Impact of Lockdown and COVID-19 on the Indian Economy

12 Apr 2020

The Novel Coronavirus (or COVID-19) pandemic is causing a significant impact on individual lives, businesses, and the economy. The Indian economy was already witnessing a slowdown in the last few quarters and the current pandemic is going to make the recovery even more difficult.

To curb the spread of the pandemic, the Government announced a 21-day national lockdown starting from March 25, 2020. This was a necessary step as it encourages social distancing, which is the only way to break the cycle of infection. Though the supply and distribution of essential products & services are exempted from the lockdown, it is the most vulnerable sections of the society that are bearing the brunt of this.

The Confederation of Indian Industry (CII) invited close to 200 CEOs from different sectors to participate in an electronic survey titled ‘CEOs Snap Poll on Impact of COVID-19 Lockdown on Industry’. The unanimous survey outcome was the pandemic followed by the subsequent lockdown, has significantly impacted the domestic economy and a further decline in the topline & bottom-line for the current & previous quarters is to be expected.

Close to 75 percent of the respondents expect revenues to fall more than 10 percent in Q4, FY20. As far as bottom-line is concerned, close to 67 percent of the respondents expect the bottom-line (or net profit) to decline more than 5 percent. The expectations of the sharp decline in revenue and net profit are indicators of the impact that this outbreak has on the domestic companies and overall GDP growth.

Along with a decline in an economy, comes subsequent loss of employment. In wake of the COVID-19 pandemic, approximately 52 percent of the firms foresee job losses in their respective sectors post lockdown. According to a CII survey, around 46 percent of the respondents believe that the pandemic will have no major impact on the job market and therefore no expectations of job loss. Majority of the firms expect less than 15 percent job loss whereas 32 percent expect job losses to be in the 15~30 percent range. The repercussions on the job market will only be evident once the lockdown ends.

The complete lockdown has brought most businesses to a standstill, wherein their inventory is not going out in the market. More than 80 percent of the firms from the CII survey claimed that their inventory was currently lying idle and 64 percent opine that the inventory will be cleared in less than 30 days. Close to 36 percent of the respondents expect a demand slowdown in the post lockdown period.

Though the Central Government has allowed transportation and distribution of essential services during the lockdown, many issues had to be fixed to ensure smooth inter-state transportation. Most of the firms engaged in the production of essential products and supply of ancillary goods faced issues such as constrained operations in production & supply of those goods, access to manpower, and movement & distribution of products.

Apart from the national lockdown to curb the contagion, the Government announced a relief package of Rs. 1.70 lakh crore to provide a safety net for those hit hardest by the lockdown. 

CII suggests that the implementation of the fiscal stimulus package should be done in a fast track mode as the sudden imposition of the lockdown has significantly impacted industry operations and uncertainty of a recovery threatens a substantial loss of livelihoods going forward.

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