Study Banking
Study Banking
Study Banking
PROJECT ON
“STUDY OF IMPACT OF COVID 19 IN INDIAN ECONOMY ”
SUBMITTED BY
NISHAD RAHUL RAJENDRA
SEAT NO.: 4134
FOR
OF
UNIVERSITY OF MUMBAI
2022-2023
CERTIFICATE
Examiner: ___________
DATE: ___________
ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous, and the depth is
so enormous
I would like to acknowledge the following as being idealistic channel and fresh
dimensions in the completion of this project
I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me chance to
do this project
I would like to thank our Director Dr. Sopan Bhamre for providing the necessary
facilities required for completion of this project
I take this opportunity to thank our CO ORDINATOR Prof. Vijay Vanjare for his moral
support and guidance
I would like to express my sincere gratitude toward my project guide Prof. Deepika Rao
whose guidance and care made the project successfully
I would like to thank my college LIBRARY for having provided various reference Books
and magazines related to my project
Lastly, I would like to thank each and every person who directly or indirectly helped me
in the completion of the project especially MY PARENTS AND PEERS who supported
me throughout my project work
EXECUTIVESUMMARY
The outbreak of the Covid-19 pandemic is an unprecedented shock to the Indian
economy. The economy was already in a parlous state before Covid-19 struck. With the
prolonged country-wide lockdown, global economic downturn and associated disruption
of demand and supply chains, the economy is likely to face a protracted period of
slowdown. The magnitude of the economic impact will depend upon the duration and
severity of the health crisis, the duration of the lockdown and the manner in which the
situation unfolds once the lockdown is lifted. In this paper we describe the state of the
Indian economy in the pre-Covid-19 period, assess the potential impact of the shock on
various segments of the economy, analyse the policies that have been announced so far
by the central government and the Reserve Bank of India to ameliorate the economic
shock and put forward a set of policy recommendations for specific sectors The
unprecedented lock-down has had a significant adverse effect on the economy. Millions
of jobs and livelihoods are now at stake. As activity around the country came to a halt,
with no job or income, more than 50 million migrant workers either returned to their
native villages or shifted to camps inside the cities because state borders were sealed.
While there are reports of some of them returning back to the cities now in search of
jobs and livelihoods majority have not yet come back thereby imposing a massive
strain on labour supply in the urban areas. Transportation of raw materials and finished
goods across states was also severely constrained. Countries have closed national borders
bringing international trade and commerce to an abrupt halt. All these are severely
disrupting supply mechanisms and distribution chains in almost all sectors. At the This
shows that the government now has very little fiscal room. As the crisis unfolds, falling
tax collections, declining revenues of public sector enterprises and rise in health sector
expenses will further hamper the ability of the government to support the economy. Even
without any additional expenditure, the deficit would go up substantially because of the
decline in tax revenues and disinvestment receipts. Net tax revenues in April 2020 fell by
a staggering 70% compared to April 2019. If state-level deficits are added, then the
overall fiscal deficit in 2020-21 could very well exceed 10% of GDP, even without taking
into account the off-balance sheet items. Financing such challenge . The world has
witnessed several epidemics such as the Spanish Flu of 1918, outbreak of HIV/AIDS,
SARS (Severe Acute Respiratory Syndrome), MERS (Middle East Respiratory
Syndrome) and Ebola. In the past, India has had to deal with diseases such as the small
pox, plague and polio. All of these individually have been pretty severe episodes.
However the Covid-19 which originated in China in December 2019 and over the next
few months rapidly spread to almost all countries of the world can potentially turn out to
be the biggest health crisis in our history. Many experts have already called this a Black
Swan event for the global economy. India recorded the first case of the disease on January
30, 2020. Since then the cases have increased steadil significantly. At the time of writing
of this chapter. The unprecedented lock-down has had a significant adverse effect on the
economy. Millions of jobs and livelihoods are now at stake. As activity around the
country came to a halt, with no job or income, more than 50 million migrant workers
either returned to their native villages or shifted to camps inside the cities because state
borders were sealed. cities now in search of jobs and livelihoods majority have not yet
come back thereby imposing a massive strain on labour supply in the urban areas.
Transportation of raw materials and finished goods across states was also severely
constrained. Countries have closed national borders
OBJECTIVE
Through the research we get the information about the sudden financial crisis.
Through the research we will knowledge about the priority sector that affect the Indian
economy.
These research shows the gdp of Indian economy.
These research is helpful to get information about how government deal the situation and
balanced the financial crisis.
Through the research we will get to know about how covid had become a huge problem
on the businessman.
INDEX
1 INTRODUCTION 1-43
4 FINDING 51
5 RECOMMENDATIONS 52-53
6 CONCLUSION 54-55
7 REFRENCE 56
8 ANNEXURE 57-60
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
INTRODUCTION
We are in the middle of a global Covid-19 pandemic, which is inflicting two kinds of
shocks on countries: a health shock and an economic shock. Given the nature of the
disease which is highly contagious, the ways to contain the spread include policy actions
such as imposition of social distancing, self-isolation at home, closure of institutions, and
public facilities, restrictions on mobility and even lock-down of an entire country. These
actions can potentially lead to dire consequences for economies around the world. In
other words, effective containment of the disease requires the economy of a country to
stop its normal functioning. This has triggered fears of a deep and prolonged global
recession. On April 9, the chief of International Monetary Fund, Kristalina Georgieva
said that the year 2020 could see the worst global economic fallout since the Great
Depression in the 1930s, with over 170 countries likely to experience negative per capita
GDP growth due to the raging coronavirus pandemic. The world has witnessed several
epidemics such as the Spanish Flu of 1918, outbreak of HIV/AIDS, SARS (Severe Acute
Respiratory Syndrome), MERS (Middle East Respiratory Syndrome) and Ebola. In the
past, India has had to deal with diseases such as the small pox, plague and polio. All of
these individually have been pretty severe episodes. However the Covid-19 which
originated in China in December 2019 and over the next few months rapidly spread to
almost all countries of the world can potentially turn out to be the biggest health crisis in
1
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
our history. Many experts have already called this a Black Swan event for the global
economy. India recorded the first case of the disease on January 30, 2020. Since then the
cases have increased steadil significantly. At the time of writing of this chapter (July 2nd
week, 2020), and as shown in figure 1, India has recorded the third highest Covid-19
caseload in the world after the United States and Russia with more than a million
confirmed cases and more than 25,000 deaths .5 The doubling rate has steadily gone up
to around 18-22 days (figure 2) and the daily new confirmed cases are around 28,000-
30,000. However, as shown in figure 1 the growth in active cases is lower than the
growth in total cases implying a relatively high recovery rate which has continued to
improve. Also figure 3 shows that, unlike other affected countries the number of daily
new cases is yet to reach the peak in India. Globally there have been more than 13million
confirmed cases and close to 6 lakh deaths (World Health Organization).
In order to curb the spread of the virus, the government of India announced a nationwide
lock-down starting March 25, 2020 which continued for about two months. All non-
essential services and businesses, including retail establishments, educational institutions,
places of religious worship, across the country stayed closed during this period and all
means of travel were stopped, aside from some inter-state transport permitted towards
end April and early May to let migrant workers, stranded pilgrims, tourists and students
return to their native places At the time this was the most far-reaching measure
undertaken by any government in response to the pandemic and till date remains the
world’s biggest lock-down in context of this disease. Subsequently from end May early
June onward the lock-down was gradually relaxed in a phased manner but continued in
high-risk zones or ‘containment’ areas. This was required given the uneven spread of the
pandemic across the country with some states like Delhi, Gujarat, Maharashtra, Tamil
Nadu, West Bengal etc reporting higher than average confirmed cases and also given the
tremendous hardship that the nationwide lock-down had begun imposing on the overall
economy. With the continued surge in cases, after an initial phase of relaxations in June,
the nationwide lock-down was extended till July 31 albeit in a less strict manner
compared to the lock-down of March 24.
Measured relaxations have been permitted in areas outside the ‘containment or high-risk
zones’ including opening of non-essential establishments, and businesses. Domestic
2
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
issued by the government to ensure safe travel of the passengers amidst the pandemic.
However restrictions on educational institutions, places of public gathering such as
shopping malls, gymnasiums, swimming pools, cinema theatres, entertainment parks,
places of religious worship, operation of metro train services etc continue. While
vehicular movement within states is allowed there remains in place a night- curfew
period in almost all states. The re-imposition of the lock-down has delayed any chance of
economic recovery that was anticipated once the first phase of ‘unlocking’ had begun in
June.The lock-down was primarily intended to buy time to prepare the health system and
to put together a plan of how to deal with the outbreak once the case-load started
accelerating. India's public health system is relatively weaker than other countries. The
government spends only 1.5% of the total GDP on public health as a result of which the
system remains grossly under-prepared to deal with a health crisis such as this. To the
extent possible the lock down period was used to ramp up testing. Contact tracing
isolating confirmed patient in designated quarantine centers and setting up treatment
facilities including make shift hospital. However the health care system continues to be
over whelmed by the rising number of patients every day especially in the worst affected
states.
3
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
The shock is playing out in almost a similar manner in all countries of the world in terms
of demand and supply disruptions and the consequent economic slowdown. In case of
India however the problem might be more acute and longer lasting owing to the state the
economy was in, in the pre-Covid-19 period. By the time the first Covid-19 case was
reported in India, the economy had deteriorated significantly after years of feeble
performance.
GDP (gross domestic product) growth rate has been on a downward trajectory since
2015-16. According to the official statistics, GDP growth slowed down to 4.2% in 2019-
20, the lowest level since 2002-03. Industry, which accounts for 30% of GDP, shrank by
0.58% in Q4, 2019-20. Unemployment reached a 45-year high. A major driver of growth
in any economy is investment by the private corporate sector. In the pre-Covid19 period,
nominal values of private sector investment have been declining. The total outstanding
investment projects between 2015-16 and 2019-20 declined by 2.4%, whereas new
projects announced fell by 4%, as per data from the CMIE (Centre for Monitoring Indian
Economy). Consumption expenditure had also been falling, for the first time in several
decades. High frequency indicators (figure 4) of urban consumption demand show that
4
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
(Source: RBI (2020)February 2020, reflecting weak rural demand. The lock-down would
have dampened any chance of revival of consumption demand and private investment.) A
few specific factors make India's position particularly vulnerable as it tries to deal with
the ongoing economic crisis.
5
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
INFORMAL SECTORE :
India has a vast informal sector, the largest in the world, employing close to 90% of its
working population and contributing more than 45% to its overall GDP. This sector was
hit by two consecutive shocks in a short span of time, from 2016 to 2019. The first shock
was Demonetisation in November 2016 when 86% of the money in the economy became
unusable overnight owing to a government decree, followed by the haphazard
introduction of the Goods and Services tax in 2017.
While demonetisation was a big enough monetary shock, it did not fundamentally disrupt
deman and supply mechanisms for too long. There was a temporary lack of means of
payment.8 We now know in hindsight that people found work-arounds in the forms of
electronic payments, informal credit, converting black money into white, using old notes
etc. In the case of the current crisis, the demand is not there, the supply is not there, and
hence the underlying revenues are not there. This is therefore much more problematic.
With the Covid-19 outbreak, the already struggling informal sector has been
disproportionately affected (Ray and Subramanian, 2020).
6
Covid-19:
19: Impact on the Indian Economy SYMMS(SEM III)
THE BANKING
ANKING AND CORPORATE SECTOR :
During crisis times one sector of the economy that is required to play a crucial role in of
terms Alleviating the pressure on the real economy is the financial sector. The need of
flowing to all categories of economic agents firms household
the hour is to keep Credit flowing
etc. to help them tide over this Crisis. In a bank dominated economy, particularly at a
time when the stock market is touching news Lows every day, the financial interdiaries
urn to are the banks. Action taken by Banks would be crucial in
that most firms will turn
addressing this economic challenge. Banks also pay a vital role as
Institutional participants in the debt market. However, the banking sector in India is
badly broken. Banks, especially the public sector banks, have been struggling to deal with
mounting losses from non performing assets on their balance sheets. The problems in the
non-performing
banking sector have been adversely affecting credit growth and by the time the
problem had begun to hurt the debt markets as well which also
pandemic hit India, these problems
play an important role in the context of financial intermediation. This could rapidly
become a serious choke point as the Indian economy struggles to come to terms with this
unprecedented shock. Over the last few years, India has been dealing with the Twin
Balance Sheet (TBS) stresses in the banking and corporate sectors. This was a
consequence of high levels of non performing assets (NPAs) in an inadequately
non-performing
capitalised banking system, combined with over-leveraged
o leveraged and financially weak firms in
the private corporate sector (Sengupta and Vardhan, 2017, 2019). The government and
7
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
the banking regulator (RBI) took a series of steps to address the crisis. These included
putting the weakest ten banks under a Prompt Corrective Action framework which
prevented them from expanding their books, initiating investigations by the Central
Vigilance Commission (CVC), Central Bureau of Investigation (CBI) etc. against senior
officials of the banks, and directing banks to trigger the Insolvency and Bankruptcy Code
(IBC, 2016) against defaulting firms and accept large haircuts even when capital to
provide for the losses was not sufficient. In some cases senior officials of banks were
arrested for allegedly fraudulent credit transactions.9 In February 2016, the Supreme
Court issued a ruling which held that employees of all banking companies, foreign as
well as domestic, are “public servants” under India's Prevention of Corruption Act, 1988
(“POCA”).
Post the IL&FS crisis credit spreads on corporate debt securities remained elevated and
overall bank lending, after an initial spurt in the last quarter of FY2019 (mostly lending
to NBFCs), tapered off. Commercial credit witnessed a sharp decline of almost 90% in
the first half of FY2020. In the months of February and March, 2020, the near-demise of
Yes bank, a large private sector bank, triggered the risk of deposit squeeze for private
sector banks which would further curtail credit growth.11 As a result, credit off-take
during 2019-20 (up to March 13, 2020) was muted with non-food cre credit 6.1% being
less then half of the growth 14.4% in the corresponding period of the previous year
(figure 5). This was also the lowest growth rate of non-food bank credit in nearly six
decades.
8
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
While part of the fail in commercial credit growth may have been due to lack of demand
given the balance Sheet crisis in the private corporate sector anecdotal evidence suggest
thar reluctance banks to extend credit has also been a factor as submitted by the RBI
governor himself in recent times. The consequence of heighted risk avaersion in the
banking system have begum hurting the debt market in a sutution where bank credit
growth has been at a multi decade low. Debt market especially the short term debt market
plays a vital role in financial firms.
9
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
10
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
If state-level deficits are added, then the overall fiscal deficit in 2020-21 could very well
exceed 10% of GDP, even without taking into account the off-balance sheet items.
Financing such challenge. This shows that the government now has very little fiscal
room. As the crisis unfolds, falling tax collections, declining revenues of public sector
enterprises and rise in health sector expenses will further hamper the ability of the
government to support the economy. Even without any additional expenditure, the deficit
would go up substantially because of the decline in tax revenues and disinvestment
receipts. Net tax revenues in April 2020 fell by a staggering 70% compared to April
2019. If state-level deficits are added, then the overall fiscal deficit in 2020-21 could very
well exceed 10% of GDP, even without taking into account the off-balance sheet items.
Financing such high levels of deficit poses a serious challenge. monetary policy has its
limitations too which had become apparent in the run-up to this crisis. In response to the
growth slowdown, the Reserve Bank of India (RBI) embarked on a path of monetary
expansion. Between October 2018 and December 2019, it freed up around Rs. 4 trillion
of liquidity through open market operations15, and reduced the repo rate16 by 135 basis
points to 5.15% – the lowest since March 2010. Yet, credit growth did not pick up,
primarily due to the heightened risk aversion in the banking sector, as discussed earlier,
and low credit demand from the stressed private corporate sector.
Monetary policy transmission in India has been weak owing to structural deficiencies
such as illiquid bond market, large sections of the population left out of the formal
financial system etc. In addition, an impaired banking system and lacklustre investment
demand from the private corporate sector, will further hamper the transmission of a
policy rate cut to aggregate demand and hence growth. In other words, the combination
of demand and supply shocks are hitting the Indian economy at a time when the tools to
deal with the crisis are mostly ineffective, namely fiscal, monetary and financial. Over
and above this, the external sector of the economy has been weakening as well. The
nominal value of exports of goods and services – another important driver of growth –
witnessed a decline by 8.49% in Q4, 2019-20.
11
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
IMPACT OF CRISIS :
12
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
electricity demand declined to 30% below last year’s levels (figure 8) and gradually
recovered thereafter. Since June end there has been no further moderation in the pace of
deceleration in electricity demand. Vehicle registration related transactions declined
dramatically in end March and April, began improving since May but have begun falling
again in the first couple of weeks of July (figure 9). Overall cargo throughput at majority
of theIndian ports was down by around 20% year on year in March and April, particularly
in cargo segments such as petroleum products, thermal coal and containers.
13
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
UNEMPLOYMENT RATE :
unemployment rate fell sharply to 11% reflecting the first round of relaxation of
lockdown restrictions. There was also a significant recovery in the labour participation
rate. Since then the unemployment rate has been stagnant at 11%. This is still higher than
the pre-lockdown rate but significantly less than what was recorded during the peak of
the lockdown from end March to end May. The labour participation rate recovered faster
than the unemployment rate but in July this too has been slowing down indicating some
sort of a plate auing out. The firms in the private corporate sector which have been
deleveraging for the last few years in response to the TBS crisis and those with relatively
deep financial pockets, will perhaps be able to tide over this episode, also depending on
which sector they are operating in. A large number of firms will however struggle to
survive. They have to pay rents, salaries, debts etc., even as their revenues will steadily
keep falling as people change lifestyles and cut back on expenditures.
Many of these firms will end up defaulting on their loans due to persistent fall in
revenues. The firms that were near insolvency will end up in the bankruptcy process
(which too is likely to get jeopardised further owing to the lockdown measures), and
those that were undergoing insolvency resolution process under IBC will most likely get
pushed to liquidation. Several large business houses have already invoked the provisions
of force majeure to stall the payment of license fees, rents etc., and to restrain the
invocation of penalties.This further highlights the severity of the problem at hand. Over
and above the domestic problems, the Indian economy will also continue to get affected
by the global recession that may last for a while.21 This is bound to have spill over effects
through financial and trade linkages of India with the rest of the world. Already foreign
investors have been pulling money out of the Indian financial markets and are fleeing to
safe assets as stock markets have crashed.
14
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
The agriculture sector is critical as large number of workers and the entire country's
population are dependent on this sector. The performance of agriculture is also key to
the state of rural demand. In the pre- Covid-19 period, agricultural GDP experienced an
average growth rate of 3.3% per year in the six-year period 2014-15 to 2019-20 with
intermittent fluctuations22. The provisional estimates of the National Statistical
Office (NSO) show that GDP growth in agriculture has increased from 2.4% in FY19 to
4% in FY20. It was also relatively better at 3.5% in Q3 of FY20. However, the terms of
15
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
trade have moved against agriculture during 2016-17 to 2018-19 due to bumper crop and
horticultural production which caused a decline in food prices. Terms of trade for
agriculture seems to have improved in 2019-20 as the nominal agricultural GDP growth
was 11.4% as compared to real growth of 4%. Growth in rural wages was subdued in the
pre-Covid-19 period, particularly for agricultural labour in both nominal and real terms,
partly due to the slowdown in the construction sector (figure 11).
Figure 11: Growth in rural wages
The adverse impact of Covid-19 on agriculture has been much less as compared to
manufacturing and services. However the initial lockdown did affect agricultural
activities and the necessary supply chains through several channels: input distribution,
harvesting, procurement, transport hurdles, marketing and processing. Closure of
restaurants, transport bottlenecks etc reduced the demand for fresh produce, poultry and
fisheries products, affecting producers and suppliers. It may be noted that in rural areas,
non-farm incomes and employment have been rising. In fact, a NABARD survey shows
that only 23% of rural income is from agriculture (cultivation and livestock) if we
consider all rural households. Around 44% of income is from wage labour, 24% from
government/private service and 8% from other enterprises. It shows that income from
non-farm sector is the major source in rural areas. In the pre-Covid-19 period, rural
incomes were partly affected because of lower real wage growth24. Media reports reveal
that the rural wages are declining due to the arrival of migrant workers from the cities.
However, the lockdown has affected urban areas more than rural areas. In June and July,
2020, the rural recovery outpaced that of urban areas. The demand for tractors also rose
in rural areas.
16
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
17
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Their supply chain has been disrupted, and they have been adversely affected by the
exodus of migrant workers, restrictions in the availability of raw materials, by the
disruption to exports and imports and also by the widespread travel bans, closure of
malls, hotels, theatres and educational institutions etc. This, in turn, have massively
hampered the MSME businesses. A recent survey in MSMEs by the All India
Manufacturers Organisation (AIMO, June 2020) shows that 35% of MSMEs and 43% of
the self-employed said that they see no chance of recovery in their businesses and have
begun shutting down their operations. As a consequence, hundreds of thousands of
people who work for these small businesses may end up with job and salary losses. The
experience of small and medium businesses during the lockdown in China might be
useful for India. In order to examine the impact of the pandemic on SMEs, the Enterprise
Survey for Innovation and Entrepreneurship in China led by Peking University did a rapid
follow-up survey of 2349 previously sampled SMEs which are largely representatives at
the provincial level (Zhand, 2020). According to this survey, SMEs are struggling to
survive. Around 14% of the surveyed firms will be unable to last beyond a month on a
cash flow basis, and 50% beyond three months. It shows a gloomy picture of SMEs under
an extended epidemic scenario in China. The constraints vary along the supply chain. For
example, upstream firms are mainly affected by labour shortage while downstream firms
face more serious challenges related to supply constraints and consumer demand.
However, the impact seems to be different across sectors. Export firms suffered more
than non-export firms as they employ more migrant workers and their supplies are highly
concentrated. Overall the survey shows that Covid-19 has dealt a heavy blow on the
SMEs of China. The same story is likely to get repeated for India as well.
18
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
As the ramifications of the health shock and the repercussions of the country-wide
lockdown become clear with each passing day, the risk aversion of the banking system
will get significantly aggravated. As more and more firms struggle to stay afloat and are
unable to repay their dues amidst the massive demand and supply disruptions, corporate
delinquencies will go up and the level of NPAs in the already fragile banking system will
increase precipitously. Moody’s Investors Service has already changed the outlook for
the Indian banking system to negative from stable, as it expects deterioration in banks’
asset quality due to disruption in economic activity.In the 2011-2019 period, bulk of the
NPAs originated in the private corporate sector. These were secured loans where some
recoveries are possible especially given the IBC. With Covid-19 disrupting jobs and
income sources of millions of people, defaults from the retail sector are also likely to
soar. Indian households were already highly leveraged going into the current crisis. Once
unemployment goes up and source of income disappears especially for those connected to
the informal sector, they will find it difficult to repay existing loans, let alone make new
expenditures. All these are unsecured loans which make the situation worse. India does
not have a personal insolvency law yet. In other words, there is no recourse for either the
defaulting individuals or the banking system when personal loan defaults start rising,
both from urban and rural regions of the country. It is also possible that this time around
19
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
the private sector banks will be worse affected than the PSBs. In the earlier NPA crisis,
bulk of the NPAs originated in the infrastructure and other heavy industries who had
borrowed from PSBs during the credit boom period of 2003-2008. However as the TBS
stress began to unfold during the 2011-2019 period, firms in these industries either began
deleveraging or they are already undergoing bankruptcy resolution in the courts Defaults
will not only rise in the banking system but also in the NBFCs who lend to the MSME
(Micro, Small and Medium Enterprises) sector as the latter's earnings will fall sharply.
Particularly worrisome might be the depth of financial stress faced by the large micro-
finance sector (NBFC-MFIs) that provides support to innumerable small and micro
enterprises throughout the country
FINANCIAL MARKET :
Since the outbreak of Covid-19, there has once again been turbulence in the debt markets.
Credit spreads of corporate debt papers have risen sharply to levels higher than what was
witnessed in the aftermath of the IL&FS crisis of September 2018. Debt mutual funds,
even those that invest at the short end of maturity – liquid funds, ultra-short duration
funds etc. have taken serious hits to their net asset values (NAVs) making investors
nervous. These funds are considered investments second only to bank deposits in terms
of safety and hence decline in their NAVs is a matter of concern. Confluence of several
factors has led to the current turmoil in the debt market. Foreign institutional investors
(FIIs) have been steady investors in Indian debt over the last few years due to arbitrage
between international interest rates and Indian rates along with a generally stable
currency. As the Covid-19 pandemic began spreading across countries and especially
affected the US, growing risk aversion and flight to safety led these investors to sell large
volumes of Indian debt paper, in addition to stocks (figure 12). Overall, FPI outflows
were of the order of USD 7.1 billion in 2019-20 (up to March 31, 2020). In addition to
this, March is generally tight liquidity period in India. Advance tax payments, financial
year ending, etc. result in greater demand for cash during this period. these factors along
with the general risk aversion triggered by the Covid-19 outbreak and the associated
business disruption are likely to push firms to redeem their investments in debt funds and
stock pile cash.
20
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
This has already created extra ordinary redemption pressures on mutual funds. Ideally,
mutual funds would respond to these redemption pressures by selling the debt securities
that they have been holding to interested buyers in the secondary market.
However we are now facing a peculiar situation wherein the mutual funds are not able to
do so because of high risk aversion on part of the biggest liquidity suppliers in the
markets – the banks. secondary debt market. As shown in figure 7a earlier, banks’
investments in commercial papers, bonds, debentures and shares of public and private
corporations, as reflected in non-SLR investment, were lower during H2:2019-20 (up to
March 13, 2020) than a year ago (RBI, 2020). With the largest liquidity pool away from
the secondary markets mutual funds are left with no option other than distress selling
securities at whatever price they get in order to meet the redemptions. This has severely
impacted their NAVs which may further exacerbate investor concerns leading to more
redemptions and triggering a vicious cycle.The equity market has been hitting new lows
every day since the outbreak of Covid-19. In March 2020, panic selling due to the
pandemic shaved off 23% market capitalisation of companies listed on the National Stock
Exchange (NSE) within a span of just a single month. The BSE S&P Sensex behaved
similarly, losing 23% of its value during March 2020. Although the sell-off was
witnessed across-the-board, textiles, electricity, mining and food product companies.
21
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
The immediate objective of the policy responses to the economic impact of Covid-19 is
to ameliorate the effect of the shock on economic agents in both the formal and the
informal sectors and to help them tide over the crisis. Against the background of a weak
economy, the twin shocks of Covid-19 and lockdown are operating at two levels:
Creating supply-side disruptions
22
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Right now, a large number of consumers all over the country are only spending on
essential commodities such as food, groceries, and medicines. Demand for nearly all
non-essential goods and services has remained suppressed for nearly two months, even
if consumers have the purchasing power. We call this Round 1 of the demand problem.
The gradual relaxation of the lockdown that is currently underway will release some
pent-up consumption demand. However, in view of the prevailing jobs and income
related uncertainty, large parts of demand are likely to stay subdued for a long time,
especially discretionary expenditures.
The Round 1 demand problem is getting aggravated due to the loss of jobs of millions of
migrant workers and daily wage earners, who have been forced to return to their native
villages because of the lockdown. The formal sector too has been witnessing
retrenchment of contract employees, reduction in variable pay, etc. These factors have
led to a significant decline in disposable incomes. This problem will worsen over time,
unless the authorities step in with adequate relief measures.
If the lockdown continues in some form or the other, and supply shocks continue
unabated, there will be a Round 2 of the demand problem. A large number of white-
collar workers will lose jobs or face reduced salaries because many financially stressed
businesses will no longer be able to keep them on the payroll. The Round 2 effect, which
will play out in the medium term, might be more severe because it will have a broader
impact on purchasing power. As this happens, and the demand contraction becomes
more acute, many more firms will struggle to stay solvent or even to survive. In other
words, the economy may get trapped in some sort of a vicious cycle of low demand–
high unemployment–low demand.
23
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
the discussion above demonstrates the kind of fiscal support that might be necessary right
now.
On the supply side: To extend financing to firms to enable them to stay solvent and to
help resolve other supply disruptions.
On the demand side: To give relief to those who are in need, to help prop up demand.
The central government and RBI have announced an initial round of fiscal and monetary
policies respectively as well as some broader economic reforms. In addition, several
state governments have also announced fiscal stimulus measures.
24
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
On March 26, 2020 the Finance Minister announced a Rs. 1.7 lakh crore package largely
aimed at providing a safety net for those who have been worse affected by the Covid-19
lockdown i.e. the unorganised sector workers, especially daily wage workers, and urban
and rural poor.27 The “Pradhan Mantri Garib Kalyan Yojana” contains the following
components:
Free additional 5 kg wheat or rice per person for 3 months;
Rs.500 per month to 200 million female Jan Dhan account holders for next 3 months;
The new spending proposed in this package would amount to around 0.85% of estimated
GDP.
25
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Atmanirbhar Package:
In May 2nd week the Finance Minister announced a comprehensive economic relief
package called the “Atmanirbhar (self-sufficient) package”, which had three components:
(i) monetary actions, (ii) fiscal actions, and (iii) economic reforms. Fiscal actions:
Policies focusing on low-income households include repackaging old schemes, increasing
the allocation of existing schemes, and some new initiatives:
Front-loading payments under the existing Pradhan Mantri Kisan Samman Nidhi
(PM-KISAN) Yojana to the tune of Rs. 160 billion
Direct benefit transfers (DBT) to old age people, and widows, under Ujjwala Yojana, and
under Jan Dhan Yojana amounting to Rs. 470 billion
Extending MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) to
migrant workers, and to some workers in organised employment, adding up to about
Rs. 922 billion
A fund for construction workers of about Rs. 310 billion
Direct food distribution using stocks available with the Corporation of India to the tune
of. 35billion
Salient fiscal initiatives focusing on MSMEs (micro, small, and medium enterprises)
include:
Rs. 3 trillion collateral-free bank loans to MSMEs with 100% credit guarantee28. The
guarantee will be provided by the National Credit Guarantee Trust Co. Ltd (NCGTC).
Government investment of Rs 100billion in funds that in turn will invest Rs 500 billion in
26
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
1 lakh crore Agri Infrastructure Fund for farm-gate infrastructure for farmers.
Rs. 20,000 crores for Fishermen through Pradhan Mantri Matsya Samparda Yojana
National Animal Disease Control Programme for Foot and Mouth Disease (FMD) and
Brucellosis launched with total outlay of Rs.13,343 crores
Rs.4000 crores for promotion of Herbal Cultivation
Rs. 500 crores for improving supply chains for all fruits and vegetables
Agricultural Reforms
Amendments to Essential Commodities Act to Enable better price realisation for farmers
27
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
A major component of the ‘fiscal package’ is the MSME loans backed by 100%
government guarantee (Sengupta and Vardhan, 2020a). Given the risk aversion in the
banking system, the government needs to step in to bear some of the credit risk, so that
banks can do what they are good at, which is, allocating capital. To this end, a credit
guarantee scheme is a step in the right direction. Another advantage is that credit
guarantees do not have immediate impact on the government budget. However, there are
two issues with the announced scheme. First, credibility of a credit guarantee scheme and
the lenders’ trust in it depends a lot on the details of the scheme. There may not be any
take up until the government clarifies the mechanics of the scheme (such as conditions
imposed on availability of the guarantee, have been a partial one.
The fiscal announcements (more than 70% of the intended benefits) rely
disproportionately on the financial sector – especially the government-owned banks and
NBFCs – to deliver the credit-related components of the package. There are two
problems with this:
Given the risk aversion in the PSBs, unless the detailed mechanics of the scheme (such as
the conditions imposed on the availability of the guarantee, the timeline to make claims
and encash the guarantee, etc.) are spelled out by the government, the banks are unlikely
to embrace it despite the 100% guarantee.
Implementation of many of the initiatives will require proper targeting of beneficiaries
and an efficient delivery mechanism. This in turn would require close coordination
28
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
between the central, state, and local governments. In absence of this, effective
implementation of these announcements would be doubtful.
On the supply side, the package addresses the financing problems, but in an inadequate
way, and there is nothing to address the other issues related to supply chain disruptions.
Announcements regarding existing schemes (such as MGNREGA, DBT, PM-Kisan etc) are
meant to address the demand side problems but given the severity of collapse in
aggregate demand, the monetary amounts appear insufficient. Overall the package is
unlikely to provide any significant relief to a crisis-ridden economy.
The economic reforms that were announced are necessary and long awaited, but their
benefits will accrue in the long term. They will not do anything to resolve the problems
that the economy is facing right now.
While the aggregate ‘benefit’ of the package was announced to be Rs. 20 trillion or 10%
of GDP the package entails an incremental government spending of only Rs. 2.6 trillion,
which is less than 2% of GDP.
Careful assessment of the package announced by the Indian government therefore shows
that given the widespread demand destruction, the package will fall short and may need
to be enhanced. The fiscal initiatives only address the financing constraints on the supply
side, that too inadequately.
Table 4: Covid-19 Stimulus Commitment Size (as % of GDP)
Country % of GDP Country % of Country % of GDP
GDP
India 1.3** France 11.38* Australia* 8.02
US 10.71* UK 15.27* Russia 0.30
Italy 1.30 South Korea 5.13 Malaysia 16.17
China 1.32* Brazil 2.10 Japan*** 10.00
Spain 15.29* Canada 2.16
Germany 20.95* Israel 5.94
Note: Govt. support includes loans and credit guarantees for companies, direct transfers
(in some cases via employers) to workers, tax freeze and debt repayment moratorium.
Not all countries have done all of these.
29
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
*includes loan packages/bailout funds, and liquidity support, apart from fiscal response.
***Not announced yet, based on government intention. Source: Economic Times, April
4, 2020
Reacting to the ‘Pradhan Mantri Garib Kalyan Yojana’ announced in the end of March,
2020, Nobel Prize winning economists Abhijit Banerji and Esther Duflo have commented
that the government should have been more bold with the social transfer schemes.
According to them “what the government is offering now is small potatoes – at most a
couple of thousands for a population that is used to spending that much every few days.
Several commentators have highlighted that countries in Europe and the US are spending
significantly more to take care of the impact due to the pandemic (table 4). The US has
announced a package of $2 trillion and it is 10.7% of their GDP. Similarly, the financial
package as per cent of GDP is much higher in countries like France, Spain, Germany,
Australia and Malaysia (table 4).
RBI POLICY ACTION :
The “Atmanirbhar package” also included monetary policy actions introduced by the
RBI earlier. For instance, on 27 March, 2020 RBI announced a number of major
initiatives to combat the crisis.29 In particular, Four bold measures were taken, following
an “out of cycle” i.e., unscheduled Monetary Policy Committee (MPC) meeting:
The repo/reverse repo rates were cut by sizeable amounts, to 4.40/4.00% from
5.15/4.90%. The 91- day Treasury bill rate, which measures the de facto stance of
monetary policy, dropped to 4.31% from 5.09% on 26 March. Subsequently in April the
repo rate was further cut to 4%.Ordinarily, banks can borrow on a short-term basis from
the RBI using the repo window. To supplement this facility, a new `targeted long-term
repo operations' (T-LTRO) mechanism, with a limit of Rs.1 trillion, was announcedand
non-convertible debentures, over and above the outstanding level of their investments
30
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
in these bonds as on March 27, 2020. Subsequently RBI announced another round of
such targeted repo operations...
The cash reserve ratio (CRR) was reduced by 1 percentage point, bringing it down to 3%
of deposits (“net demand and time liabilities”). This is the first time the CRR has been
changed in the last 8 years.
Banking regulation requires banks to recognise and provide for a loan when there is a
delay in payment. According to the Prudential Framework for Resolution of Stressed
Assets, banks are required to classify loan accounts in special mention categories in the
event of a default.30 The account is to be classified as SMA-0, SMA-1 and SMA-2,
depending on whether the payment is overdue for 1-30 days, 31-60 days or 61-90 days,
respectively. RBI has now modified this regulation, so that banks can offer a moratorium
of 90 days (subsequently extended to 180 days) for term loans and working capital
facilities for payments falling due between 1 March, 2020 and 31 May, 2020. If a firm
applies for and receives a moratorium, the loan account in consideration will continue to
be recognised as a standard asset and the SMA classifications will no longer apply.
Interest on the term loans will continue to accrue during this period.In addition to these
policy actions, earlier in February, the CRR was exempted for all retail loans to ease
funding costs for banks. The implementation of the net stable funding ratio (NSFR) and
the last stage of the phased-in implementation of the capital conservation buffers have
been delayed by six months. On 1 April, the RBI created a facility to help with state
governments' short-term liquidity needs. classification for bank loans to NBFCs has been
extended for on-lending for FY 2020/21 (IMF, 2020). On the external front, on 16 March,
RBI announced a second FX swap (USD2 billion dollars, 6 months, auction-based) in
addition to the previous one with equal volume and tenor. The limit for FPI investment in
corporate bonds has been increased from 9% to 15% of outstanding stock for FY
2020/21. Restriction on non-resident investment in specified securities issued by the
Central Government has been removed.
31
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Monetary policy is most effective when economic agents understand and can anticipate
the behaviour of the MPC. This process of learning and understanding is still underway,
since India is in the early years of building up the credibility of the inflation targeting (IT)
framework and the MPC process. So, one would have expected that the MPC statement
would take pains to spell out its macroeconomic forecast, explaining why it believed the
rate cut was consistent with its commitment to the 4% inflation target. But it did no such
thing.
The MPC statement did not explain the rate decision in the context of a revised inflation
forecast, or any other element of a macroeconomic forecast. Indeed, it did not offer any
justification at all for the magnitude of rate cut chosen. Since the rate cut announcement
was not couched in the standard IT framework, the public does not have the assurance
that the rate cuts will be reversed when inflation begins to rise again.
Under the March 27 package, the RBI has given regulatory approval to banks and other
lending institutions to decide which of their customers needs a 90-day (or 180-day as per
the extension later on) deferral. This decision, to allow banks but not require them, to
grant moratoria is a good one, as it allows banks to distinguish amongst the three types of
firms. Even so, the plan is not without drawbacks:
No mechanism was created to classify the loans that have been rescheduled, so
transparency has been lost. Investors – already nervous because of accounting surprises
at Yes Bank and other financial institutions – will consequently provide capital only at a
cost marked up to reflect this information risk premium. And this increase in banks’ costs
will be passed on to the borrowing corporate sector.
There seems to be a considerable amount of confusion about how EMIs on retail loans
will be treated. For example, many borrowers may have missed one payment on their
32
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
loans in say February2020. If they receive a moratorium on their EMI payments for
March, April and May it is not clear whether their February EMI will become 90dpd in
May. If that happens, then their accounts will become NPAs and the borrowers will get
reported to the Credit Bureau thereby affecting their credit histories.
It seems that the moratorium is not applicable to loans taken from banks by the NBFCs.
This is problematic. NBFCs have already been in significant financial trouble since 2018
and now they may have to offer the 3month moratorium to their customers. But if they
themselves are not able to benefit from this deferral, then their financial stress will get
even more aggravated. This is especially true of the MFIs. While RBI has announced the
T-LTRO mechanism, most NBFCs do not issue bonds and hence are unlikely to benefit
from this.
Finally, and most importantly, there is no clarity on what happens once the moratorium
period is over. How will banks clean up the mess that will be created later, as many of the
firms which benefitted from the moratorium end up defaulting? There will be a new wave
of NPAs, which we know from experience will be difficult to resolve. This gets all the
more complicated because the Insolvency and Bankruptcy Code (IBC, 2016) has now
been suspended for one year. This implies that once the moratorium period gets over
there is no recourse to any systematic legal framework for the banks to resolve the
stressed assets that may accumulate on their balance sheets if firms start defaulting on
their debts at the end of the moratorium period.
There is also a risk that now that a “temporary” moratorium has been introduced, there
will be pressure for it to be extended again and again which has already happened once
and is likely to happen again for some specific sectors. If the RBI is unable to resist, we
will quickly find ourselves back in the ‘extend and pretend’ era of post-2008, where
banks, investors, the RBI, are all navigating in a fog, since no one will know, and hence,
be able to deal with the true size of the bad loan problem.
Banks are already saddled with old NPAs from the pre 2020 period much of which have
not yet been resolved and with the IBC suspended are unlikely to see any resolution for
the rest of 2020. This is already acting as a drag on their balance sheets. Over and above
this the ongoing crisis will lead to large scale corporate bankruptcies. Any return to the
33
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
post-2008 era style restructuring schemes by the RBI, which permitted the banks to hide
the problem for years, will further worsen the problem.
Policy challenges
While some policy actions have already been announced by the government and the RBI,
they are mostly interim measures and are not going to be adequate to support the
economy. Given the current macroeconomic and financial environment in India, there are
significant challenges in fiscal, monetary and financial policies which have to be taken
into consideration by the policymakers. Even more important, there are some policy traps
that must be avoided in order to prevent a long-term economic disaster. The objective
must be to ensure a V-shaped economic recovery once the health crisis abates. In case of
fiscal policy, even assuming a conservative scenario where the government does not
incur any additional expenses due to Covid-19, the deficit will be greater than projected
value in the FY2021 budget. During the two month long lockdown, almost all economic
activities had been suspended and most of these are unlikely to resume in near future
given the nature of the health shock. As a result government revenues will fall drastically.
Given the depressed equity market condition and global economic uncertainty, the
disinvestment targets areunlikely to be met. Over and above this, much of the policy
actions required to minimise the economic fallout of the shock will involve government
spending. It is almost certain that the government will not be able to adhere to its fiscal
target for 2020-21 and will most likely breach it by a big margin. In India fiscal deficit is
supported by financial repression wherein government borrows from a captive market of
banks and other institutional buyers. In the pre-Covid-19 period, total government
borrowing (central and state) had already exceeded total household savings. Further
borrowing will sharpen the yields in the bond market and crowd out private capital at a
time when a large number of firms and households will need to borrow to stay afloat.
Moreover, gross domestic saving rate decreased to 30.1% of GDP in 2018-19 from
32.4%in 2017-18 (RBI, 2020). The saving rate of the household sector, which is a net
supplier of funds to the economy, declined from 23.6% of GDP in 2011-12 to 18.2% in
2018-19. To the extent that government relied heavily on households for financing its
deficit, this decline in savings does not bode well. The large scale income losses of many
34
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
businesses and households that are inevitable during this crisis imply that the savings rate
is likely to fall even further. These factors leave little room for the government to
increase its domestic borrowing. RBI has announced a scheme to encourage foreign
investment (FII) in government securities. As discussed in section 3, with the global
spread of the pandemic, FIIs have already been taking money out of the Indian capital
markets. Given the widespread risk aversion, it is unlikely that this route will bring in a
lot of financing for the government. If anything, the widening fiscal deficit may lead to a
sovereign rating downgrade or a lowering of the macro outlook which in turn will
increase the risk premium demanded by the FIIs. Therefore, the biggest policy challenge
now will be financing the rise in government deficit. The only favourable factor in this
regard is the sharp decline in global oil prices. Brent crude price has declined drastically
to USD 31.87 per barrel. There are now calls from certain quarters for the RBI to print
money to finance the rise in fiscal deficit, a practice that was prevalent in pre-
liberalisation India but since then has been discontinued. Monetisation of fiscal deficit
will create inflationary pressures, lead to greater uncertainty about future inflation,
increase long term interest rates and adversely impact growth, thereby defeating the very
objective of supporting the economy. This move will hurt the credibility of India's
inflation-targeting framework and attenuate the effectiveness of future monetary policy
action covid 19.
Policy recommendations
Within the constraints discussed above, there are a few actions that the policymakers can
consider as they gear up to deal with the economic crisis. A joint effort from both the
state and central governments is critical. Agriculture:
Safety of farm population: Farmers, agricultural labourers, workers in supply chains
have to be protected from the health shock. Now the pandemic is spreading to the rural
areas. Some of the measures like testing of rural population, social distancing in harvest
operations, procurement, marketing, packaging etc. will help in less spreading of the
pandemic.
35
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Supply chains: During the lockdown and beyond, one has to concentrate on smooth
operation of post-harvest activities, marketing of production, retail, wholesale, storage
and transport. Negotiable warehouse receipts for godowns and storage have to be
intensified. Revival of supply chains is needed for ensuring higher prices for farmers and
generating employment for agricultural labourers and other rural workers.
Procurement measures: It is important to have continued markets for farmers. Farmers
with perishable products need help as they face more problems. Government should have
smooth procurement operations for Kharif crops. Milk and poultry industry: Small
farmers in poultry and milk activities need more help as they are facing problems due to
the pandemic. For industry, moratorium or restructuring of loans may be needed.
Food security for farm families and agricultural workers: Although farmers are
involved in production of crops, they also face food related problems. Farmers and agri.
Workers have to be included in the in-kind assistance package or any social protection
programmes announced by the governments. At present, PM-Kisan includes only land
owners. Tenant farmers who are the actual cultivators should be included in the scheme.
Avoid export bans: At the macro level, trade in food and agriculture has to be
maintained in order to have availability of food. Access to food has to be tackled in a
different way than having export bans. For example, some of the farmers are suffering
because of export restrictions. After the lockdown period, exports of farm products have
to be continued.
Agriculture reforms: The reforms relating to the Essential Commodities Act,
agricultural marketing and contract farming would help the farmers in raising their
incomes in the medium term. But, the government has to provide more clarity on these
reforms. One big point of discord that relates to the amendments to the Essential
Commodities Act is the provision to invoke its controlling powers on exempted food
items. That is, 100 per cent increase in retail price of horticultural produce or 50 per cent
increase in retail price of non-perishable items as compared to the previous 12 months or
last five years average, whichever is lower. This provision would restrict big-ticket
investments in the sector. There is a lot of confusion over some of the definitions which,
unless fixed, could lead to major implementation challenges. In addition, the provision to
refer all disputes in such forms of trade to the sub-divisional magistrate or the
36
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
conciliation board appointed by him gives a lot of powers to the officer. Another point
which is missing is taxes on inter-state trade. Now, if a trader buys goods from other
states, what happens to taxes other than mandi tax and cess that is levied. Though GST
will have taken care of a lot of these issues, but some clarity could have been better.
37
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
C) Commodity Price Impact: The disruptions in global demand have sent commodity
prices crashing, which would offer respite on raw material price front of manufacturers,
while squeezing margins of commodity-oriented sectors
d) Foreign exchange rate fluctuations to have bearing on import-heavy sectors with
forex-denominated cost structure. Rapid spread of the pandemic has also resulted in the
rupee crashing to record lows, adding dynamics of forex fluctuation to the evolving
equation
38
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
1. failure to disclose or adequately disclose risks that company faced, or failure of the
company to update prior disclosures as circumstances evolved;
2. inadequate steps to mitigate risks;
3. failure to observe recommended or required protocols; or
4. failure to develop adequate contingency plans.
Also, although many existing D&O policies may not be written with cyber and
technology related risks in mind, the failure to protect against and insure for privacy or
cyber liabilities could potentially lead to D&O liability.
7. Cyber insurance : A major boost has been seen and is further expected in cyber
insurance due to a reliance on remote access and increasing risks and vulnerabilities. The
insurance sector has witnessed a massive shift towards digitalisation. The 2008 Global
Financial Crisis propelled the redesigning of payment systems and processes and now
Covid-19 has forced insurers to adopt remote and digital ways of working, which is
undoubtedly set to drive a wider acceleration of technology adoption across the sector.
This trend, of course, has been with us for some years, but the current situation will
significantly expedite it. Insurers have undergone digital transformation at the product
level or specific elements in the supply chain but will now be urged to reprioritise
spending on technology into InsurTech, digital distribution and technological
infrastructure.
39
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Ten decision taken by RBI to counter the corona virus impact of economy :
The Reserve Bank of India asked all lending institutions to allow three month
moratoriumon EMI payments in order to infuse liquidity into the system amid novel
corona virus crisis. RBI governor Shaktikant Das in a press conference said these are
extraordinary circumstances, and unprecedented measures are required to support the
sagging economy as all the economic activities have come to a halt.
Repo Rate : RBI announced that it was cutting the Repo rate by 75 bps, or 0.75%to4.4.
the Repo rate was earlier 5.15;last being cut in October 2019.
Reverse Repo : The regulator also announced that it would cut the reverse repo rate by
90bps, or 0.90%. on a daily average , banks had been parking Rs 3 lakh crore with the
RBI. The current reverse repo rate was 4 %.
Loan Moratorium - In a massive relief for the middle class, the RBI Governor also
announced that lenders could give a moratorium of 3 months on term loans, outstanding
as on1 march , 2020. This is applicable to all commercial banks including regional ,
rural, small finance, co-op bank, all India financial institutions and NBFCs including
housing finance and microfinance.
CRR: The RBI also announced that the cash reserve ratio would be reduced by 100bps,
or1% , to 3%. This would be applicable from March 23, and would inject Rs.137,000
crore.
LTRO : The RBI will also undertake long term Repo operations; allowing further
liquidity with the banks. The banks however are specified that this liquidity will be
deployed in commercial papers, investment grade corporate bonds and non -convertible
debentures.
Ease of working Capital financing: Lenders were allowed lending to recalculate
drawing power by reducing margins and / or by reassessing the working capital cycle for
40
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
the borrowers. The RBI also specified that such a move would not result in asset
classification downgrade.
Working capital interest : A three month interest moratorium shall also be permitted
Total lending institutions.
Deferment capital interest: The net stable funding ratio, which reduces fund in grisk by
requiring banks to fund their activities with sufficiently stable sources of funding was
postpone to October 1, 2020. The NSFR was earlier supposed to be implemented by
April 1, 2020.
MSF : Marginal standing facility has also been increased to 3 % of SLR, available till
June30,2020. This measure should provide comfort to the banking system by allowing it
to avail an additional 137000 crore of liquidity under the LAF window in times of stress
at the reduceds aid the RBI.
Fresh Liquidity : The impact of all the announcements today shall inject almost
3.2%ofGDP, the Governor said in his brief today.
41
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
As many states have imposed localised lockdowns, the hospitality sector is facing a
repeat of 2020. The hospitality sector includes many businesses like restaurants, beds and
breakfast, pubs, bars, nightclubs and more. The sector that has contributed to a large
portion of India’s annual GDP has been hit hard by restrictions and curfews imposed by
the states.
2. Tourism Sector:
The hospitality sector is linked to the tourism sector. The sector that employs millions of
Indians started bouncing back after the first wave, but the second wave of covid was back
for the devastation! The tourism sector contributes nearly 7% to India’s annual GDP.
It comprises hotels, homestays, motels and more. The restrictions due to the second wave
have crippled the tourism sector, which was already struggling to recover from the initial
loss suffered by the businesses in 2020.
Aviation and other sector establishments faced a massive struggle during the second
wave of the pandemic. The larger travel sector is also taking a hit as people are scared to
step out of their homes. For airlines and the broader travel sector, its recovery will
depend on whether people in future will opt for such services. At present, the outlook for
the aviation and broader travel sector does not look good.
4. Fiscal Deficit:
42
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
The Covid-19 pandemic has not affected our fiscal deficit and disinvestment target much.
In this year’s union budget, Finance minister Nirmala Sitharaman announced a fiscal
deficit target of 6.8% for 2021 to 2022. India’s fiscal deficit for 2020-21 zoomed to 9.5%
of GDP as against 3.5% projected earlier. Our finance minister has promised to achieve a
fiscal deficit of 4.5% of GDP by 2025-26 by increasing the steaming tax revenues
through increased tax compliance as well as asset monetization over the years. According
to the medium-term fiscal policy statement that the government had presented in
February 2020, the fiscal deficit for 2021-22 and 2022-23 was at 3.3% and 3.1%
respectively.
43
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
RESEARCH METHODOLOGY
WHAT IS RESEARCH?
Research takes place with the purpose of acquiring knowledge to contribute to further
investigation or process to inform action, to prove a theory, or to reach a result. To
produce fruitful experience, the Research must be of high quality. And types of
Research Methodology support to get the best-suited outcome. We can understand the
significance of Research with some fundamental points:
The importance of Research in any field can’t be ignored. But many skip researching
before starting anything. Lazy students and disinterested academics do not realize the
need for doing research, but it is an imperative procedure to ensure the safety or positive
result of their work. The research covers not only the education field, but it covers both
professionals and non-professionals. Even for non-professionals, it is meant to acquire
knowledge which helps them to sharpen their skills to survive around intelligence and
improve their confidence.
44
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
DEFINITION
In Research, the world’s’ signifies frequency and intensity, while the ‘search’ syllable is
synonymous with discovery. This way, ‘research’ means – the repetitive and in-depth
findings of the objects. In other words, searching for the core of the items, making some
conclusions, discovering new theories, and clarifying those contributions fall under the
process of “research”.
The techniques or the specific procedure which helps the students to identify, choose,
process, and analyze information about a subject is called Research Methodology. It
allows the readers to evaluate the validity and reliability of the study in the research
paper. In simple words, it describes what you did and what made you reach this obtained
result. It is practical to know ‘how’ the given Research or any specific piece of Research
was done. How a researcher designs a comprehensive study to get a reliable outcome
which justifies the objectives of the course can be figured out by research methodology.
45
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
PRIMARY DATA
Primary data is a type of data that is collected by researchers directly from main sources
through interviews, surveys, experiments, etc. Primary data are usually collected from the
source—where the data originally originates from and are regarded as the best kind of
data in research.
The sources of primary data are usually chosen and tailored specifically to meet the
demands or requirements of a particular research. Also, before choosing a data collection
source, things like the aim of the research and target population need to be identified.
For example, when doing a market survey, the goal of the survey and the sample
population need to be identified first.
This is what will determine what data collection source will be most suitable—an offline
survey will be more suitable for a population living in remote areas without internet
connection compared to online surveys.
46
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
47
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
SECONDARY DATA
WHAT IS SECONDARY DATA?
Secondary data refers to data that is collected by someone other than the primary
user. Common sources of secondary data for social science include censuses, information
collected by government departments, organizational records and data that was originally
collected for other research purposes.
Secondary data analysis can save time that would otherwise be spent collecting data and,
particularly in the case of quantitative data, can provide larger and higher-
quality databases that would be unfeasible for any individual researcher to collect on their
own.
In addition, analysts of social and economic change consider secondary data essential,
since it is impossible to conduct a new survey that can adequately capture past change
and/or developments.
However, secondary data analysis can be less useful in marketing research, as data may
be outdated or inaccurate.
Secondary data can be obtained from different sources:
Information collected through censuses or government departments like housing, social
security, electoral statistics, tax records, internet searches or libraries, GPS, remote
sensing, km progress reports. Administrative data and census, Government departments
and agencies routinely collect information when registering people or carrying out
transactions, or for record keeping – usually when delivering a service. This information
is called administrative data.
It can include:
Personal information such as names dates of birth, addresses, information about schools
and educational achievements, information about health, information about criminal
convictions or prison sentences, tax records, such as income.
A census is the procedure of systematically acquiring and recording information about
the members of a given population. It is a regularly occurring and official count of a
particular population.
48
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
It is a type of administrative data, but it is collected for the purpose of research at specific
intervals. Most administrative data is collected continuously and for the purpose of
delivering a service to the people.
The secondary data is acquired from the sources of research papers, books, websites and
internet
49
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
FY 20 says, lockdown was imposed for one month at the beginning of the year. It says
that essential commodities and services were fully excluded from the lock down and not
anyone was affected or suffered significantly from this pandemic.
The economy of the country in the future scenario assumes to face limited loss and would
increase if the lock down was extended for another month. To prevent the production
activity of the producers over the time had consequences for industries as they have to
pay a high fixed cost on manufacturing. In such pandemics making an absence of
targeted policies, lock down would have pushed companies closer to their shut down
points which may cause permanent loss of livelihoods and income.
The future and pessimistic simulations for the "Rest of the Economy" assume the decline
of 1%, 2% and 4%, which results in growth rates of 3.5% 2.5% and 0.4% in the
simulations with the 2020 pandemic which was assumed to occur in 2019. The industry
was facing demand problems due to which business houses were reluctant to undertake
plans, unemployment was at its peak and exports which were consistently down for
several months.
Due to the measures adopted to prevent the spread of the corona virus disease 2019
especially social distancing unlock down, non essential expenditures are being postponed.
This indirectly causes aggregate demand to collapse across India. In addition there will
also be widespread supply chain disruption, as some people stay home, others go back to
the villages, imports are disrupted and foreign travel is stopped. This negatively affected
the industries, production import and export. Gradually it affected all sectors of the
economy- manufacturing, mining, agriculture, public administration, construction. And
adversely affects investment, employment, income and consumption, pulling down the
aggregate growth of the economy.
Along with India, several international economies faced the risk being overly dependent
on one market. This situation can be turned into learning opportunities for India and can
walk on capturing potentially 40% of their competitors market share by looking at
indigenous production of google aggregate growth of the economy.
50
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
FINDINGS
the INDIAN of the Economy, including rural manufacturing and production for export.
Given the limited knowledge about the effect of lock down on speed of transmission and
the increasing death rate of known infected cases, a rigorous cost benefit analysis is very
difficult. The extension of the lockdown to May 3rd, 2020 is therefore a risk averse
strategy appropriate for non-quantified risks.
Due to the measures adopted to prevent the spread of the Coronavirus Disease 2019
(Covid-19), especially social distancing and lockdown, non-essential expenditures are
being postponed. This is causing aggregate demand to collapse across the India. In
addition to the demand reduction, there will also be widespread supply chain disruptions,
as some people stay home, others go back to their villages, imports are disrupted, and
foreign travel is stopped. This will negatively affect production in almost all industries.
Gradually the shock will spread to manufacturing, mining, agriculture, public
administration, construction – all sectors of the economy. This will adversely affect
investment, employment, income, and consumption, pulling down the aggregate growth
rate of the economy.
51
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
RECOMMENDATIONS
On 30 January 2020, with the advice of WHO, the government of India initiated
awareness of proper hygiene and sanitation steps to protect from the spread of diseases . A
major focus was put on proper handwashing, covering oneself, while coughing and
sneezes, social distancing, thorough cooking of meat and dairy, and avoiding contact
from wild or farm animals. WHO country office of India (WCO) worked with ICMR and
National Centre for Disease Control for building laboratory capacity and disease
surveillance, respectively.
By 9 March 2020, WCO, along with the Ministry of Information and Broadcast, directed all
telecom operators of India to launch a special COVID-19 caller tune to raise awareness
about the prevention strategies as cases began to rapidly rise after Italy’s surge of cases
.In a bid to amplify sales, Reckitt Benckiser, prominent health, hygiene, and home
products company, released a liquid handwash advertisement, vilifying rivals Hindustan
Unilever’s soap bar by claiming that the formers liquid handwash is more effective for
cleaning hands. Bombay High Court eventually suspended the ad for one month from 22
March to 21 April to stop unverified claims and to malign soap bars . By 21 March 2020,
the Ministry of Consumer Affairs, Food and Public Distribution Department of Food and
Public Distribution has increased the line of ethanol/Ethyl Alcohol/Extra Neutral Alcohol
(ENA) production by states and union territories of India to meet the urgent requirements
by health facilities.
After the imposition of the first lockdown at the end of March, the government released
several guidelines on protection methods, such as making face masks compulsory in
52
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
public places, but preferably using reusable masks, leaving medical masks for health
professionals . Public guidelines, such as social distancing, avoiding spitting in public,
and avoiding mass gathering was enforced. Following mass misinformation spread
among the citizens through social media, regarding false remedies and fake news, the
government of India launched a ‘MyGov Corona Helpdesk’ on the highly popular social
media application WhatsApp, to receive Indian-centric accurate and verified information
. The rumors were also addressed by WHO and physicians regarding false claims of
alcohol and garlic intake as a cure, along with universal mask usage and panic purchase of
goods to be avoided .
Dedicated Health Facility (DHF) follows the triage system of segregating patients
according to the severity of disease symptoms in a temporary emergency ward in tertiary
facilities with premium amenities. The patients are put in separate units based on the
confirmed cases of COVID-19 and suspected cases awaiting test results and/or persons
who were in close contact with a confirmed case and are treated accordingly
53
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
CONCLUSIONS
After detecting the first case on 30 January 2020, India experienced a delayed growth in
the case-count. However, India’s low testing efforts might imply an understatement of
COVID-19 cases as testing strategy and capacities were slowly expanded. Moreover, the
overtly selective strategy of only screening symptomatic passengers also
underrepresented the actual case counts. This further emphasized the presence of
unreported cases in India. A universal testing strategy for all symptomatic, asymptomatic,
presymptomatic, and paucisymptomatic cases is necessary to adequately mitigate the
growing trend of COVID-19 spread, especially in India given the massive population of
the country and increased risk of community transmission.
54
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
of having high estimated numbers of unknown cases is coherent regarding the relatively
few tests conducted by the Indian government.
55
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
REFERENCE
https://timesofindia.indiatimes.com/readersblog/mymusiclife/impact-of-covid-19-on-
indian-economy
http://www.scielo.org.mx/scielo.php?
https://en.wikipedia.org/wiki/Economic_impact_of_the_COVID-19_pandemic_in_India
https://www.ijcrt.org/papers/IJCRT2006648.pdf
https://www.researchgate.net/publication/354734267_Impact_of_Covid-
19_on_the_Indian_Economy
https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap01.pdf
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8609511/
https://www.nabard.org/auth/writereaddata/tender/1211203145Impact%20Assessment%2
0of%20COVID.pdf
https://www.gapinterdisciplinarities.org/res/articles/(130-
133)%20IMPACT%20OF%20COVID-19%20ON%20INDIAN%20ECONOMY.pdf
56
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
ANNEXURE
Rest of Economy and Overall Effect of Pandemic
The hypothetical simulations for FY20 assume that the Lockdown was imposed for one
month at the start of the year and Essential commodities & services (public
administration, agriculture, public utilities, services related to broadcasting and
communication) where fully exempt from the lockdown and were neither affected by it
nor suffered significantly from the Pandemic.
The “Rest of the Economy” is assumed in the optimistic scenario, to face limited costs
due to a one-month lockdown and the pandemic per se, though this increases
substantially if the lockdown is extended another month. Preventing production activity
over time can have consequences for industries with high fixed costs such as
manufacturing. In the absence of coordinated and targeted policy response, prolonged
lockdowns can push companies closer to their shutdown points which will cause
permanent loss of livelihoods and consequently, income.The Optimistic, “Most likely”
and Pessimistic simulations for the “Rest of the Economy” assume a decline of 1%, 2%
and 4%, resulting in growth rates of 3.5%, 2.5% and 0.4% in the simulations with 2020
pandemic assumed to occur in 2019. These simulations, along with the projections made
for the Contact services in the previous section, yield a hypothetical growth rate of GVA
of 3.3% in the optimistic scenario, 1.7% in the most likely scenario and -0.4% in the
pessimistic scenario (table 6). The last scenario assumes that any recovery will be limited
to just 5 per cent in the second half of the financial year and that will not be enough to
make up for the negative growth registered during the first half of the financial year.
57
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Essential
5442793 5.2 5.2 5.2 5.2
Commodities
In figures 5, 6 and 7 illustrate the quarterly pattern of economic loss for various quarters
for for the three scenarios. The key difference between these three scenarios is the extent
of recovery experienced in the second quarter along and the effects of contagion fears
from the Corona Virus which will persist in aviation sector well beyond the second
quarter
One can think of three phases within the financial year. In the first quarter, economic
activity (supply & demand) is shut down for 60% of the economy (i.e. except Essential
commodities and services), and remains very constrained as the lock-down is phased out
at a different pace in different States and Industries. In the next two quarters of the
financial year, there is a gradual pickup in economic activity, slower in contact sectors
and much faster in the rest of the economy. Normalization of sorts is anticipated in the
last quarter, almost completely for the Rest of the economy constituting 50% of GVA and
incompletely for Contact services constituting 10% of the GVA.
The “most likely” scenario assumes that while recovery in the rest of the economy will
begin from the end of second quarter, contact services will continue to struggle
throughout the second quarter (figure 5). In this case, rest of the economy will experience
a slight contraction due to slower recovery during the second half of the financial year.
Figure 5: Expected quarterly pattern of Loses from Pandemic; Most Likely Scenario
The optimistic scenario anticipates a quick recovery from the second quarter onwards
including for contact services except for aviation. Railways, road transportation and other
activities pick up due to strong recovery experienced in the manufacturing sectors ( figure
6). This results in positive growth for all the three categories.
58
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
Table 7 presents the results of simulations, for the reduction in sectoral GDP for FY2020,
from the levels which would have prevailed in ta situation of Pandemic Crisis in the
absence of the lockdown. The lockdown is estimated to reduce GVA by -2.2 per cent of
non-crisis GVA if it lasts for 2 weeks and -9.4 per cent of non-crises GVA, if it lasts for 2
months. The losses in the Contact service sectors are the highest, with their contribution
to the overall loss twice that of the rest of
Table 7 presents the results of simulations, for the reduction in sectoral GDP for FY2020,
from the levels which would have prevailed in ta situation of Pandemic Crisis in the
absence of the lockdown. The lockdown is estimated to reduce GVA by -2.2 per cent of
non-crisis GVA if it lasts for 2 weeks and -9.4 per cent of non-crises GVA, if it lasts for 2
months. The losses in the Contact service sectors are the highest, with their contribution
to the overall loss twice that of the rest of the economy
Duration of
=> 2 weeks 1 month 2 months
Lockdown
Essential
0.0 0.0 0.0
Commodities
The key issue in an extended lockdown till end of May would be the disruption of supply
chains that will start impacting essential commodities which could be immune from the
disruption in the first two scenarios. This occurs primarily due to logistics sector acting as
a constraint despite exemptions to essential commodities. Even though the Contact
Services are Worst hit, it contributes only 13% to the total loss in GVA. As 87% of the
59
Covid-19: Impact on the Indian Economy SYMMS(SEM III)
loss from the Lockdown is contributed by Rest of the Economy, these sectors must be
prioritised for phasing out of the lockdown with appropriate socio-spatial distancing
rules.
The costs of lockdown have been implicitly acknowledged by the Prime Minister while
announcing an extension subject to phased liberalization focused on the Rest of the
Economy, including rural manufacturing and production for export. Given the limited
knowledge about the effect of lock down on speed of transmission and the increasing
death rate of known infected cases, a rigorous cost benefit analysis is very difficult. The
extension of the lockdown to May 3rd, 2020 is therefore a risk averse strategy appropriate
for non-quantified risks.
Growth in 2020-21
We estimate that the economic impact of the Pandemic is to reduce GVA growth by 1.6%
to 5.3%. Given a pre-pandemic GDP growth forecast of 5.5% for 2020-21, growth is now
forecast to be between 0.2%. and 3.9% with a likely value of 2.3% [table 8]
60