We keep hearing about how the pandemic has been affecting the economy worldwide. Even once we find a concrete cure for the virus it will take the market more than just a couple months to get back up seeing the current impact economic impact of coronavirus. Barclays reports that the severe 21-day lockdown by India could push the country’s growth down to 2.5 per cent from the 4.5 per cent that it had previously projected. These figures may fluctuate if the lockdown prolongs.
The economic impact of coronavirus on India
Indian MSMEs at severe losses: The MSME sector has added 13-15 million jobs annually according to CII data. Data shows that Micro, Small & Medium Enterprises (MSME ) employ upwards of 110 million people but they won’t be able to afford to pay their employees if the lockdown continues. They are likely to take a big hit with their limited funds and comparatively limited resources and reach.
Inflation: Raw materials are bound to be in short supply, as free trade would be curtailed for some time. Which means the demand will extend the supply and with raw materials, transport and labor problems which suppliers are likely to experience will not be able to lower their prices. The chances of the world being in a state of inflation keeps getting higher.
Extreme competition: China is in the post-peak period of the pandemic which according to the WHO is the period in which the process of recovery begin. This means China will have a head start in terms of business and production compared to other countries who are still in the early stages of the COVID-19 pandemic. This could be good news at a broader perspective as china can help other countries hold up but if analyzed it also means smaller Indian companies will not be able to keep up with the competition and will most probably perish, bringing down India’s growth with them.
Unemployment: Many companies have to take pay-cut measures and even need to shorten the staff to keep their business floating. As more layoffs happen, the demanding of the people will decrease due to insufficient funds, making the cash flow in the market decrease leading to more companies going out of business.
The government would need to pay very close attention to the economic crisis which is developing. By extending the tax filing deadlines, the finance minister has proposed a few changes. The government also increased the threshold to Rs. 1 Crore for initiating insolvency proceedings. In addition, bank charges for digital trade transactions have been reduced for all commercial finance consumers. They are short-term interventions intended to reduce the acute suffering that MSMEs face. Nonetheless, there needs to be a longer-term strategy in place to ensure that small companies are able to get back on their feet as soon as possible.