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The Lockdown Disturbing Economy



India is already struggling with the economic slowdown and now the 21 days lockdown is again bad news for the economy. UN trade report says that global economy might enter the recession, but India and China will survive in this situation. Although the impact of global economy shutdown will also be on India's GDP growth. Indian economy is already struggling due to lack of consumer demand, further downfalls in the production will affect negatively to major sectors of the country. The two major impacts of the 21 days lockdown will be on general consumer demand and international demand (exports), secondly to the financial stability of the economy. Except January India faced negative growth in exports, productions were falling even before the lockdown due to demand failure, stock market is badly surviving and is currently at 3 years low. 

Fed is continuously reducing interest rates, foreign investors are selling off their investments in India, further investing them in US. March 2020 has seen highest FIIs loss in Indian stock market. To overcome the Coronavirus crisis, US had decided to invest USD 2 trillion in small and medium enterprises (SME), India's whole GDP is USD 2.6 trillion. For all those who are comparing the Coronavirus crisis with 2008 Global Financial Crisis, the current crisis is more dangerous, because in 2008 we lost only financial markets, but right now there is a threat of loss of human being. Not only India, global markets are surrounded by lot of trouble right now. Maybe, 21 days lockdown is the only solution for the human life crisis, but for financial crisis, monetary and fiscal policy are required to be used together. Right now, economy will not survive on tax cuts or delay in tax deadlines only, also, further reduction in interest rates by RBI will not work. Due to the lockdown, Moody predicted that India's GDP growth will fall to 2.5% from 5.2%. Dun & Bradstreet (D&B) expects Index of Industrial Production (IIP) to remain subdued by 4 - 4.5% in 2020. 42 hours after the announcement of 21 days lockdown, the Finance Minister announced INR 1.76 lakh crores package for unorganized sector workers, especially daily wage workers, and urban and rural poor. 

PM Cares Fund has seen high count in donations to fight against coronavirus. The unorganized sector of India has 94% of employment and 45% of the total output. Government should focus on direct cash transfers to individuals as it is the most effective step in financial crisis in any economy. This can encourage public spending, which will in turn create consumer demand. Direct cash transfers can be the first step to revival. The straight forward effect will be on non-essential commodities as their demand is reduced to almost zero. During lockdown the production which is forgone will impact the GDP. Barclays said that the cumulative shutdown cost will be 4% of the GDP. Economists advised “India will recover their economy in coming months, only if the situations are not turned out of control like Italy’s epidemic”.


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