The Impact of Lockdown on the Indian Economy

This article has been written by Mustafa Chitalwala., a student of Symbiosis Law School, Pune

Jaan hai toh jahaan hai – Prime Minister Modi

It is an understatement to say that our world has changed dramatically over the last few months. It is not an embellishment to say our entire schedule has changed in over a couple of months, with social distancing being an essential phase. The novel coronavirus pandemic has resulted in catastrophic damage for the global economy as well as a colossal loss of human lives, in this age of global peace. Prime Minister Narendra Modi has taken strict actions to contain this deadly virus. On March 25th, the Prime Minister had imposed Lockdown 1.0. This was the most extensive lockdown in the world that led not only to draw a Laxman Rekha on our doors but also to our factories. Prime Minister Narendra Modi said, protecting the lives of Indians was his highest priority. “I am speaking this not as a prime minister today, but like your family member. Please patiently follow the 21-day lockdown. To save the lives of every Indian is my, the state government and the central government’s biggest priority”. However, sparsely anything was spoken about the Indian economy by the government. This nation-wide lockdown brought a severe toll on our Indian economy. The more this lockdown was extended, the more the economy suffered. The Indian economy is predicted to lose more than 32,000 crores per day during the first 21 days, which will, therefore, result in the loss of our GDP by 7.5 lakh core rupees. However, the Reserve Bank of India is supporting the economy by taking essential measures possible by making ₹3,74,000 crore available in the country’s financial system. India’s Finance Minister Nirmala Sitaram has put together a Rs 1.76 lakh relief package that would help primarily the unorganised sector employees, in particular the day-to-day wage workers, urban and rural workers. Even the Asian Development Bank and The World Bank have approved their support to help India tackle the coronavirus pandemic.

Even after such an extensive lockdown, the cases were rising day by day India’s Prime Minister had no choice but to impose a Lockdown 2.0 on April 14th. At this time, the Indian economy was touching new lows. The World Bank and credit rating agencies have downgraded India’s 2021 fiscal year growth with India’s lowest figures seen since the 1990s liberalisation which was three decades ago. However, a new set of directions have been developed during this lockdown 2.0 to calibrate economic openness as well as to relax the lockdown. The government has also modified India’s foreign direct investment policy to secure Indian companies during the pandemic. Arvind Subramanian, the former chief economic advisor for the Indian government, said India should plan for a negative rate of growth in the fiscal year 2021 and that the country will need an investment of more than 70 lakh crore to resolve this contraction. Nevertheless, India’s projection of 1.9% GDP growth in fiscal years 2021-22 is the highest among the G-20 countries in the International Monetary Fund.

The coronavirus pandemic in India may just be the greatest emergency since Independence, and with the rising cases in India, the Home Ministry on May 4th has imposed lockdown 3.0. However, there was substantial ease to the economy, the government bifurcating the country into the Green, Orange and Red zones, this being the first attempts by the government to restart the economy although the significant industrialised hubs like Delhi, Mumbai, Ahmedabad, and Pune remain in the Red zone.

This virus has not only taken people’s lives but has also taken people’s livelihood. The Global Economy in the start of 2020 was dipping into a global recession. Even the Indian economy had a rocky start to 2020 as well. However, the lockdown will worsen not only the global economy but also India’s economy. During the lockdown, about 14 crore Indians have lost their employment, and over 45 percent of households across the nation registered a decrease in income compared to the previous year. Most of these labourers are daily wage earners and migrants. We cannot have the poor, labourers or migrants workers bear the brunt of the efforts to contain this virus, and nor do we want to weaken the pillars of the economy so much that we emerge from the pandemic onto a ruined economy. The one key problem is striking the right balance between curbing the spread of the virus and keeping the economy functioning.

Industries Facing The Most Brunt From the Lockdown

1. Aviation Industry

Aviation and Tourism sectors are one of the worst affected sectors as all the passenger traffic domestic or international have been grounded during the lockdown. Thus, the Aviation sector facing much turbulence. India, who canceled all of the passenger visas on May 12th, 2020, which led to more than 585 flights being canceled. Since most aviation industries is in soaring debt, they are crawling towards bankruptcy day by day. Companies such as Virgin Australia, Norwegians Airline and Air Mauritius have already declared bankruptcy. The International Air Transport Association (IATA), has claimed that due to this crisis, airlines can lose up to $113 billion in passenger revenue globally. Besides, the industry already having limited cash reserves, cancellation, rescheduling and lower traffic will just add to job losses and pay cuts. The aviation industry is reliant on providing 20 lakh jobs in the country. A simple solution that the government can provide is giving an overdue payment tax or incentive. Secondly, a period of six months of debt moratorium should be given on the payments on loans to this falling industry.

2. Hospitality Industry

The hospitality sector, which includes hotels, restaurants, foods, and beverages, has also seen a loss substantial in footfall. The hospitality sector was the first to shut and will be the last to revive. Experts say that it would take a long time to revive the falling hotel industry. Besides, customers would not want to endanger themselves because they do not know who has lived in the preceding rooms. The critical hotel industry fends on tourism; thus, the hotel industry faces significant losses and higher cutbacks because leisure and all other forms of travel have been restricted. The impact has been severe on the travel and mobility sector with unicorns such as OYO and MakeMyTrip seeing massive revenue decline, said the report from DataLabs. Occupancy in key hotels in major cities has steadily deteriorated by a whopping 45 percent, as never before seen. Moreover, several restaurants already running on a slender edge are forced to abandon their employees or close their companies. The tourism industry loss alone is forecast for March and April to amount to €15,000 crore. Multiple credible associations such as CII and ASSOCHAM assess that the country faces unemployment as a large chunk of the workforce engaged in tourism. The solution the Reserve Bank of India can implement is to help make improvements to ensure that the liquidity easing that is being undertaken reaches the companies that are in desperate need of it and potentially help to save millions of jobs.

3. Entertainment Industry

With the places subjected to substantial overcrowding being restricted, the entertainment industries such as multiplexes, streaming shows on ticket sales, malls have shut down indefinitely as it is one of the significant sources of the virus spreading. However, this industry has had a considerable impact during these stressful times. Luckily, few artists have started to perform their work online by showing their art and collecting money for patience relief and the PM Fund.

4. The Micro, Small and Medium Enterprises (MSMEs)

The Micro, Small and Medium Enterprises (MSMEs) sectors, which contributes to 30% of India’s GDP, is one of the critical drivers of the Indian economy. Today, almost all MSMEs are out of action due to the lockdown, they are unable to pay their employees, and several do not have the financial resources to restart their businesses. While most of the labourers and daily wage earners have no medium to survive. As part of the relief package, our Finance Minister Nirmala Sitharaman has declared that a menial Rs 500 payment will be given to women who had Jan Dhan accounts for three months. While this sector is being given relief, living in Rs. 500 with workers who have a family to feed is deemed unmanageable. The brunt of the crisis has been borne by India’s estimated 12 crore migrant labourers, who work for daily wages. Incapable of affording rent or food in towns, and cut down by public transport, thousands of them walked hundreds of miles to their homes in the hinterland.

5. Automobile Industry

The automobile sector’s slowdown is also clearly visible, and with India so dependent on China for automotive parts, there has been a delay in the production and delivery of vehicles. With China supplying more than 27 percent of the imports, these delays will continue. Almost all the major manufactures witnessed a drop in its March sales which is the peak period of inventory clearance for the industry. Maruti Suzuki India’s domestic passenger vehicle sales fell 47 percent, and Hyundai witnessed a drop of 40 percent. Lately, the drop in the sale of vehicles was increased due to the new requirement of emission norms implemented by April 1st. However, more bans and governmental regulations will result in a sale falling even lower, for example, the Haryana government bans the purchase of new vehicles, however, steps which are affecting the automobile industry.

Ways we can Help Relief the Economy.

The decision to impose the lockdown was very suitable, given the situation; however, it was bound to disrupt our economy. What is essential for us is to get people safely back to work, and that will be possible only when we can provide the best possible healthcare to our citizens, as there cannot be a lockdown on medical care, ever. The governments have already started to relieve the economy by bifurcating cities into three different zones, and these zones will depend on how much regulations will be applied.

1. So far, the lockdown has taken a beating on our economy; but, due to the outbreak of coronavirus in China, businesses are seeking an alternative to manufacturing their goods. India’s government should take advantage of this by providing incentives to attract those companies by promising them a pro-investment policy, cheap labour and raw material. This will not only restore the jobs lost; it will also improve an individual’s spending power. The investments in infrastructure – this is one of the fastest and most direct ways to create jobs.
2. The government’s requirement to spend over here is key to job development through major public investment projects. Now is the ideal time to concentrate our attention by boosting the domestic sectors by implementing the Make in India campaign in a more effective way, by asking financially sound businesses to finance these initiatives.
3. Reports suggest that if the lockdown is prolonged to further period, it could lead our GDP to fall to -0.9 percent. Under this extensive lockdown, less than a quarter of India’s $2.8 trillion economies is functional. Up to 53% of the businesses in the country are greatly affected, which would lead people to die of hunger more than coronavirus itself. The government should first help our falling sectors in need of a relief package, one being the MSMEs a sheer credit protection system should be given where the RBI would guarantee loans. The government must also loosen its fiscal discipline to help the economy stabilise, recover, and grow, by ensuring that start-ups and small and medium-sized enterprises are provided with working capital at low-interest rates. The effect on the capitalisation of banks needs to be taken into account.
4. Even though the agricultural sector will not be affected as much and will be able to recover faster and grow due to the monsoon season. However, The agricultural sector is an indispensable backbone for the country where farmers must also obtain NABARD loans for seed purchases and better equipment.
5. Finally, while the gap is deepening, we cannot lose sight of the urgent need for modifications to our education and training systems. This will take greater investment, but the first goal must be to increase access for children who are missing out right now on high-quality education. This will create more jobs and skills for the people.

In such a scenario, the country is in a trench or a good condition. It is time for the Indian government to demonstrate itself that it is appropriate for the country where decision-making is difficult to extend the lockdown or not since the extension contributes to the economic downturn and the failure to expand would adversely affect the spread of coronavirus across the world.