The COVID-19 pandemic is threatening the global economy, which was already heading towards a recession. The epidemic has dealt a defining blow to the major industries across several countries with massive supply-chain related disruption.
The uncertainty has grown with nation-wide lockdowns and other containment measures. Several countries across the globe are feeling the heat and India is no exception. However, this pandemic has come at the most inappropriate time for South Asian countries including India, as the economy in these countries was already freezing or fizzing out.
India’s growth rate fell to 4.5 per cent in Q2 FY20 from around 8 per cent in Q4 FY18. In World Economic Outlook’s January 2020 update, the International Monetary Fund (IMF) downgraded India’s growth estimates for 2019 to 4.8 per cent. The problem certainly existed even before the onset of the pandemic.
However, industry experts like Pawan Ruia were upbeat about the future, as India’s economy was still showing a decent growth trend compared to many other countries. With major economies across the world looking down the barrel, it would be overly optimistic to think that India won’t be affected at all.
India’s recent economic struggle could be linked to the uncertainties triggered by the US-China trade war and other internal factors. But, that’s a different debate altogether, especially during the current circumstances. At this juncture, the immediate economic and market impacts of the coronavirus are making the headlines.
The financial markets of India have been hit hard as rupee has dropped to a new low against the dollar. Other than financial shocks, India has had no answers to the demand-side hurdles, which have been increased by the nation-wide lockdowns and containment measures.
With the number of infections increasing day by day, one can expect a prolonged lockdown across the country, which will again hit the economy. The repercussions or the aftershocks will continue to make an impact, even after the lockdown is over.
There are not many options left for the government either. It is important to take every measure to save the lives of the people. On the other hand, the government will try its best to avert the damage with the limited fiscal space. Ultimately, the onus may fall on the Reserve Bank of India (RBI) to do more heavy lifting in this difficult time. However, the inadequate monetary policy transmission may prove to be a thorn in the flesh.
According to Pawan Ruia, it will be too early to predict the overall impact of COVID-19 on the Indian economy. This time, the country’s position will be more influenced by the situation across the world, which can be only assessed when the pandemic is completely over.