Impact on Indian economy, due to the Corona led recession on World economy.

Corona virus led recession on world economy and impact on India

Impact on Indian economy, due to the Corona led recession on World economy.

When the March numerical picture appears to be taking shape, there can be no doubt about what everybody already knows:  The coronavirus pandemic could spark a global recession in 2020 that may be any worse than the one caused by the 2008-2009 global financial crisis, but global economic performance is likely to improve in 2021, said the IMF on Monday.

The now unfolding short-term fall in global production seems likely to match or surpass any recession in the past 150 years. With all-out attempts by central banks and tax regulators to mitigate the blow, equity prices in developed economies have tanked and money has been flowing out at an unprecedented pace from emerging markets. A severe economic recession is likely, as is the financial crisis. The biggest questions today are how serious and how long the crisis will last.

The developing countries that constitute two-thirds of the world’s population are encountering and expecting an economic slowdown that is never seen for long. To avert and curb the outspread and consequent damages, the UN is pushing for an aid package of USD 2.5 trillion for such nations. The United Nations Conference on Trade and Development (UNCTAD), has published an analysis on 30 March 2020 under the topic ‘The COVID-19 Shock to Developing Countries: Towards a “whatever it takes” program for two-thirds of the world’s population to being left behind’, in which it is predicted that most of the exporting countries will see a USD 2 – 3 trillion declines in investment from overseas in coming years, which will further lead to the GDP going down. UNCTAD also said that in recent days, emerging economies and China have put together large policy packages that would provide a USD 5 trillion lifeline to their economies according to the Group of 20 leading economies (G20).

Information that March marked the beginning of a deep global recession is mounting. The extent of the downturn is starting to emerge in the initial drip of worldwide economic results, showing a trade cratering, reined-in corporate spending, cowering customers, and rising unemployment, which spares few sectors. The phenomenal impact on global trade through the ocean is also very apparent. The containers are dwelling at the transit points and ports unable to move from the manufacturing origin to the sale destination. As per the IHS Markit study compiled by Bloomberg, the U.S. export volumes in the first two full weeks of March showed shipments abroad at less than half the year-earlier level. The automobile market and trade are badly hit with the spare parts and raw materials that are sourced from one country not reaching the manufacturing plants in another. As per another Bloomberg data, 19% of the fleet of ships that used to transport vehicles are anchored without any movement as per March data which is only expected to increase.

Coronavirus lockdowns have closed industries from India to Italy and left billions of people homebound for weeks, triggering a concurrent supply and demand scare that is snarled global manufacturing and distribution networks designed without the adequate capability to withstand a shock of this scale. Even though the lockout may have been appropriate to restrict the spread of coronavirus, as others have believed, this does not fix the issue. It simply offers the government with some leeway to manufacture and deliver more test kits, raise test levels, speed up the availability of ventilators, and, among other items, ensure the health of medical personnel. The shutdown can just delay the issue without such steps.

For at least 21 days, the main part of the non-agricultural population would have no employment. There would be a significant rise in violence, in the absence of major public action. This lockdown also affects production. The dramatic production and distribution curtailment means all manner of shortages will arise fairly soon. Consumption demand, the Indian economy’s backbone, will also slip as sales crashes, and private investors will be rattled and unsure. Many independent businesses would even be wiped out.

The $23-billion budget revealed on March 26 by finance minister Nirmala Sitharaman is so low it’s disappointing. Often the outlandish-named “PM Gareeb Kalyan Scheme” is a modification of certain advantages of current schemes. The increased investment introduced in this plan will only amount to about 0.5 percent of the projected GDP — a marginal boost that would do little to stop the economy’s free fall. Compare it to other governments and more to come who have announced relief and investment programs of somewhere from 5-10 percent of GDP.

India’s central bank has already announced several emergency response initiatives, including a freeze on interest rates for those who have used term loans, although it is only voluntary. The Reserve Bank of India must ensure that this is mandatorily enforced by banks and non-bank borrowers and also ensure that interest does not escalate in this moratorium time, to avoid inflation and even the failure of MSMEs.

Furthermore, the provision of essential and necessary resources is important. This involves enabling these manufacturers, plants and processing units to understand their input specifications as well as backward and forward connections. In other terms, allowing for the whole production and distribution environment.

If production is authorized, which plants should be permitted to operate and which manufacturing units? How to preserve social distancing standards? How will delivery be coordinated with environmental issues in mind?

This entails preparation and cooperation between the government of the center and the state, as well as financial tools to promote and activate this. This problem has not been properly acknowledged so far, such that even the movement laws have to be continually revised only to ensure sufficient delivery.

Governments elsewhere in the world know there is no time to think about budget deficits and the like. Then, to return from this unprecedented situation, they have to do “whatever it takes” Unless the health pandemic is going to turn into an economic disaster beyond repair.

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