The effect on Indian economy caused by the lockdown


While many economists predicted a recession, nobody could guess there will be a pandemic caused by COVID-19. This article highlights how the various sectors are affected due to the lockdown and try to find out whether there is any possible solution. The article does without any complex economic terms or data and anyone even without an economics background can read and understand the scenario.

Introduction

We have never witnessed this situation earlier. There was a global recession in 2008 and many jobs were lost, but the situation is entirely different now. Almost one-third of the population, the world over, is inside their homes for a long time to save them from the virus. This had a tremendous effect on the economy. While it will take a long time to normalize the situation, since social distancing is essential beyond the lockdown period, there are many who are suffering during this period of lockdown. The Indian economy is not in good shape and the effect of lockdown will undoubtedly be felt in most sectors.

How it is affecting the economy

There are two things that drive the economy. One is demand and the other is supply. At this moment, when the factories are closed and most of the people are staying indoors, there is absolutely no demand for most items. People are only buying the essentials like groceries, vegetables, fish, meat, milk, etc, which they consume on a regular basis. People are not thinking of purchasing luxurious items and since we need to maintain a social distancing for some more time people are not planning to go out for a vacation or party. This will reduce the purchase of clothes and accessories for the time being and many will avoid using public transport also.

Who are those affected the most

In India, close to 20% of its population is below the poverty line and they are badly hit during this time. The workers in the unorganised sector that constitutes more than 80% of the workforce are very much affected. Just think of your housemaid or the newspaper vendor. Many of you might have asked your maidservants not to come to work during this period as a safety measure and most of you will not deduct their salaries this time because of this unprecedented situation. The same may be applied to the newspaper vendor. Unfortunately, both fall under this unorganised sector. Since they are paid on the basis of their job, when there is no job they will not be able to earn anything. They all are hit. Since the factories are closed at the moment, the loss suffered by the organisation will pass on to the workers. Many small scale industry workers are jobless. Many of the workers are not permanent and do not have a fixed salary. Their earnings depend solely on the production and since it will take more time for the demand to grow, owners of many of those small scale industries will think of reducing the number of workers. Due to the loss suffered by these industries during the lockdown period, every owner will think of making more profits and hence they will lay off more workers. Daily wage labourers are worst affected. They do not have fixed income and support their families from their daily earnings. This includes construction workers, hawkers, landless labourers, cab drivers, barbers, etc. During this lockdown period, they do not have any work and are not earning anything. They will start working only when things are normal.

The sectors which are badly affected

Some of the important sectors which are badly affected are mentioned here. Although there are a lot more which are directly or indirectly associated with the mentioned sectors and suffering equal losses.

Hospitality
The hospitality industry is badly affected which includes the airlines industry as well, since many will not think of flying to destinations where the virus has largely spread. People are cancelling bookings after the COVID-19 outbreak and not planning immediately for a vacation. This caused a huge loss to this sector and they will continue to suffer for some time. When you have to cater to a very limited people not many will be required to attend to them and there may be job cuts in that sector.

Import/Export
The export sector is also hugely affected since there are many order cancellations as well as shipment delays because of the lockdown. The export of vegetables and seasonal fruits will be much lower since by the time the situation normalizes, the season for the product will be over. Moreover, the countries to which these fruits and vegetables will be exported have shut import markets and thus the concern increases.

IT & ITES
The IT sector is also hit by the crisis since it supports a lot of other sectors. Though many companies are asking their employees to work from home, there are some small companies which are not permitting their employees to work from home because of data security concerns. Small IT companies will be hit since they have a handful of clients. There is no order from the clients at the moment and clients are also not planning big for the future because of the uncertainty, hence there is a concern that those companies will be thinking of cutting their costs in the form of laying off their employees.

Transport
Public transport is not available and only a few are running to maintain the essential services. The lockdown throughout the country has hit the transport of essential goods in many places also. Though the government is taking measures to keep the supply chain smooth many are stuck in the border for some reason or the other. The situation is the same for railways and airlines since there is no movement of flights or trains in this period excepting the ones that carry freight. All of them are suffering losses.

Agriculture
The farmers who have already stored their produce cannot sell it to the market and because of the restriction in supply in some places, there is a chance that the product has to be discarded. Fruits, vegetables and flowers cannot be kept for a long time and hence the farmers who had to discard their produce will face a huge loss. The timing is crucial. Since lockdown has happened during the harvesting period for many crops, many farmers will suffer a loss.

Is there any solution

The government has announced relief packages for the people who are badly affected, but which may not be sufficient enough to meet their needs. Things will not normalize suddenly. It will take a long time for the activities to pick up and during this period when the demand is very less, the government has to think of a bailout package for the whole unorganised sector. Already the unemployment rate during the last year was the highest, compared to the past 45 years and now there is this additional burden being faced by the world because of the COVID-19 pandemic. The GDP growth rate had fallen well before the outbreak and many financial rating agencies are predicting a grim picture by lowering the growth rate further because of the pandemic. The policy of the government has to be robust which must cater to every affected sector. The major challenges would be new investments and the government has to attract the investors through sops like providing loan at lower interest rates, extending the tenures of the loans and in some cases by relieving the enterprises to repay the loan amount. Every individual can play a proactive role in this regard according to their capabilities. During this period, it would not be wise to deduct the salaries of the workers employed at individual homes and depending on the situation one may think of supporting their families in some or the other way.

Conclusion

While things will improve gradually, only time will tell when everything is going to be normal. It has to be kept in mind that the pandemic has affected most countries and every country has a business relationship with the other. While the situation in one country may improve to some extent, it may not be conducive to conduct business with the other countries if the situation doesn't improve there. It's better to wait and watch and keep a contingency plan ready, rather than worrying too much about the future.


Article by Sankalan Bhattacharya
Sankalan "Life is easier when you enjoy what you do"

Follow Sankalan Bhattacharya or read 30 articles authored by Sankalan Bhattacharya

Comments

Author: Umesh07 Apr 2020 Member Level: Platinum   Points : 5

An excellent job by the author to highlight the effect of the impending virus disaster on the economy. Very well-conceived and well presented.

The Indian economy was slowly looking up but the present crisis has flattened it totally. It might still go worse as we do not know the actual damage created by this pandemic. Only the coming times would be telling the real story. If we go back in history we find that the Indian economy was never a glorious one as we have inherent governance and administration issues in our country which are always detrimental to the economic developments. It might be true but we must remember that sometimes worse appears better than worst but it does not mean that worse is equal to good.

In my opinion, we have to go a long way to make our economy strong and though most of us are fearing that the present economic scenario would go to the dogs, it might not be so fearful as we are already at a very low level of economic development and though we would be harmed much we would strike back much faster and earlier than the other affected countries. In the past also, the great depression and other financial disasters happened in the world but India was not so much affected as expected by the economic experts. However, the present case is different from that as we will be losing the precious man-days here during this pandemic.

Author: DR.N.V. Srinivasa Rao07 Apr 2020 Member Level: Platinum   Points : 7

A good article from the author. Because of this lockdown, there is a lot of change in the living style of the people. All are sitting in the house and managing the time with minimum expenses. But the productivity has come down and there is no value addition. An ayurvedic manufacturing company in my place is having 70 indents worth a crore of rupees but couldn't despatch due to no production and no stock. This is just an example. Like this many establishments are suffering. They may be paying the salaries to their workforce. But the seller or the dealer who gets the commission for sales will not get any money.

Servant maids may not be coming but they may be getting their payment and hence in that front, there is no such reduction in the earnings. I paid full money to the servant maid as well as the driver also. But there are many people who earn money on day to day basis. A cab driver, auto driver, roadside dabbawala, pan shop owner, a barber and many like this are suffering. Many small companies in the unorganized sector may not be getting their wages also. The Central government and the State governments are trying to give some compensation but will they be able to manage with that?

People may learn a lesson regarding savings these days. People who are well to do can come forward and see that the people nearby him is not starving for food.

After the lockdown also, how we are going to come back to the normal level is a big question. The losses are heavy. People should try working hard and see that they will be always ready for a showdown. New investments should be encouraged by the governments and tax reliefs and tax leave periods should be announced by the governments.



  • Do not include your name, "with regards" etc in the comment. Write detailed comment, relevant to the topic.
  • No HTML formatting and links to other web sites are allowed.
  • This is a strictly moderated site. Absolutely no spam allowed.
  • Name:
    Email: