Impact of Coronavirus on the Indian Economy II

COVID-19

The outbreak of COVID 19 is expected to have a very significant impact on the world economy in general and the Indian economy in particular. The impact ranges from the recession, supply chain disruptions and is expected to affect trade for at least the next two years. Most of the advanced economies had peaked around 2017 – 2018 and as such were anticipating a slowdown. The Indian economy was already in some distress with falling consumer demand and consequent reduction in private investments. This had an adverse impact on the employment situation in the economy. The plight of already suffering economy was further exacerbated by the COVID pandemic and the Indian economy witnessed a significant contraction in March.

Mckinsey modelled three economic scenarios based on the length of the lockdown. The current lockdown period up to April 15, up to mid-May and up to the beginning of June being scenario 1, scenario 2 and scenario 3, respectively. With the ‘scenario 2’ being the distinct possibility now, the Indian economy can contract by up to 20% in the first quarter of the fiscal year 2021. The GDP growth is expected to be -2% to -3% for the fiscal year 2021.

According to a recent FICCI survey, conducted across different sectors, businesses are confronted with tremendous uncertainty about the future. According to the survey, the present situation will have a very significant impact on the businesses in the near future and the surveyed firms expected de-growth in the coming fiscal which could have an adverse impact on the already bleak employment situation in the country.  Majority of the surveyed firms expect to postpone expansion plans and fund-raising plans at least till the next fiscal year.

Author:
Dr. Srikanth Parthasarathy
Associate Professor, Rajalakshmi School of Business, Chennai
Email: srikanth@rsb.edu.in