IMPACT OF

COVID-19 ON
INDIAN
ECONOMY
Vaishali Dwivedi
Shreyanshi Shukla
Shruti Ruhela
Vidushi Sharma
Shreya Saxena
 Economy of India
The economy of India is a middle income developing 
mixed economy. It is the world's sixth-largest economy by 
nominal GDP and the third-largest by purchasing power parity
 (PPP). According to the International Monetary Fund (IMF), on a
per capita income basis, India ranked 145th by GDP (nominal)
 and 122th by GDP (PPP). From independence in 1947 until 1991,
successive governments promoted protectionist economic
policies, with extensive state intervention and 
economic regulation.

This is characterised as dirigism, in the form of the License Raj.

The end of the Cold War and an acute balance of payments crisis
 in 1991 led to the adoption of a broad economic liberalisation
in India. Since the start of the 21st century, annual average GDP
growth has been 6% to 7%, and from 2013 to 2018, India was the
world's fastest growing major economy, surpassing Chand
Historically, India was the 
largest economy in the world for most of the two millennia from
the 1st until the 19th century.
The long-term growth perspective of the Indian economy remains positive due to its young
population and corresponding low dependency ratio, healthy savings, and investment rates,
increasing globalisation in India and integration into the global economy. The economy slowed in
2017, due to shocks of "demonetisation" in 2016 and the introduction of the Goods and Services
Tax in 2017. Nearly 60% of India's GDP is driven by domestic private consumption. The country
remains the world's sixth-largest consumer mmarket . Apart from private consumption, India's GDP
is also fueled by government spending, investment, and exports. In 2019, India was the world's
ninth-largest importer and the twelfth-largest exporter. India has been a member of the World Trade
Organization since 1 January 1995. It ranks 63rd on the Ease of doing business index and 68th on
the Global Competitiveness Report. With 500 million workers, the Indian labour force was the
world's second-largest as of 2019. India has one of the world's highest number of billionaires and
extreme income inequality .Since India has a vast informal economy, barely 2% of Indians pay
income taxes.
In 2020, India's ten largest trading partners were the United States, China, the United Arab Emirates
(UAE), Saudi Arabia, Switzerland, Germany, Hong Kong, Indonesia, South Korea, and Malaysia.
In 2019–20, the foreign direct investment (FDI) in India was $74.4 billion. The leading sectors for
FDI inflows were the service sector, the computer industry, and the telecom industry. India has free
trade agreements with several nations, including ASEAN, SAFTA, Mercosur, South Korea, Japan,
and several others which are in effect or under negotiating stage.
 How Covid-19 has affected GDP ?
India has been hit hard by the pandemic, particularly during the
second wave of the virus in the spring of 2021. The sharp drop
in GDP is the largest in the country’s history, but this may still
underestimate the economic damage experienced by the poorest
households. From April to June 2020, India’s GDP dropped by
a massive 24.4%. According to the latest national income
estimates, in the second quarter of the 2020/21 financial year
(July to September 2020), the economy contracted by a further
7.4%. The recovery in the third and fourth quarters (October
2020 to March 2021) was still weak, with GDP rising 0.5% and
1.6%, respectively. This means that the overall rate of
contraction in India was (in real terms) 7.3% for the whole
2020/21 financial year. In the post-independence period, India's
national income has declined only four times before 2020 – in
1958, 1966, 1973 and 1980 – with the largest drop being in
1980 (5.2%). This means that 2020/21 is the worst year in terms
of economic contraction in the country’s history, and much
worse than the overall contraction in the world (Figure 1).The
decline is solely responsible for reversing the trend in global
inequality, which had been falling but has now started to rise
again after three decades (Deaton, 2021; Ferreira, 2021).
 Impact of Covid-19 on Indian economy
in different sectors
The impact of coronavirus pandemic on India has been
largely disruptive in terms of economic activity as well as a
loss of human lives. Almost all the sectors have been
adversely affected as domestic demand and exports sharply
plummeted with some notable exceptions where high growth
was observed. An attempt is made to analyze the impact and
possible solutions for some key sectors.
■ Food & Agriculture
Since agriculture is the backbone of the country and a part of
the government announced essential category, the impact is
likely to be low on both primary agricultural production and
usage of agro-inputs. Several state governments have
already allowed free movement of fruits, vegetables, milk
etc. Online food grocery platforms are heavily impacted due
to unclear restrictions on movements and stoppage of
logistics vehicles. RBI and Finance Minister announced
measures will help the industry and the employees in the
short term. Insulating the rural food production areas in the
coming weeks will hold a great answer to the macro impact
of COVID-19 on Indian food sector as well as larger
■ Pharmaceuticals
The pharmaceutical industry has been on the rise since the start of the Covid-19 pandemic,
especially in India, the largest producer of generic drugs globally. With a market size of $55
billion during the beginning of 2020, it has been surging in India, exporting
Hydroxychloroquine to the world, esp. to the US, UK, Canada, and the Middle-East.

■ Oil and Gas

The Indian Oil & Gas industry is quite significant in the global context – it is the third-largest
energy consumer only behind USA and Chine and contributes to 5.2% of the global oil
demand. The complete lockdown across the country slowed down the demand of transport
fuels (accounting for 2/3rd demand in oil & gas sector) as auto & industrial manufacturing
declined and goods & passenger movement (both bulk & personal) fell. Though the crude
prices dipped in this period, the government increased the excise and special excise duty to
make up for the revenue loss, additionally, road cess was raised too. As a policy
recommendation, the government may think of passing on the benefits of decreased crude
prices to end consumers at retail outlets to stimulate demand.
■ Aviation & Tourism
The contribution of the Aviation Sector and Tourism to our GDP stands at about 2.4%
and 9.2% respectively. The Tourism sector served approximately 43 million people in
FY 18-19. Aviation and Tourism were the first industries that were hit significantly by
the pandemic. The common consensus seems to be that COVID will hit these
industries harder than 9/11 and the Financial Crisis of 2008. These two industries
have been dealing with severe cash flow issues since the start of the pandemic and are
staring at a potential 38 million lay-offs, which translates to 70 per cent of the total
workforce. The impact is going to fall on both, White and Blue collar jobs.
■ Telecom
There has been a significant amount of changes in the telecom sector of India even
before the Covid-19 due to brief price wars between the service providers. Most
essential services and sectors have continued to run during the pandemic thanks to
the implementation of the ‘work from home’ due to restrictions. With over 1 billion
connections as of 2019, the telecom sector contributes about 6.5 per cent of GDP and
employs almost 4 million people. Increased broadband usage had a direct impact and
resulted in pressure on the network. Demand has been increased by about 10%.
However, the Telco’s are bracing for a sharp drop in adding new subscribers
 Negative impact of covid-19 on Indian
economy
■ The pandemic situation has spread as a global pandemic disease which is creating fear, stress, stigma,
minimising social networks, etc.
■ Health and medical systems, especially biomedical systems, have taken their maximum effort but the
healthcare system itself is affected due to various conditions in nature. Thus, there are many deaths
reported though the biomedical system has made an enormous effort.
■ Some countries such as Italy, Spain, USA and China and a few other European countries are facing a much
higher disintegration in all subsystems of society. Thus, the social system needs a complete reorganisation
and integration to survive.
■ Losing the knowledge, experience, and services of the elderly would mean that the next generation would
not be able to share them for their betterment.
■ Downward trends of family economic conditions and several lower hierarchy social classes facing
unbearable economic hardships due to lack of daily or monthly earnings. Though there are market
accessibility and supply chain network even under the limitation of social mobility, they do not possess the
purchasing power.
■ Disruptions of schools, universities and vocational education segments where they have
to seek certain optional strategies to cover up their educational goals. Especially, they
may face some irreversible gaps in their education. All supply chain networks in the
education field have been interrupted.
■ Decline in religious belief systems and practices in all religions and people may not
believe in superstitious powers, in god and other divine and invisible elements in
society.
■ Global economic recession and increase in poverty level in society. This may lead to
financial crises such as a decline in monetary values, share market values and
businesses, changes in supply chain networks, and purchasing power of the people.
■ There are many people who are losing their jobs and incomes in the formal and informal
sectors in the society.
■ The pandemic situation will directly influence the Sustainable Development Goals
(SDGs) defined to be achieved by 2030, since some countries may not allocate financial
resources to meet the country-specific targets.
 Positive impact of Covid -19 on Indian
economy
 The coronavirus pandemic is unlike any economic challenge that the world has faced in the
past. All our textbook notions of how to spur economic growth in the face of a downturn have
been rendered useless as lockdowns and the fear of getting infected have stopped or
intermittently paused economic activity across the world.
 As such one can expect that the economic effects of the pandemic will linger on for a long time
even after it subsides. So, let’s take a look at some of the long term positive consequences of
the coronavirus pandemic:
 A more digital economy Demonetization was the shock that pushed India into the digital
era as people adopted online payments in the absence or short supply of cash. Covid-19 is the
shock that is forcing everyone to adopt digital in everything — from buying groceries to
seeking online consultations with a doctor for minor conditions. India's total e-commerce
shopper base, at 30% of its online population, is quite low when compared with 78% in China
and over 70% in the US. In a 53-page report on 'India's Digital Economy in a Post-Covid-19
World', Morgan Stanley has projected that India's online shoppers will jump to 590 million
from 190 million in 2020. The average spend per online shopper is also projected to nearly
double to $318
 Nature of jobs will be transformed the coronavirus pandemic has led to a lot of
companies rethinking office spaces and on-site work. Tech bigwigs such as Facebook, Google
and Twitter have already made announcements regarding giving staff the option to work from
home in the long term. It’s only a matter of time that many more companies follow suit as they
determine that spending on office spaces can be cut and productivity can be measured better in
terms of to-do timesheets. More workers are also finding out that the gig economy perhaps
offers a lot more flexibility to earn money and follow passions.   
 Liquidity rush in the capital markets Central banks all around the world have cut
interest rates and launched borrowing programmes to inject cash into the capital markets. The
Reserve Bank of India came out with a plan in March to supply Rs 3.74 lakh crore of liquidity
to the financial markets. While banks may have not been lending off the bat, their cash
reserves — coupled with low interest rates — will mean that individuals and businesses will be
afforded a huge breadth in borrowing once green shoots start to appear in the economy
 In the year 2020, the Indian government brought ‘Atma nirbhar bharat abhiyan’ (self-reliant
India) with a 20 lakh crore rupees package to revive the economy.
 Some sectors such as hand sanitizer manufacturing companies, pharmaceutical companies saw
positive growth.
Conclusion
■ When these positive and negative impacts are considered, it is very clear that COVID-19
has caused more positive impacts to the nations, regions and the world, particularly to
South Asian countries. However, some countries such as Italy, Spain, the USA, and China
and several European countries have suffered a lot. At the time of writing this article,
COVID-19 has infected 5,306,928 persons worldwide (when the article was finalised for
publication, the number has increased up to 15,947,291). Comparatively, these positive
and negative impacts are valid for these countries too, irrespectively of the level of the
spread of COVID-19.
■ The proposed future action plan or COVID-19 recovery action plan mainly focuses on
the socio-economic, environment and political spheres and not on the medical and
technical spheres.