This question is bothering everyone right now. With schools and colleges shut, malls and cinema theatres closed, transportation and production at halt and lockdown extended it is obvious for all to show concern towards the economy since we directly or indirectly depend on it. From a small farmer to a Multi-National Company everybody depend on it. The world economy is hard hit with the biggest economies like the US and the United Kingdom going under recession. But with correct strategies and tactics the affect of the COVID-19 pandemic on the economy can be minimized and a bounce back is also possible.
Now let’s look at the
economic situation of India. Is the government doing enough? Is the economy
going into recession? Is the economy in safe hands? Instead of raising debates
over such questions and causing distress among people, it is better we change
our way of looking at things. It would be better if oppositions, media and
intellectuals suggest sensible methods to tackle such negativity.
Yes, the COVID-19 has a
negative impact on the Indian economy. What really does a negative impact mean?
A fall in GDP means a decline in retail
and wholesale sales, lower industrial production, higher unemployment and lower
levels of per capita incomes. For a company it may be a stock market crash or a
reduction in amount of sales for a business, both have negative impacts to the
economy as there is a decrease in output.
Let’s look at some of
the sectors which are going to undergo dramatic changes
Agriculture: agriculture
contributes to nearly 17% of the GDP and employs 60% of the Indian population.
The rural economy is mainly dependent on the agricultural sector. As per
sources food grain production estimate in India is at a record high of 295.91
million tones which is 6.74 million tones more than the previous year
production estimates (285.21). Though we have increased production why do we
witness stores running out of stock? The reason behind this is that supply
chain is at a standstill. Zero demand from restaurants and hotels has reduced
bulk orders and thereby sales have significantly dropped. Farmers who grow perishables like fruits and vegetables are now in
crisis. Since production is hit, prices of essentials have sky rocketed. But
this can be temporary and a recovery is also possible. What next? Is there any hope? The lockdown has made people shift to
vegetable and pulses as a source of protein. With the Rabi harvest on its way
farmers can hope for better earnings.
Indian economy is also
dependent on agricultural exports. In order to protect exporters and indigenous
producers in the country the Union Ministry of Agriculture, has allowed export
of major consumer products like rice, wheat, groundnut, processed food, meat
poultry etc to needy countries like Afghanistan and Lebanon keeping enough
quantities for Indian consumption. This was done on specific demands from
countries to which the government agreed on humanitarian grounds. Agricultural
and Processed Food Products Export Development Authority (APEDA) has put in a
lot of effort to solve issues related to transportation, curfew passes and
packaging units due to the ongoing lockdown scenario. As said earlier,
agriculture related exports has a major contribution to the Indian economy, the
Indian government is doing very well with respect to it.
Companies, Investors and FDI: It has really been a tough time for investors since
the outbreak. The stock market crash often leads to a drop in the face value of
the share and thus they receive lower dividends. What has the government done? Is there light at the end of the tunnel? Recovery
is possible but it shall surely take time. Patience is key and intelligent
decisions need to be taken by the investors. Meanwhile the government has made
an excellent amendment to protect domestic companies from being taken over. FDI
or Foreign Direct Investment is a type of investment in which an entity from
one country controls business ownership of another country. The Department for Promotion of Industry and
Internal Trade (DPIIT) has amended the Foreign Direct Investment policy to
protect businesses from getting taken over by foreign companies due to the
ongoing COVID-19 pandemic. The amendment states that any investor willing to
invest in an Indian company must get approval from the government whereas
earlier an interested investor could automatically invest and making use of
opportunities like these can easily takeover Indian companies.
China is the only country
which shares border with India having the financial capacity to takeover Indian
companies. China is said to be an opportunistic country which wants to have
full control and influence over the world economy. China has invested huge
amounts in share markets of different countries. Eventually when such pandemics
strike, the share market collapses making it easy for the Chinese to takeover
hard hit companies. Let’s see how this works with a simple demonstration. Let’s
say, Company A making an investment of 500$ has subscribed 100 shares of 5$
each from Company B who has kept 600 shares for subscription. Production is at
halt due to pandemic which led to a collapse in the share market and the price
of the share dropped to 1$ each. Making use
of the opportunity, Company A invests the excess 400$ and buys 400 new shares
making a total subscription of 500 shares. Owning majority number of shares or
in other words having a major stake, Company A easily takes over Company B.
But what the new amendment
does is that such additional investments must take approval from the government
and thereby ensuring companies aren’t taken over by other countries which
indirectly allow them to control economies. This amendment denies the
liberalization policy and is hence a reason for criticism by countries like
China. This criticism is mainly of the fact that the purpose for which China
has invested in India is not served i.e having an influence and control over
Indian economy. In case such an amendment was not made then no longer would
Indian companies remain Indian, they would all be foreign owned.
Health sector and Pharmaceuticals: hospitals are very crucial in such testing times. A
country must have well equipped health care facilities to treat the infected
whose numbers rise day by day. For a country like India with a population of
1.3 billion it is a must. And sadly India is not equipped to treat a large
number of people for e.g. Shortage in ventilators. Then what is going to happen when numbers rise? Instead of thinking
of this it would be better if we ask ourselves, what can we do to flatten the
curve? It is very simple; just follow the precautions given in the government
website. Private health sector which is much more versatile and equipped is
offering help to the government by providing equipments, beds and some
converting into dedicated COVID hospital and care centres. Is the government doing enough? Development of health
infrastructure has begun as early as January 2020, even before the virus made
its way to India. Since then screening is being done in airports and they are
insisted to get into isolation for 14 days and are being monitored. When no
other country bothered to bring back citizens from abroad, the Indian
government took a step ahead to safely bring Indians working or studying
abroad.
Dedicated COVID health
care will have the needed equipments like ventilators, Intensive Care Units and
isolation beds. Solely dedicated hospitals are capable to treat hundreds of
patients. At present there are nearly 1919 dedicated COVID care centre of which
672 are dedicated hospitals. 173,746 isolation beds and 21,806 ICU beds have
been arranged to treat patients. This is enough to treat the number of positive
cases in the country. Indian scientists are
relentlessly carrying out research. Indian engineers have built a low cost
ventilator which only costs about 400$ where as the current ones cost nearly
30000$. India had imported 500,000 testing kits from China which unfortunately
appear to be faulty do not give accurate results and hence of no use. So it is
better testing kits production take place within the country by indigenous
manufacturers which surely will boost the
‘Make in India’ project. And this is exactly what the ICMR is doing the
exact same thing. Once production begins with the approval from the ICMR India
will be ready to conduct 100,000 tests per day by May 31st, the
health ministry said. If cases reduce and India has excess kits it can export
to countries like the US and the UK who are in very much need of them.
If we take the case of
Pharmaceuticals, nearly 70% of API is imported from China. But due to this pandemic
production and consumption of pharmaceuticals is not going hand in hand. The
decrease in the production rates due to lack of import of API has led to a
mount in the prices.
But on a positive note
India has emerged as a new hub of medicine production. On humanitarian grounds,
the Indian government agreed to export Hydroxychloroquine and paracetamol
tablets to countries like the US, Brazil and Israel by lifting a few trade restrictions
after keeping enough quantities for domestic consumption. Till date nearly $5 million
dollar worth medicines have been exported. This was done to enhance the
bilateral trade between the two countries as well as making the bonds between
them stronger.
Small Scale Industries or MSME’s: Micro, small and medium enterprises employs 120
million people, which is the second largest employment generating sector after
agriculture. Small businesses are one of the most vulnerable set of business
organizations during such situations as they are young and new in the market. With
production and sales (the major revenue generating activities) at halt it is
only the savings it has made earlier which can help. The other option these
entities have is that they have to plan and reshape their expenses. Sources say
that growth may come down to 2% from an earlier 4.7-5.2%. Can they regain their position? As stated earlier only transparent
tactics and strategies from the Government helps. Making the best use of this situation small business like
tailoring are manufacturing masks and have made a fortune of it. When countries
like USA have run out of PPE like masks, these small businesses have made it
possible for a country with 1.3 billion people self sufficient in masks. But what about other enterprises? The
government has initiated landlords to waive rentals till the lockdown is lifted
as a measure of protection. Similarly banks have been asked to conditionally
relax interest on borrowings for the time being. Yet such businesses may have
to face difficulties and further borrow loans which increase liability and debt.
Businesses have been urged not to cut salaries or wages for their employees. An
accurate MSME census has not been carried out since 2006-07 by the government
due to which wage relief package cannot be delivered to targeted enterprises.
If online loan sanction is made available by commercial banks and SIDBI on
certain conditions like correct filing of taxes and required documents have
been presented then a large number of MSME’s will be benefitted. It is also
true that small business have a major role in export. But, lockdowns and
restrictions have adversely affected small businesses as well as exporters.
Food Services: lockdowns
don’t allow hotels, restaurants and malls to function since large number of
people gather and thereby increase the possibility of transmission of the
disease. And ever since the closed doors haven’t opened which has resulted in
zero sales and unemployment. But you cannot deny the fact that India is
unequipped with the required healthcare facilities to treat a large number of
people which is a result of public gathering. The food services sector in India
is estimated to be around 4,23,685 crore rupees and is a source of employment
to more than 7,00,000 people. Though home delivery may be an attractive option
the chance of getting infected is also very high. And as a result Swiggy,
Zomato orders have dropped by 60%. What is going to happen when the
lockdown is lifted? What sources say
is that if lockdowns are extended further, nearly 50% of food services may become
victim to the deadly virus in terms of sales. The impact of the virus, not only
has impacted the food services industry, but also human behavior. Lockdowns
have forced people to cook at home and posting the delicacy on social media has
become a new trend. And thereby in the latter half of the year there may be a
significant decrease in people going out to have food.
This is not the end of the
list. There are many other sectors which have been affected by this pandemic. What
is going to happen in the near future is however unpredictable. It all lies in
how the government takes decisions and how the people abide by it. We hope that
there is equal cooperation between us.
~THANK YOU~
S Sanjeev Bhagath
source: economictimes.indiatimes.com
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