Pandemic Impact or COVID-19 Impact on Indian Economy

 

The COVID-19 pandemic started to rise in India from the month of July post the lockdown lifted the government. Confirmed cases, Recoveries & Deaths also increased monthly. Government despite launching wide promotional campaign about social distance, wearing masks & sanitizer usage, numbers kept growing.

The consumer price inflation fell even before pandemic started and flattened between 5.5% - 5.90% & rose in the month of November to close to 7%. Supply chain disruptions due to lock down restrictions in different states had led to increase in inflation and November inflation is attributed to pent up demand.

GDP Growth% also declined during the pandemic and worsened further in Q3 2021 due to lockdown where factories were shutdown and labour moved to their native places. Trade restrictions on China also created raw material shortages and manufacturing went down.

Government launched Atmanirbhar Bharat campaign and announced PLI Scheme for companies that set up new manufacturing facilities and increase production domestically.

The long term Atmanirbhar strategy will not be significant in the short term. Moving production from China to India is a difficult task and its success relies on many geo political factors.

Economic activity came to a grinding halt in the country. The lockdown had devastating impacts on an already slowing economy and people’s livelihoods as shops, eateries, factories, transport, services and business establishments were shuttered. India’s GDP was on a downward slope much before the COVID-19 pandemic hit the country, largely due to the demonetisation exercise, and the botched-up implementation of the Goods and Services Tax (GST) that paralysed the cash-dominated informal sector and small businesses. 

RBI Monetary Policy – COVID-19

The RBI is maintaining the accommodative stance since February 2019 MPC meeting. An accommodative stance means that there is room for lowering of interest rates in the future to revive growth and demand in the economy. The MPC has decided to continue with this stance “at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID19 on the economy while ensuring that inflation remains within the target going forward.” Even as the central government and the central bank have worked for hand in hand to revive the economy and provide financial support, the economy still recovering from the covid-19 impact with rising cases. Therefore RBI decided to remain status quo on the rates and await inflationary pressures to ease before it takes any action to fuel growth. RBI requires more headroom to deal with policy measures.

Government Policy

Most of relief measures are indirect support such as credit guarantees and liquidity infusion that proved to be ineffective in generating higher credit growth. The credit offtake from banks will remain subdued in the near term because of low credit demand. Even if the health crisis is managed by mid-2021, the economic recovery will be slow and uneven with adverse consequences on output, employment and financial stability. The discretionary spending on non-essential goods has declined drastically due to rising unemployment and worries about likely job losses in the future. The pandemic has exposed the vulnerability of India’s public healthcare system. India’s public healthcare system is one of the most underfunded in the world. India’s public expenditure on health is less than 2% of its GDP.