Lockdown & its unforecastable impact on Indian Economy

The Prime Minister of India announced a nationwide lockdown on 24th of march after a successful 14-hour janta curfew as a preventive measure against the one of the worst pandemics to hit the mankind in the human history , for a duration of 21 days enforcing several other restrictions in the regions that were hit hard.

The measures were taken when there was a sharp increase in the cases of the infection within a short span of time, under which all non-essential business activities were halted except the most important one like the groceries and the medications.

But even though the measures were taken to mitigate the effects of COVID-19 on humans, it has proved to be lethal to the Indian economy as well.

On vegetables:

Price of vegetables in the significant markets of the major cities hitched up by 30-40% as soon as the nationwide lockdown was announced amid the fear of supply disruptions and increase in the transportation cost.

The transportation cost has almost quadrupled after the announcement of lockdown that amounted to about INR 400 against the usual INR 100.

Meanwhile, the data compiled by the Union Ministry of Food and Consumer Affairs shows potato prices jumped by 26 per cent to trade at Rs 37 a kg as compared to Rs 29 a kg about a week ago. Potato has become costlier by 60 per cent in the last one month. Prices of onion and tomato, according to the Ministry of Consumer Affairs, have risen by 8 per cent and 25 per cent to trade currently at Rs 40 a kg and Rs 34 a kg, respectively.

On the economy:

It cannot be ignored that the COVID-19 will prove out to be an economic disaster for our nation. While the effects could be nothing more than a tsunami but we can still study its effect in 3 phases.

In the first phase, not only India but also the whole world was brought into light about the growing infection in China. Trades were cut-off including the supply of raw materials. For India, most of the auto parts and the API (Active Pharmaceutical Ingredient) is imported from china that was stopped in response to the growing infection that hit both of these industries severely.

In the second phase, a nationwide lockdown was announced that almost halted all other sources of revenue and profits for the Government. It also wiped out an amount equivalent to about INR 52 lakh crores from the equity investors wealth.

According to Barclays, the 21 days lockdown will cost India about USD 90 billion which excludes the losses that India had already faced due to the lockdown by various states like Maharashtra, Punjab and Rajasthan.

If we estimate the total shutdown losses, it will sum up to USD 120 billion which is about INR 9 lakh crores or 3-4% of the GDP.

Even the Moody’s Investors Service has slashed its projection for India’s GDP growth in the year 2020 from 5.3% to 2.5%. The slash down was the second in 10 days and came just after prime minister Narendra Modi announced the nationwide lock-down.

In its Global Macro Outlook 2020-21, Moody’s referred to severe liquidity limitations in India’s banking and non-banking sectors that have been an active ingredient to the slow growth of the economy.

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2020-04-05

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