Covidonomics: Impact of Covid-19 on Indian Economy

Covidonomics: Impact of Covid-19 on Indian Economy

About the last hundreds of days, more than 180 nations are in the same line of threat by the disastrous pandemic of Corona Virus Disease 2019 or the COVID-19. The impact and shocks created by this on the polity, society and economy in the global level is highly overwhelming. There is high unprecedented collapse in the global supply chains. It is therefore much care is required for economic intervention in this area. It is the same fruit of globalization which makes the issue worse and in this modern globalized world, cross-country linkages were the major route of these supply chains. WTO through its press release announced that the global trade is expected to fall by between 13% to 32% in the current year due to this disastrous pandemic. It is very essential to understand the interaction between the pandemic and its effect on the economy as the questions of how, when, and in what way the problems which would be created by this can be solved in a quick spell of time. This is also the time when the IMF claimed that since the Great Depression of 1930’s, the world economy as a whole is going through a sharply negative downturn in its growth rate. In other words, we can say that the global economy is grinding to a halt. In a narrow sense we can approximate that the beginning of the 2020 started witnessing a particular divide of the time globally, which can be roughly defined as a pre-corona and a post-corona period.

 In the western world, the policies are mainly concentrated on the areas to limit the collapse of aggregate demand, providing liquidity to business and economic transfers to people losing jobs. It shows that even the problem has been identified, there were not much emphasize on the broken supply chains. Clearly speaking one of the main issues is the problem of institutional failures which includes weakening of technocratic, autonomous civil service and general under-investment in state machinery. It is the domestic institutions are failing and therefore high need of fundamental changes as reforms not as revolution is obligatory for the time being. It is the same time when one of the Indian states, Kerala showing high level of maturity in the above-mentioned institutional setup which is much better than the performance of some first world nations in the first world and especially in its recovery rate.

Looking much into the developing economy of India, what are the major problems and impact of the pandemic on the economy briefly elucidates as even in 2008, amidst the problem of demand shock, employment was more or less affected in the country. But now it comes to a stagnation in real effect. Moreover, this issue is also a reverberation of supply shock with a simultaneous presence of subdued demand and production slowdown. Once China shuts down the supplies, the Indian pharmaceuticals, automobiles, and especially mobile phone industries were mostly affected. Other sectors which were seriously affected includes real estate, banking, agriculture and manufacturing industries. Growth and survival of several industries have been severely impacted. In agriculture sector, the issue is more because of the critical time period as these are the months when the crops are ready to be harvested. Apart from this, the absence of labor force plus transportation issues will have serious repercussions. In banking, the problem may mainly arise out of bad loans and existing NPA’s [1]. But as far as known, the RBI’s three-month moratorium policy can relax the impact to some extent. 52% of the CEO’s of top Indian companies already commented about a massive job loss in the upcoming days after this disastrous COVID-19, that is there was already high unemployment rate (a 45-year high) before the outbreak of the pandemic and now it is again increasing without any control in the rate. An economy like of India, already a victim of high level of educated as well as frictional unemployment couldn’t be much optimistic in the upcoming time being as the economic disruptions resulted after the pandemic can lead the issue more challenging. It is because we had already witnessed a sharp loss of job amounting to 3.3 million even in the so-called capitalist economy of United States.

It is very important to analyse the economic impact of COVID-19 on the actual and expected growth rate in Indian economy to understand how much and to what extent the pandemic worsened the existing situation of economic slowdown in the country. The need of this anomalous analysis is to be done in order to find an answer to the much debated political and economic policies of the present government in power, so it could be more a political question which is of clear righteousness. If we consider the above said situation from a microeconomics perspective, there is a similar need of analysis as same as the well-known ‘Hicksian- Slutskian’ [2] approach to split out the pre-corona and post-corona impact on the total downturn effect in the Indian economy.

Once it comes to the developing economies, there is a high necessity for the central assistance by international institutions intervention by proper allocation of resources and coordination apart from the side of the fiscal and monetary authorities of the countries.  Government and policymakers started cutting down the interest rates as a measure to stabilize economies which were impacted. This is also a time when the supreme financial institution in the country, RBI refused to publish the growth projection, creating the situation more worrisome. Whereas the credit rating agencies like Moody’s predicted a rate of 2.5% and Goldman Sachs estimated it to 1.6%. There is higher need of greater coordination better social safety, better regulation along with high priority in social distancing at least for this shorter span of time. Considering Indian economy and thinking of the viability of a direct cash transfer at this time can be a fruitful measure in the short run but wouldn’t be a better idea to follow for a longer period. More care is required to stabilize the supply chain problems. It would be also a virtuous policy to initiate bailout packages for bankrupted sectors. Looking at what can be a good monetary policy is that the central banks should be ready to provide abundant liquidity to both banks and NBFC’s, with more attention to MSME’s. It is more significant because once after the pandemic the utmost problem that the economy is going to witness is that of liquidity crunch [3]. It is also highly significant and alarming time as there should be given considerable stress to the much devastating issues of climate changes in the economy and society as a whole.

Even when compared to some other developed countries, it is somewhat positive that Indian economy could be better than other economies. Even the nation’s biggest import of crude oil won’t be affected negatively in immediate future as the oil prices by now had decreased to a great extent due to the external shock of reduction in demand and in quick supply chain breakages. In the middle of all the above said glitches and challenges ahead we can hopefully expect that Indian economy could come out with a proper synthesis of a robust fiscal and resilient monetary support penetrating to the lower levels of the society.


[1] NPA means Non-Performing Assets.
[2] Economists, Eugen Slutsky and John Hicks developed independent approaches to split the total price effect on demand into income and substitution effect with the introduction of compensating and equivalent variation in budget. Here I used this just to show the need of splitting the real impact of economic slowdown in the Indian economy before and after COVID19.
[3] During a liquidity crunch, businesses and consumers are charged high interest rates on loans which are more difficult to obtain. Also known as liquidity crisis and credit crunch.
Nandu S Nair

Nandu S is a 23 year old student graduated in Economics and Commerce and currently pursing Masters in Economics from Centre for Economic Studies and Planning (CESP),Jawaharlal Nehru University, New Delhi.


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