The Economic Impact of Corona Outbreak

By: Alistair S.H. Toppo

An abysmal economic emergency has been floated across nations ever since WWII and independence of 3rd world countries. The corona pandemic has slayed the world economy within fraction of days. The top developed and developing countries are undergoing unfaltering commitments to keep their respective countries net GDP in a positive value. Talking about the global financial crisis of the last decade, the situation was more fluid as compared to the incumbent one because unlike this time people used to go to work and all the sectors were contributing in the country’s GDP. The financial system was sound and government finances were healthy. But after analyzing the precautionary steps taken by the government, the conditions are improving significantly and so is the economy.

source: Economic Times

Taking the worst-case scenario, we should start thinking about the economy even if the lockdown continues or it allows only those states where the percentage of infection is low. Scraping the lockdown in one go can be beneficial as well as obnoxious. It could be profitable as all the manufacturing sector would be back on pace and the overall GDP will start to rise again whereas it can an absurd decision if proper precautions aren’t supervised across the nation resulting in a hike of the number of COVID-19 cases. It is advisable to release only those areas where the virus count is less and even after opening up, proper safety gears and precautions should be taken.
The challenging section would be to repatriate the factory workers back to the workshops after lockdown of 60+ days. It would be a difficult task because as headlined by apex news channels about the controversial stances witnessed w.r.t daily wage workers and how they’d paved/struggled way back home, they would need a concrete and convincing reason to rejoin those factories. Direct transfers of financial aid might be a scope but not for all. The frequency of transfer seems inadequate to see a household through a month. The governing authority should come with some public and NGO provision along with private participation and allow direct benefit transfers to the needy in order to facilitate in the coming days. We’ve already witnessed the penultimate shebang of not doing so and if still not continued, something worse awaits us.

Source: RaboBank

Access to limited fiscal resources can be a boon and utilizing it in an optimal methodology is the apt solution a nation can proceed with. At the same time, budget constraints should be tallied across as it could hamper any individual’s salary this very year. Unlike other developed countries which can spend 10 to 20 per cent more of their GDP and reach till negative, we’re already in a negative fiscal point and measuring the scenario, this value is going to sink down soon. A downscaled GDP can lower the chances of investors investing money in any sector or withhold the newly assigned packages of undergrad or postgraduate pass outs.
We’ve to prioritize accordingly keeping in mind the necessary deliverables and budget constraint. The government should ensure the investors and its commitment to fiscal rectitude and holding up the independent fiscal council and assign a minimum term debt target. Not only the MNCs but the small firms have also faced a severe drawback after the pandemic and the situation is so abysmal that it may not be possible for them to stand again. Optimal alternatives should be considered especially the ones which dominate over the labour and production sector. The government wants to support all the firms at a common rate but due to the crisis, the credit isn’t sufficient to revive anyone completely.
Firms which are well established till date and have the capability to fund these start-ups can also be an optimal way to revive the country’s GDP. Insurance companies, banks and mutual funds should be encouraged to invest in newer grade bond insurances and their grade ease by the RBI lending to these high-quality bond portfolios through repo transactions. However, the RBI act has to be changed in order to enable these solutions to functional. The government will be requiring myriads of agencies and PSUs to pay their bills so that all the private players get valuable equity.
The difficulty faced in household and rural sectors will be reflected upon the economic downfall. The banks had flooded the liquidity and it needs to go beyond it. Mathematically, a greater number of liquidities won’t help in absorb loan losses. The concept of bringing back people who’ve already served the nation is an outreached idea and would benefit in the coming days. In this situation, driving help from the opposition party would also be helpful who’d experienced the same crisis before.

Source: Economic Times

A major sector which has been neglected at a greater extent is the agricultural sector. Usually, the crops are slashed and collected in the month of March-April. However, due to the lockdown, it isn’t possible to send out labourers for the work. If this action fails, a new factor will
be added in the pandemic chapter. The economic status was falling before the pandemic and the socio-political environment is slouching down.
Although after imposing heavy taxation in liquor and alcohol which has been an infamous cumbersome procedure to revive the country’s GDP, the overall growth rate is likely to be declined by 5% in the FY 2020-21 according to Goldman Sachs. Even after certain relaxation, some sectors are witnessing dismays because of rent-seeking by the major stakeholders. For example- the malls were sent to open from 8th June 2020. Some reopened while some not. The major issue being the financial argument for the unit’s holders as some builders are ravenous for the monthly rents while some are compensating by giving 75% relaxation for paying the mall rent.

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