobs of 2.5% in the month of March 2020 and of 29% in the month of April 2020. Although
there was a rise in the number of people with jobs in May 2020, the number of people with jobs in October 2020
was still 8.9 million fewer than it had been in February 2020. From February 2020 and April 2020, there was an
eightfold increase in the number of people who were unemployed. This number was 13 million in August of
2020, but it climbed back up to 22.6 million by October of that same year.

When taken together, all of these contributing variables resulted in a considerable rise in the unemployment rate.
The unemployment rate was 7.8% in February 2020, 23.5% in April 2020, and 7% again in October 2020. The
rate jumped to 23.5% in April 2020 after being 7.8% in February 2020. The impact on employment was felt not
only in the informal sector but also in the formal sector. The overall number of people receiving a wage in India
decreased from 86.1 million in 2019-20 to 68.4 million in April 2020, marking a significant year-over-year
decline. Even though it had grown to 73.8 million by August 2020, it was still 12.7 million lower than it had
been in February 2020.
Young people looking for work, between the ages of 15 and 39, were hit the worst by the recession. Individuals
in the age range of 20 to 24 years old were hit the worst, accounting for 35% of the overall employment losses.
They represented a meagre nine percent of the total workforce.

Influence on agricultural practises and animal husbandry:

As the harvest season of India's second agricultural crop, rabi, had began in March, farmers were anticipating a
significant return on their investments. Yet, once the lockdown began, it caused a decrease in demand as well as
disruptions in the supply chains. The farmers were left with a bitter taste in their mouths, and to add insult to
injury, exports reduced as well as the demand for agricultural products from India decreased due to the closure
of international trade. Farmers were unable to bring their produce to market since there was a limit on the
movement of goods and there were no commercial transport vehicles available during the lockdown. Moreover,
there was a restriction on the movement of people throughout the lockdown. The number of new customers
entering the market decreased in 2020 compared to 2019. Almost seventy-five percent of market arrivals in the
year 2020 were comprised of paddy, lentils, tomato, cabbage, and banana. When compared to 2019, market
arrivals of wheat, barley, pigeon pea, potato, and cauliflower were between 50 and 75% lower than expected.
When compared to 2019, market arrivals for all other remaining crops were less than half of what they were.
Wheat, which is widely regarded as the most significant rabi crop, had market arrivals that were only 60.4%
higher in 2020 compared to 2019 levels.

Because of the closure of businesses including restaurants, candy stores, and hotels during the lockdown, there
was a 20–25% drop in the demand for milk. Dairies that produce milk have begun to offer milk discounts in
response to falling sales. As a consequence, the cost of milk dropped by 19% between February and May of the
following year. The average volume of milk sold fell from 38.69 million litres per day in March to 34.75 million
litres per day by the end of the fifth week of May 2020. In addition, the quantity of milk purchased dropped
from 53.42 million litres per day to 50.39 million litres per day by the end of the fifth week of May 2020.

India is the world's second largest producer of beef, and as a result, beef accounts for a significant portion of
India's total exports. The typical amount of beef exported each month is close to one hundred thousand tonnes.
The number of tonnes of beef exported decreased to 40,000 in May 2020 due to covid. People in India believed
that eating meat could make them more susceptible to contracting the covid-19 virus, which resulted in a
precipitous drop in the country's meat sales. The inability to move animals from their source areas to
slaughterhouses resulted in the closure of several slaughterhouses, which further reduced the available supply.
When compared to the same time period in 2019, the price of beef on the foreign market fell by 336.4 US
Dollars.

The raising of poultry for a living was unaffected as well. The typical lifespan of a broiler bird is between 30
and 40 days; however, because of the decrease in demand caused by the covid, poultry owners have been forced
to purchase additional poultry feed. This has resulted in the mass slaughter of birds on a large scale because
poultry owners were unable to afford the feed and were forced to close their businesses. They sustained
significant financial losses, and it is believed that forty percent of poultry farms went out of business as a result.
During the shutdown, chicken prices dropped to approximately 10 rupees per kilogramme. According to the All
India Poultry Breeders Association's calculations, the industry will suffer a total loss of $3,333,000,000 USD.

Influence on the Sector:

In February of 2020, the Index of Industrial Production (IIP) for India was at a value of 134.2. As a result of the
influence from Covid-19, it dropped to 54 in April of 2020. It rose from April through July 2020, but then it
remained at lower levels compared to February 2020 and continued to rise after that. Refer Exhibit 4.

In March of 2020, the Federation of Indian Chambers of Commerce and Industry (FICCI) carried out a poll, the
results of which revealed that 53 percent of all enterprises were either very severely impacted or highly
impacted as a result of the cloudy circumstances. 73% of the companies reported a significant drop in the
number of orders, while 35% of the enterprises reported an increase in inventories. The majority of companies
have reported a considerable impact on their cash flows, and 52% of companies have indicated a delay in
procuring products of more than a month's duration.

More than 110 million people are employed by India's estimated 60 million micro, small, and medium
companies (MSMEs). This accounts for around 40% of India's entire workforce that is not involved in
agriculture. The lockdown had a devastating effect on the MSME sector, which resulted in total profit losses
ranging from roughly US$ 10,667 million to US$ 16,000 million for the industry. Another survey was carried
out by FICCI on MSMEs, and the results revealed that 5% of MSMEs said that they believed their inventory
had increased by more than 15%. According to the findings of another poll that was carried out in May 2020 by
the All India Manufacturers' Organisation (AIMO), 35% of MSMEs claimed that there was "no possibility of
recovery" for their future and that they had already began winding up. 39% of those surveyed estimated that the
healing process would take at least six months to start. In a survey conducted by game and the Krea University
on 1500 MSMEs, it was shown that 57% of micro firms did not have any cash reserves available, and 65% of
them needed to use their personal resources in order to keep the business running.

Implications for those working in the Tourism industry:

As a result of the COVID-19 epidemic, more than one hundred countries implemented travel restrictions, which
had a negative impact on the tourism industry. The Indian tourist industry was responsible for 9.2% of India's
overall GDP in 2018, which was equivalent to 240 billion USD. Moreover, the Indian tourism industry was
responsible for the creation of 8.1% of jobs in India, making it a significant provider of employment
opportunities. Before the pandemic, it was anticipated that the tourism business would expand by 6.8% year. It
was anticipated that the medical tourism industry in India will be worth a total of 8 billion USD by the year
2020. This is mostly attributable to the rapid growth of the sector in India. Because of the pandemic, lockdowns
and travel restrictions were established, which led to the tourism industry being the most negatively impacted
industry, which led to all of these estimates being disrupted. The tourists were unable to leave the country
because their government had issued instructions prohibiting travel, as well as because foreign aircraft were
grounded. According to estimates provided by Financial Express, the amount of the financial loss might be as
high as 28 billion USD. Moreover, it resulted in about a. There was a loss of jobs in this area of the economy of
70 percent. The failure of businesses operating in this area resulted in the shutting down of entire industries and
an increase in the number of unemployed people.

Repercussions for the Gold Industry:

Because of the widespread cancellations and postponements of events, exhibitions, and weddings brought on by
Covid-19 in the first five to six months, the jewellery industry also took a significant financial damage. They
didn't want to spend money on luxuries because they thought it was better to save that money towards the future.
Due to the fact that weddings were either postponed or carried out in accordance with stringent regulations,
individuals did not have the opportunity to place as much emphasis on jewellery, which is a luxury item.
Because of the lockdown, important holidays like Gudipadwa did not take place, and as a result, sales were
disappointing. As a result, the opportunity to sell gold in large quantities was lost, which made things tough for
the people who were engaged in business.

Repercussions for the Automotive Industry:

Because to the lockdown and shutdown of industries, the automotive industry has suffered considerable losses.
In addition, a significant amount of vehicle components came from China and were imported into India. As a
result of China's decision to implement a lockdown, the country's supply chain experienced disruption, which in
turn had an effect on India's vehicle industry. Because of the travel limitations, there was a drop in sales. People
have also begun putting away money in order to purchase necessities in the future rather than spending it in the
here and now, which has the effect of limiting people's ability to spend money. In March of 2020, the
automobile industry predicted that it will suffer financial losses of 2 billion USD. It also had a significant impact
on incomes and the number of people who lost their jobs. Because of the shutdown, TVS and Mahindra ceased
production of their vehicles.

Because they were unable to move vehicles during the lockout, auto dealers were forced to cope with a
substantial number of problems. As a result of the pandemic, 8–10% of auto dealer businesses went out of
business. The ability of automotive suppliers to staff their factories with workers required a significant number
of immigrants. Their absence as a result of travel restrictions caused an additional delay in the restoration
process following the lockout, which had a domino effect throughout the entire assessment chain. In addition,
the providers who gave in to the deteriorating market conditions were confronted with liquidity issues, which
caused a great deal of difficulty.

Moreover, finance businesses were impacted as a result of an increase in loan defaults, a fall in new loans, and a
decrease in the credit worth of clients. Used automobiles, mobility solutions, and aftermarket service suppliers
were all harmed by this since these markets are dependent on financial backing, which can be granted when
growth predictions are strong.

The Repercussions for the Pharmaceutical Industry:

India is often ranked among the leading exporters of illicit substances around the globe. China is the source of
several ingredients that are used in Indian cuisine that India imports. Because of the outbreak of the Covid-19
virus, the supply of these components has been cut off, which has resulted in a delay in the production of
various medicines. The impact of Covid 19 on Pharma is both beneficial and detrimental in equal measure. The
Indian pharmaceutical sector made significant strides in the production of vaccines against the COVID-19 virus,
which it then sold to other nations.
The local dyestuff facilities in India are highly reliant on the import of chemicals and intermediates from China.
The dye businesses in Gujarat were negatively impacted by an increase in the cost of raw materials as well as a
delay in shipments.

Repercussions for Banks and Other Financial Institutions:

Because to covid-19, stock markets around the world plummeted to all-time lows, which had a negative impact
on the economies of countries all over the world. The fear that the Coronavirus epidemic will kill economic
growth and that the steps taken by the government may not be enough to stop the drop caused investors to start
taking their money out of the market. The interest rates that banks charged their customers were lowered in
order to lessen the impact that the economic downturn was having on the banks. This made it possible for
customers to borrow money at low rates and encouraged them to spend more, which in turn helped the economy
recover. A problem with liquidity was experienced by non-banking financial companies. The slowdown in the
economy had an effect, similarly, on the demand that they had for loans. The outstanding loans for micro, small,
and medium enterprises (MSME) came in second, at 4.73 lakh crore, according to the data provided by the RBI
for the various sectors. The trade loan outstanding came in first, at 5.19 lakh crore. Banks were granted
permission to restructure the debt that appeared on their balance sheets, and the procedural constraints that large
firms needed to fulfil in order to raise capital were relaxed.

The Effects on the Information Technology Industry:

The information technology industry contributes significantly to India's standing as a global player. Top
software businesses like HCL, Infosys, and Tata Consultancy Services were impacted as a result of the influence
that COVID had on the United States and Europe, which led to a reduction in technology spending in both
regions. Because to the fact that businesses were still trying to determine how much damage the pandemic
would do to the global economy, the decision-making process was painfully long. As a result, the estimated
losses for the next six months ranged from 2% to 7%. The pricing pressure led to a decrease in revenue, and
bankruptcies among customers was one of the negative side consequences.

Repercussions for the Oil Industry:

Excise requirements provide the Indian government with a significant portion of their revenue, with oil imports
accounting for ninety percent of this revenue. Since India imports more than 80 percent of the oil it uses, the
decrease in the price of oil likely contributed to a reduction in the country's current account deficit. The direct
consumer and retail end of the industry, which is driven by demand for petrol and diesel due to reduced travel,
was the primary target of the industry's disruption. The slowdown, which has resulted in a decrease in sales of
oil, is attributable to a fall in commodities movement, passenger travel, and a stop in international and domestic
aviation. Fossil fuels demands, except LPG and natural gas also declined. The decrease will have a beneficial
effect on India. Yet, because more people are remaining in their homes, there has been a significant rise in the
demand for LPG. The price of crude oil was brought down to a low level of about. 20 USD a barrel in April
2020 and dropped as low as 2 USD a barrel before recovering.