Introduction
Coronavirus is a family of viruses that includes SARS and MERS
and typically causes respiratory tract infections of varying lethality. Though
human coronavirus was first discovered in the mid-1960s, COVID-19’s earliest
known infections were found in December 2019 in Wuhan, China, and was declared
a pandemic by WHO in March 2020. In addition to lack of immunity and no proven
vaccines being currently available, several other factors have contributed
towards COVID-19’s rise to the global pandemic.
First is the rate of infections or how many other people an
average patient infects. COVID-19 patients affect up to twice the number of
people as common cold within the same setting, making the number of infections
grow exponentially.
Second, a significant number of cases are asymptomatic. At
least 50% of the cases do not show any symptoms, making tracing and controlling
the virus much more difficult to control.
Third, the virus affects people with decreased immunity, which
could be due to multiple reasons, much more severely. This had led to more
deaths in countries with a larger share of the older population or pre-existing
diseases.
The last part of the equation is disinformation and
misinformation. The impact on people’s physical and mental health, correct
diagnostic and controlling processes, lack of access to support due to
inequality, nature of the virus, and other unknowns have contributed to its
large-scale impact.
However, McKinsey’s recent survey suggests a positive shift in
economic sentiment with more than half of the executives saying that their
country's economic conditions will improve in the next six months.
Impact of the Virus
Worldwide
There is still substantial uncertainty about COVID-19’s impact on people’s lives and livelihoods. A lot is dependent on the epidemiology of the virus, containment measures undertaken by governments, and the development of vaccines, all of which are hard to predict.
In January, the IMF had predicted global growth in 2020 to be 3.3%, but in April, the projection was updated to -3% in their World Economic Outlook report. This makes it the worst recession since the Great Depression, and far worse than the Global Financial Crisis in 2008. This would also translate to a cumulative loss of global GDP over 2020 and 2021 to be 9 trillion dollars.
However, there is a huge
variation in the economic impact within individual countries, primarily
depending on the actions taken to tackle the pandemic. In Asia, China’s GDP
dropped by 36.6% in the first quarter of 2020, while Korea saw a decline of
5.5%. Within the European Union, Finland and Norway’s economy shrank by 5%
each, whereas Spain and the UK saw a decline of over 20% compared to the second
quarter of 2019. The United States also saw its GDP decline by 10%, and the
unemployment rate increase to 14.1% in April 2020.
Apart from the direct economic impacts, COVID-19
is also likely to have other long-term impacts. A World Economic Forum study
says that the pandemic has accelerated the shift towards automation in
industries. Similarly, with employees forced to work from home, there may be
changes in the work environment and culture.
India suffered a relatively severe economic impact of COVID-19 compared to most developed countries, experiencing its first negative growth since 1980. India’s GDP had contracted by 23.9% in Q1 2020, compared to the 5.2% growth it had during the same time last year. However, individual sectors fared the pandemic differently, with manufacturing being the worst hit and agriculture the only sector that reported growth during the period.
This has directly impacted millions of Indians’ livelihoods, with 19.4% having their payments deferred and 57% receiving salary cuts, on top of an estimated 140 million lost jobs. The situation has improved slightly post the lockdown period, with total deferred payments being 11.5% and salary cuts at 43%.
At first, the recession may seem just a supply shock similar to the financial crisis in 2008, but that is not the case. Due to uncertainty revolving around the virus and many non-permanent workers, particularly within the affected industries, households have increased their precautionary savings, and firms are wary of investing until the situation clears. Between April and June, private consumption had declined by 27% year on year, and investment by 47.5%. Nomura has also predicted that aggregate demand in July was just 67% of its pre-pandemic levels.
Actions
The Government of India has taken various steps from the beginning of the lockdown to reduce its impact on the economy and resume growth. This includes not just through the fiscal policy but also working with the Reserve Bank of India (RBI) on its monetary policy. For instance, the finance minister announced relaxations within corporate tax laws as well as the Insolvency and Banking Code (IBC) in which the monetary threshold for initiation of insolvency proceedings was increased from ₹1 lakh to ₹1 crore. Since many businesses had lost their revenue due to the lockdowns and were expected to default their payments, this notification prevented several firms from being dragged to National Company Law Tribunal (NCLT), which would have further hampered the economy.
The government also announced a relief package of ₹20 lakh crore, equating to 10% of the GDP, of which liquidity-enhancing initiatives accounted for the bulk of the share. Similarly, many measures within the package were aimed towards the middle term, with benefits expected to be witnessed in 3 years, instead of a package focused on short term needs such as the decreasing demand or to pump money into the economy for upgradation of services like the health sector.
Out of the total package, ₹3 lakh crore has been provided as collateral-free loans for micro, small and medium enterprises (MSMEs), a move aimed at enabling 45 lakh units to restart work and save jobs. Although the MSME sector is important for employment, it is highly dependent on the rest of the economy for its market. Hence, unless the rest of the domestic economy was also revived, the MSME sector would have faced a shortage of demand and decreased production once again. This was visible as the cuts in lending rates did not lead to a major increase in borrowers. In fact, commercial banks chose to park their capital with the central bank using its reverse repo window, which went up from 3 lakh crore in March to 8.5 lakh crores by April.
The relief package also included an extension of Pradhan Mantri Garib Kalyan Anna Yojana to provide free ration to over 80 crore people by five more months, which would cost the government ₹90,000 crores. The poor also received direct benefits like free gas cylinders and direct money transfer to their bank account, ranging from ₹500-₹2000 under various schemes, costing the government another ₹2 lakh crores.
Within the relief package, ₹1.6 lakh crore was allocated to agriculture and allied sectors to strengthen their infrastructure, logistics, and capacity building. Along with the relief package, the Essential Commodities Act was also amended after more than 6 decades. However, a third of the farmer community was left out of these schemes. Likewise, developing infrastructure through the various initiatives will produce results in the medium to long term but not help with the current disruptions in harvesting and procurement. To ease short term pressures on the farmer community, a 3-month moratorium period on agricultural loans was introduced that benefited 3 crore farmers at the cost of ₹4.22 lakh crores.
The package also included additional funds for National Bank for Agriculture and Rural Development (NABARD) to provide refinancing to cooperative banks and support to the Rural Infrastructure Development Fund and working capital for state government entities involved in the procurement of agricultural produce. This is estimated to cost ₹41,000 crores and would bring a positive change in helping fix the demand problem.
Recommendations
The Government of India has been proactive in reducing the economic impact of COVID-19 and ensuring the safety of its population. Although various initiatives have been launched, improvements can be made to navigate the current crisis better.
Additional funds can be distributed for rural livelihoods along with PM Kisan Samaan Nidhi payments to spur demand. Production of masks, PPEs, and other accessories like sanitizers could be done indigenously to provide additional employment opportunities and provide more occupations under MGNREGA to help the migrant workers. Lastly, APMC can be waived for large corporate purchasers to set up their supply chains and enable farmers to reach buyers better.
Workers living in urban areas should be enrolled for National Food Security benefits to ensure laid-off workers' food safety, especially within the informal sector. Likewise, the benefits of Ayushman Bharat Yojana can be extended to informal workers to prevent further disruption of migrant workers. These workers carry the risk of reverse migration, which may lead to large impacts on the economy. Hence, they should be taken to urban centers in a structured manner and a monthly provision for support income.
To help MSMEs, which were among the worst hit, along with more relaxation in Insolvency and Bankruptcy Code from what was already done by the government, RBI prudential norms can be reviewed for each sector that has been hit by COVID-19. Debt restructuring and rollovers can also be allowed. Furthermore, all outstanding payments to MSMEs from the center, state, and PSUs should be paid immediately to ensure they have enough working capital.
To maintain
stability within the financial sector, the government can provide a guarantee
for outstanding debts. Simultaneously, the RBI should ensure sufficient
liquidity to unjam the corporate bond market, which risks leading to a flood of
defaults. The government can also instruct other agencies such as the
Employee’s Provident Fund Organisation (EPFO) to resume buying corporate bonds.
Similarly, state governments should also make legacy payments to delayed heads,
for which additional funds can be provided by the central government if needed.
Industries such as aviation and manufacturing are the most affected and, thus, require additional support. This support can be offered through concessional GST rates, debt principal payments being frozen until the situation improves, and making changes to industry-specific regulations to spur growth. The energy demand is also at 50% of the pre-COVID times. Hence, power generation companies should be directly addressed, and cash flows granted to ensure the system’s sustainability.
Along with the crisis brought by the pandemic, it has also created opportunities to fix several long-term issues affecting the economy. As the lockdown has severely impacted the informal sector and requires access to liquidity through the relief package, this opportunity must be used to get the enterprises registered and be brought under the tax umbrella. Thus, increasing the government’s indirect taxes in the long run. Formalization of the informal sector will also enable workers working within these businesses to get access to various government schemes. However, to not force formalization, long-term plans for the informal sector should also be considered like skills and enterprise support.
Lastly, while the formal sector will grow in size, the system needed to handle them should also scale up. Better identification measures should be developed and used to keep track of payments and other benefits received by the MSMEs, which has been one of the most crucial aspects preventing them from receiving economic relief.
Educational Institutes
Educational institutes are a few areas that have been kept closed for the most amount of time, with more than 1.5 billion students being affected by these closures worldwide. School closures can adversely affect their health, education, and development. Disruption to instructional time can affect a child's ability to learn while also increasing the chances of social injustice and pressure. Closures also disrupt school-based services, and there exists a vast disparity between schools of different countries. Many schools are unable to offer remote education or alternatives, and keeping children home also affects parents' ability to work, introducing other risks. Because of the closures, children made up only 8% of the reported cases and are unlikely to be the main drivers of Covid-19 transmission. However, the closure of schools is not a sustainable solution. It should be considered if there is no other alternative, as schools reduced community transmission less than other social distancing interventions.
A risk-based approach should be followed for reopening educational institutions to minimize risk to students and staff, such as gauging public health capacity and evaluating school readiness and resources to maintain Covid-19 prevention.
In this regard, The NorthCap University was one of the first universities in India to switch to online teaching and has been conducting online classes without any hurdles for almost a year now but, leaving no stones unturned, is undertaking all the necessary precautions to prepare for the reopening and balance the work and fun aspect of the university. The most effective way to prevent the spread of the virus is social distancing; hence, all the desks have been spaced at least six feet apart and ensure no more than two students sit at a single desk. Markings have also been made in the hallways to ensure social distancing is followed at all times. All mass gathering activities have also been avoided to the extent possible, with this year's convocation ceremony being held entirely online. Special guidelines have been made for maintaining hygiene in the university while also adhering to evolving public-health-informed measures put in place by the Government.
Voluntary offline classes have also been made available with sanitizing stations present throughout the university. From mandatory masks for students and staff to a special Covid-19 task force team, these steps ensure all the students receive the best educational facilities available and make the most out of them, while being safe.
About the writer :-
Anant Gulia is a second year student pursuing
B.Tech (Computer Science and Engineering)
The NorthCap University, Gurugram
