PRINCIPLE OF ECONOMICS ASSIGNMENT

BY : BOLLA SUSHMA
ROLL NO : 05
ENROLLMENT NO: BT16CIV017

IMPACT OF COVID -19 ON GLOBAL ECONOMY:

 The pandemic has pushed the global economy into a recession , which means the
economy starts shrinking and growth stops.
 Amid the coronavirus pandemic , several countries across the world imposed
lockdowns to “flatten the curve of infection” .
 These lockdowns confined millions of citizens to their homes , shutting down
businesses and ceasing almost all Economic activities.
 The severity of the economic impact will largely depend on two factors :
1. The duration of restrictions on the movement of people and
2. Economic activities in major economies .
 The International Monetary Fund (IMF)estimated that global economy shrinks by 3%
in 2020 which is far worse than the 2008 global financial crisis.
 In US , COVID -19 led millions filing for Unemployment benefits . In March alone ,
more than 36 million have filed for Unemployment benefits , which is almost a
quarter of working population.
 Further an early analysis by IMF reveals that the manufacturing output in many
countries has gone done , which caused a fall in external Demand.
 Advanced economies have been hit harder , and are expected to contract by -6 % in
2020.Emerging markets and Developing Economies are expected to contract by
-1%.If china is excluded from this pool of countries , the growth rate for 2020 is
expected to be -2.2 %.
 Economies of the different countries are expected to contract as mentioned in the
below table:

Country % Contraction of Economy

US 5.9
Japan 5.2
UK 6.5
Germany 7.0
France 7.2
Italy 9.1
Spain 8.0
  The analysis by the UN Department of Economic and Social Affairs (DESA) said the
COVID-19 pandemic is disrupting global supply chains and international trade.
 With nearly 100 countries closing national borders during the past month, the
movement of people and tourism flows have come to a screeching halt.
 Taking into account rapidly changing economic conditions, the UN DESA's World
Economic Forecasting Model has estimated best and worst-case scenarios for global
growth in 2020. They are :
1. In the best-case scenario - with moderate declines in private consumption,
investment and exports and offsetting increases in government spending in the
G-7 countries and China – the global growth would fall to 1.2 per cent in
2020.
2. In the worst-case scenario, the global output would contract by 0.9 % instead
of growing by 2.5 per cent - in 2020. The scenario is based on demand-side
shocks of different magnitudes to China, Japan, South Korea, the US and the
EU, as well as an oil price decline of 50 per cent against our baseline of USD
61 per barrel.

 A sharp decline in consumer spending in the European Union and the United States
will reduce imports of consumer goods from developing countries.

 Developing countries, particularly those dependent on tourism and commodity

exports, face heightened economic risks.

 Global manufacturing production could contract significantly, and the plummeting

number of travellers is likely to hurt the tourism sector in small island developing
States, which employs millions of low-skilled workers.

 The GDP estimates of different countries before and after COVID 19 pandemic is
listed in the table below:

Country GDP growth in Expected GDP Expected GDP

2019 (%) growth (January) growth (April) %
%
US 2.30 2.00 -5.90
China 6.00 6.00 1.2
Japan -0.70 0.70 -5.20
Germany 0.40 1.10 -7.00
UK 1.10 1.40 -6.50
France 0.90 1.30 -7.20
India 4.7 5.8 1.9
Brazil 1.67 2.20 -5.30
Canada 1.80 1.80 -6.20
IMPACT OF COVID 19 ON INDIAN ECONOMY :
COVID – 19 pandemic caused Market instability and lockdown in India.
 The Indian Economy was ₹32,000 crore (US$4.5 billion) every day during
the first21-days of complete lockdown, which was declared due to the coronavirus
outbreak.
 Under complete lockdown, less than a quarter of India's $2.8 trillion economic
movement was functional. Up to 53% of businesses in the country were projected to
be significantly affected.
 Major companies in India such as Larsen & Toubro, Bharat Forge, UltraTech
Cement, Grasim Industries, Aditya Birla Group, BHEL and Tata Motors have
temporarily suspended or significantly reduced operations.
 Young start-ups have been impacted as funding has fallen. 
 Fast-moving consumer goods companies in the country have significantly reduced
operations and are focusing on essentials.
 Various business such as hotels and airlines are cutting salaries and laying off
employees.
 Revenue of OLA cabs went down nearly 95% in March-April resulting in 1400
layoffs.
Outcome of COVID -19 pandemic in India.
 Sharp rise in unemployment.
 Stress on Supply chains.
 Decrease in government income.
 Collapse of Tourism Industry.
 Collapse of Hospitality Industry.
 Reduced consumer activity.

GDP growth rate declined :

 The union budget for FY2020-21 presented by finance minister Nirmala Sitharaman
had projected a GDP growth of 6 – 6.5% from 5 % for FY 2019-20.

 But due to COVID -19 pandemic and aggressive lockdown in India there is a slow
down in demand , closure of production activities , fall in the global price of crude
oil ,ban on foreign trade , price decrease in the commodities like energy , metals and
fertilizers , restrictions on the aviation industry and also on Tourism are bound to
exert downward pressure on inflation thus adversely affecting the economic chart.

 It is believed that aggressive lockdown in India could bring India’s growth rate from
4.8 % which was estimated earlier to 2.5%.
 The World Bank and many rating agencies  downgraded India's Economic growth for
fiscal year 2021 with the lowest figures India has seen in three decades since India's
Economic liberalisation in the 1990’s.
 Moody’s investor service estimated that India's GDP growth for 2020 is going to
degrade from 5.3% to 2.5%.
 Confederation of Indian Industry (CII) estimated that India's GDP for FY21 will be
between 0.9% and 1.5% .
 On 28 April the former Chief Economic Advisor to the Government of India has said
that India should prepare for a negative growth rate in FY21.

 After the announcement of Economic package by Indian government in mid may ,

India’s GDP estimates were downgraded even more to negative figures , indicating a
deep recession.

Impact on Trade :

 A UN report estimated a loss of more than USD 350 million on Indian trade due to
this pandemic , making India one of the top worst affected economies across the
world. During the same time Asian Development Bank (ADB) estimated that Covid19
outbreak could cost the Indian economy between $387 million and $29.9 billion .
 When we see the China’s Share in total import to India, India’s total electronic
imports account for 45% of China. Around one-third of machinery and almost two-
fifths of organic chemicals that India purchases from the world come from China.
 For automotive parts and fertilisers China’s share in India’s import is more than 25%.
Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain
mobile phones come from China to India.
section wise impact on Indian Industry

The United Nations Conference on Trade and Development (UNCTAD) the overall
trade impact for India was estimated to be as follows:

Industry Estimated Loss (million dollars)

Chemical sector 129

Textiles and apparel industry 64

Automotive sector 34

Electrical machinery 14

Leather products 13

Metals and metal products 27

Wood products and furniture 15

 Impact on Tourism Industry :
It is estimated that the loss to the tourism industry will be Rs 15,000 crore (US $2.1
billion ) for march and april alone.
Impact on Live events industry :
It has seen an estimated loss of ₹3,000 crore (US$420 million).
Impact on manufacturing :
Manufacturing , an important part of any economy suffers from total lack of clarity.
 Lockdown has put great stress on the supply chains of essential commodities and
therefore , many of the Indian companies have focused on the production and supply
of essential items only , thereby stopping all other production activities , thereby
bringing down the production graph.
Impact on Stock Markets :
 The Indian stock markets crashed due to uncertainty and lack of demand coupled with
no investments seen in near future. The worst crash of Indian stock market by 2352.6
points on one single day on 12.03.2020 is a cause of concern for all the Indian
economists and economic advisors.
However , after the declaration of complete lockdown , Sensex and nifty gained a
little , adding a value of about USD 66 million Dollar to Investors wealth. The trend
however reveals that the curve has been meandrical with absolute uncertainty.

Impact on state Income and Expenditure :

 State governments have incurred huge losses to the extent of having to cut capital
expenses, the government plans in the near future and finding alternate ways to pay
salaries.
 The Delhi government has fallen 90% short in tax collection as compared to 2019 and
is planning to take loans and raise taxes in certain sectors.

  Maharashtra put a hold on all new capital works till March next year;] spending under
government development schemes has been reduced by 67% for the current fiscal.
Adversely affected sectors in India :

Auto sector : 

Auto sector which includes automobiles and auto parts will continue to face challenges on
account of lack of demand, global recession and falling income levels.

Aviation & Tourism Industry :

It is one of the sector which has the highest probability of going under without direct
government intervention. In the next 12 months, it’s highly unlikely people will travel for
leisure apart from very essential travel.
Shipping and Non-Food Retail 

Non food retail chains and global shipping businesses will find this 12 month period very
challenging.

Building & Construction

Building and construction businesses are generally leveraged and hence will face the dual
challenges of high-interest payments and lack of sales.

Chemical Industry:
 Some chemical plants have been shut down in China. So there will be restrictions on
shipments/logistics.
 It was found that 20% of the production has been impacted due to the disruption in
raw material supply. China is a major supplier of Indigo that is required for denim.
Electronics Industry:
 The major supplier is China in electronics being a final product or raw material used
in the electronic industry. India’s electronic industry may face supply disruptions,
production, reduction impact on product prices due to heavy dependence on
electronics component supply directly or indirectly and local manufacturing.
Foreign Trade:
 China has been India’s largest source of imports since 2004-05, shows data from the
Centre for Monitoring Indian Economy (CMIE) database.
 In 2018-19, the latest period for which annual data is available, it had a share of
13.7% in India’s total imports. Any major disruption in the Chinese economy can
disrupt these imports and hence both production processes and supply of consumer
goods in India.
Effect on Poultry:
 The poultry industry in different parts of the country has been hit hard amid rumours
that the novel coronavirus can transmitted through consumption of chicken, the prices
of which have fallen considerably as a result.
 About two crore people employed in the poultry industry across the country have
been impacted. People were avoiding consumption of meat, fish, chicken, and egg etc.
Due to the fall in demand, wholesale price of chicken had dropped by as much as 70
per cent.
Solar Power Sector:
 Indian developers may face some shortfall of raw materials needed in solar
panels/cells and limited stocks from China.

Rise in Unemployment :
Within a month, unemployment rose from 6.7% on 15 March to 26% on 19 April. During
the lockdown, an estimated 14 crore (140 million) people lost employment. More than
 45% of households across the nation have reported an income drop as compared to the
previous year .

STEPS TO BE TAKEN BY GOVERNMENTS TO TACKLE ECONOMIC CRISIS

DUE TO COVID 19 :
The head of International Monetary Fund (IMF) mentioned that the global economy will
take much longer time to recover fully from the shock caused by coronavirus .

 A well-designed fiscal stimulus package, prioritising health spending to stop the

spread of the virus and providing income support to households who are most
affected by the pandemic would help to minimise the likelihood of a deep economic
recession.
 According to an assessment by the World Economic Forum (WEF) , supporting
SMEs and larger business is crucial for maintaining employment and financial
stability.

Economic packages announced by the governments of different countries so far :

Many advanced economies in the world have announced rolled packages . The package
percentage in the GDP of different countries is listed as follows :

Country Package % in their GDP

Japan 21.1
US 13
Sweden 12
Germany 10.7
France 9.3
Spain 7.3
Italy 5.7

Economic package announced by Indian government :

 In India , Finance minister Nirmala Sitharaman announced Atmanirbhar Bharat
Abhiyan with emphasis on India as self- reliant nation.
 This package is of worth of 20 lakh crore which is 10% of GDP to provide relief
medium , small and Micro Enterprises (MSMEs) in the form of an increase in credit
guarantees.
 According to these package the revised Definitions of MSMEs is as follows:

Classification of Manufacturing Service Enterprise

 Enterprises Enterprise ( Investment ( Investment in Equipment )
in plant and machinery )
Micro Up to Rs 25 lakh Up to Rs 10 lakh
Small Rs 25 lakh to Rs 5 crore Rs 10 lakh to Rs 2 crore
Medium Rs 5 crore to Rs 10 crore Rs 2 crore to 5 crore

The important Highlights of this package for MSMEs is as follows :

 Loans under 100 % credit gurantee of worth 3 lakh crore for MSMEs that were doing
fine before the pandemic hit and now in trouble.
 Interest to be capped for special loans.
 Rs 50,000 crores Equity infusement for MSMEs.
 Special MSME loan benefit to 45 lakh Units.
 Rs 20,000 crores subordinate debt for stressed MSMEs.
 Subordinate debt relief for 2 lakh stressed MSMEs.

The government of India also announced banning global

companies for participating in government tenders that are worth up to Rs 200 crore.
But critics warned that more clarity is needed how government defines what is a
global company and what is Indian and this would also cause problems in some
specialized sectors where are there are no Indian suppliers.

Further steps need to be taken by the governments:

 As lockdown is not the only solution to tackle this pandemic, governments should
think of alternate solutions to get back to normal routine and to restore economy.
 The pandemic must be dealt with on the Healthcare front fully and comprehensively,
while the people and the economy must be supported equally to ameliorate the human
suffering and to minimize long term damage.
 Governments should come up with more packages to support the industries and to
encourage investments.
 Governments should save both the lives of people and economy.
 Immediate steps need to be taken to help the rural sector. A similar urban employment
gurantee scheme must be implemented.
 Government should take measures that people will not loose jobs in future.

Future Opportunities for India to recover economy:

As many of the manufacturing companies are living china , it would be a

very big opportunity for India to welcome those companies to India . After china ,
India has the largest manpower and 82% of the population is below 50 years .

So Indian government should take Necessary measures to attract those

leaving companies from china.