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Mainstream, VOL LVIII No 18 New Delhi, April 18, 2020

COVID -19 and Economic Shocks: An Analysis in Indian Context

Saturday 18 April 2020

by Dr. Manish Sharma & Dr. Vinod Sharma


Coronavirus Disease -2019 declared by the World Health organization (WHO) as pandemic, is causing economic malaise as well as human distress both at the micro and macro level. The economists across the world are not only gauging the fall outs of this global menace but also making strenuous efforts to pace in new palliatives to salvage the collapsing economy from further disaster. Notwithstanding their theoretical formulations for the global remedy, if any, the simmering challenges have raged alarms for a global recession subsequently afflicting the conditions of human suffering. And India is not an exception to it. In the light of this, the authors have endeavoured to highlight the background of the Covid- 19 as well as understand the possible economic shocks, and measures initiated by the Government of India to tackle the pandemic in the Indian context.


The first coronavirus victim was noticed at Wuhan , capital of the Hubei province , China on November 17, 2019 (Mandy Zuo, 2020).However, in India the first case was reported in Kerala on 30th January 2020 , since then as on 6th April 2020, “the total number of coronavirus positive cases in India have increased to 3851 (including 318 cured/ discharged cases and 111deaths)” (Ministry of Health and Family Welfare, 2020) ,and the curve is not yet flattened.

The spread of coronavirus has resulted in stock-price volatility, decreases in nominal interest rates, and likely contractions of real economic activities all around the world. “Now all bets are off, it has become clear that it has the potential to derail the world economy. While China is by far the hardest hit, the last few weeks have seen an exponential growth of cases of coronavirus positive cases in the G7 economies. Taking just the US, China, Japan, Germany, Britain, France, and Italy, they account for 60% of world supply and demand ,65% of world manufacturing, and 41% of world manufacturing exports’’ (Richard Baldwin, 2020 )indicating for global recession. India is bound to be affected economically by these severely epidemic affected countries. As per an estimate “No economic activity will cost India $120 billion” (Bajoria, 2020)
However, before the Covid-19 outbreak, the Indian economy was one of the fastest-growing economies of the world, but at present it is in doldrums .Albeit “ANZ research said India had only a relatively small percentage of Chinese tourists (2.7% of total inbound tourists in 2018) and China accounted for only 5.1% of its total exports in fiscal 2019, including chemicals and fuels. Consequently, the adverse impact on Indian GDP via these channels was estimated at just 0.04 % of it, the lowest among Asian economies. However, before New Delhi breathes a sigh of relief, the top ranking economists said some 14 % of India’s imports come from China, making it the nation’s biggest import partner. The risks from extended shutdowns in China or weaker-than-expected Chinese growth will affect the sectors which rely heavily on Chinese imports” (Fensom, 2020).

We do not have the latest data regarding demand and supply commotion, but on the basis of observation and past experiences, it may be observed that Indian economy will depend on (i) disciplined behavior of population during the lockdown and social distancing period (ii) how much further, the virus will spread across the country and its effect on economic activities, and (ii) fiscal and monetary policy reactions to the shocks experienced.

Lockdown in India

A lockdown is an emergency protocol that prevents people from leaving a given area. It means a complete ban on movement except for essential services. It is believed that only measure to prevent community spread of coronavirus is social distancing through lockdown.

China’s Wuhan, was locked down for more than six weeks. On March 24, Prime Minister of India implored for a 21-days nationwide lockdown to contain the coronavirus pandemic which had claimed 10 lives in India until then and infected 509. In containment environment, through lockdown and social distancing, work closures in industries and service sector may lessen the economic activities resulting adverse

impact on economy.

However, Ronojoy Adhikari and Rajesh Singh from University of Cambridge reported that “the 21-days lockdown that the India Government has imposed is unlikely to be effective and there will be a resurgence of Covid-19 at the end of it. They have come up with a new mathematical model that predicts a flat 49-days nationwide lockdown or sustained lockdown with periodic relaxation extending over two months may be necessary to prevent Covid-19 resurgence in India” (IANS, 2020). However, "the Government of India dismissed the reports of extension of lockdown” (ABP News Bureau, 2020). Undeniably due to these lockdowns, the Indian economy may experience number of shocks in the weeks ahead.

Economic Shocks

From an economic perspective, the closure of manufacturing units and travel bans reduce productivity directly in a way that is akin to temporary drops in employment and production. In this situation, the role of economic policymaker becomes important as one has to take care of various forms of shocks, so that the nation can manage trade imbalances, exchange rate movements, and changes in market interest rates along with stable stock prices and employment level.

Manufacturing Sector Shocks

Lockdown strikes both the supply and demand side of the manufacturing sector, which contribute 16-17% of Indian Gross Domestic Product and this sector is dependent on many countries for intermediate and final product requirements. Considering trade relations with China only, “for India, the trade impact is estimated to be the most for the chemicals sector at 129 million dollars, textiles, apparel at 64 million dollars, automotive sector at 34 million dollars, electrical machinery at 12 million dollars, leather products at 13 million dollars, metals and metal products at 27 million dollars and wood products and furniture at 15 million dollars” (The Hindu Business Line, 2020). And these dependent manufacturing units are facing shortage of raw material. This has disturbed the production and investment mechanism of the companies. Not only imports, slowdowns in global manufacturing sector are also affecting India’s export to various countries.

Agricultural Sector Shocks

Agriculture and allied sectors contribute 15.8% of total GDP in India as per the Ministry of Statistics and Programme Implementation (2018-2019). The country’s exports and imports cover destinations and sources spanning all regions of the world. Agriculture and food constitute significant share of India’s trade portfolio. The effect of the lockdown will not only affect the supply and demand chain of agriculture but repercussion may be felt in the food prices in domestic and international markets.
“Past experience of Ebola and Severe Acute Respiratory Syndrome (SARS), and Middle East Respiratory Syndrome (MERS) had signaled us the negative impacts on food and nutrition security particularly for vulnerable populations. In 2003, Prices for domestic rice increased by over 30 %, the price of cassava, a major staple in Liberia, shot up by 150 % the SARS outbreak triggered food market panics in Chinese cities of Guangdong and Zhejiang.” (Chen, 2020). India may also face similar situation if proper and timely arrangements are not made.

The unequivocal evidence of the logistic challenges poses disruption in supply chain of food items. And in this case, any panic would exacerbate temporary food shortages, leading to price spikes, and disruption of markets. The poultry and meat industry is already under stress due to inadequate supply, suspicious perception towards consumption of these products and interruptions in timely marketing, if all these remained unchecked, food panics can spread and threaten broader social stability.

Informal Sector Shocks

Informal sector workers are the worst hit by lockdowns. Indian informal sector comprise of workers earning as a small shopkeeper, a small enterprise, a street entrepreneur, domestic helper, a contract worker, a daily wage earner (skilled or unskilled) and so on. As they earn and spend money on daily basis with limited saving, their life has become miserable, as neither they have current source of income nor do they know their future. We should keep in mind that in the earlier global recession scenario in 2008, this sector of Indian economy provided a layer of protection to sustain. This time we may not have this connective tissue that picks up slack in the system to revive. As per an estimate “136 million jobs are at risk in post-corona India” (Prerna Sindwani, 2020). This section of the society is likely to be jerked again when lockdown ceases due to prevalence of exploitation, corruption and politics over this group of the economy, hence we must give utmost care for this sector.

Service Sector Shocks

The sudden halt of the economy could be havoc to the service sector as we may observe from the following discussion.


Hospitality industry, the prime serive sector of India, was the largest one with value of $234 billion in 2018. The industry became the third-largest foreign exchange earner in India in March 2018 over March 2017. According to The World Travel and Tourism Council, tourism generated 9.2% of India’s GDP in 2018 and supported 42.67 million jobs which was 8.1% of its total employment in 2019 and the sector was predicted to grow at an annual rate of 6.9% (Tourism and Hospitality, 2020).

Amidst the Covid-19 scare, the Indian hospitality industry is going through a calamitous phase, wherein the sector is facing a decline in the revenue due to less booking, less demand and restrictions due to complete lockdown. The Federation of Hotel and Restaurant Associations of India (FHRAI) has “highlighted the loss of the tourism verticals, which have been severely affected, as tourism verticals have reported cancellations of up to 90%, beside the loss incurred due to cancellation of all kinds of celebrations, weddings, meetings, conferences and other events,” (, 2020) .Subsequently, this sector has led to huge loss of employment, revenue and income.


Lock down and restriction of flights have worsened the conditions of debt-trapped aviation industry. According to the Center for Aviation (CAPA), “demand will fall 50% in the coming months. This will result in most airlines collapsing by May, 2020. The only thing that may prevent airlines from collapsing earlier is the price of crude oil, which is at its lowest at present.

IndiGo, the country’s largest airline, has announced a 15% pay-cut for all staff and also cut around 70% of its international flights. Air India has cut its cabin crews allowances by around 30-40% and withdrawn benefits from senior pilots, most of the airlines are unable to pay the salaries of their employee, the venture between Air Asia and the Tata group, has announced to stop expanding its fleet”(Syd Sharma, 2020). Air Deccan “ceases operations, all employees are put on sabbatical without pay” (Live Mint, 2020). These figures are enough to understand the mayhem ahead in aviation industry.

Real Estate

Indian real estate industry has been severely affected by this outbreak, “as new launches have been put at bay, construction activities have come to a grinding halt as allied businesses such as steel, heavy machinery and other raw materials are heavily dependent on Chinese import. Despite that some experts are looking in to it as an opportunity, as it may increase the production capacity and give a thrust to the “Make in India” campaign. The Indian Government is encouraging the steel companies to increase production capacity and grab a larger market share. As the Chinese supply lines are skewed, the industry has an opportunity to explore other markets to procure raw material and decrease dependence on Chinese imports. This could be a blessing in disguise for the indigenous production of imported goods such as metal panels, steel bars, heavy machinery and coke”(Chauhan and Kapoor, 2020). But all these opportunities are hypothetical in nature as of now, as nothing has been done so far and Chinese Industries are regaining its production .Above all, this sector has seen huge number of slash of jobs of labourers in general and casual labours in particular.

Media and Entertainment

There is huge loss to cinema industry where all the theaters are closed, shootings and releases of films have been stopped, workers, actors, technicians all are at their home. Due to lack of data regarding estimation of economic loss, we are ignoring the cinema industry in this section.

Moreover,“ broadcasters are staring at a drop in advertising revenues despite Indians are spending more time at home watching TV during the lockdown after top spending companies put many planned campaigns on hold or even cancelled them. Top broadcasters, media buyers and advertisers feel that if the situation doesn’t improve by end of April, the TV industry will end up with a 30-40% drop in advertisement revenues by April –May 2020”(Gaurav Laghate, 2020). It will be a huge loss to this sector and may take a long time to revive without Government help.

Social Shocks

Large-scale migration of laborers from cities to their native/ villages amid the coronavirus outbreak and the consequent lockdown across the country owing to panic, income uncertainty and raging insecurity of regaining the lost job has created a social shock. It has also signified the lack of confidence of these getaway migrants upon the Government on the one hand and raises the question on social behavior of the employer, the contractor and the landlords who had rented them the space to live, on the other hand. Moreover, it is also reported that lackluster attitude of the villagers towards the returned migrant villagers has become a matter of issue of serious concern which may cause a social havoc for the migrant workforce.

Taking the Bull by Horn

We have already witnessed the throng of migrants at different state borders particularly Delhi –U.P. border just after announcement of lockdown, exposing unpreparedness of administration. Still most of the state Governments are struggling with the availability of ventilators, masks, PPE (Personal Protection Equipments),etc. and availability of beds for isolation along with timely announcement of appropriate fiscal and monetary policies. However some measures have been announced by the central and state Governments, and other autonomous agencies but it appears that the Government is trying to take the bull by horn.

Health Measures

The Government of India has taken decision to lockdown the country for 21 days and made arrangements to quarantine the infected and doubtful patients not only in hospitals but in schools, community halls, railway coaches etc. to control the community spread. It has set up the COVID-19 Economic Response Task Force to suggest additional fiscal and support measures announcing additional 150 Billion rupees for health infrastructure. Preliminary Stakeholder Engagement Plan (SEP) India COVID-19 has been approved along with Emergency Response and Health Systems Preparedness Project to fight the coronavirus. The Government also aims at addressing ‘psycho-social issues among migrants during covid-19 and holding Webinars on COVID-19 through different mediums and platforms to impart training to medical and, paramedical workers, ANM, ASHA, anganwadi workers, Police Forces, NCC cadets, NSS volunteers NYKS volunteers, IRCS volunteers CPSE workers etc to tackle with the emerging situation to improve awareness and precautions to be taken among the common people’ (mohfw, 2020).

Fiscal and Monetary Measures

A combination of proper monetary and fiscal measures such as proactive liquidity, cash transfers, subsidies, temporary suspension of government-imposed taxes as well as deferred payment of taxes such as fuel surcharges can give relieve to the economy from the shocks. The Government has ‘increased the threshold for initiating the default proceedings under the Insolvency and Bankruptcy Code (IBC) 2016, from Rs 1 lakh to Rs 1 Crore to check on the unscrupulous and frequent insolvency proceedings against developers during tough economic period and has urged the State Governments to utilise Rs 31,000 crore funds for the welfare of construction workers to minimize the adverse impact of the lockdown’ (Chauhan & Kapoor, 2020). Further, a relief package ‘to the tune of Rs 1.71 lakh crore was made available for benefit of the migrant construction labourers’ (ibid). Along with this, the Reserve Bank of India ( RBI) has made ‘massive reduction in the Repo rate (75 bps), Reverse Repo rate and CRR to lower the cost of borrowing’(ibid).Conversely, the State Governments (Delhi, Maharashtra, Gujarat, Uttar Pradesh etc.) are also providing ‘compensation to the migrant workers for the loss of employment, arranging for temporary shelters and food beside DBT to the beneficiaries (ibid).


Notwithstanding the challenges of economic shocks, the Government is taking proactive steps to manage as well as mitigate the risk of contagion in India. As Medical data changes hourly, consequent upon these changes, the strategies adopted by the different agencies to control this epidemic are to be modified accordingly. However, in the present scenario, lockdown is essential to break the chain spreading of this virus benefitting every section of the society but its costs will be disproportionately higher for the poor and disadvantaged sections of the society. Unfortunately, this section is having fewer cushions to absorb those shocks, as they do not have sufficient savings pool to exhaust during the lockdown. So, utmost priority should be accorded for the guarantee of income and food security of these marginalized sections of the society.

Moreover, the massive exodus of the migrant labour force from the big cities towards the native villages has also triggered a new predicament with their vulnerability in many aspects. Hence, the respective state Governments should bear the responsibility of providing food, clothing, shelter and minimum health facilities till they return to their workplaces. The Government of India should also prepare a plan for their return in advance to reinstate them in their place of employment once the crisis is over and instruct the employers of the mega /MSME industrial houses, real estate/allied service sector and retailers etc. through institutional directives for the disbursement of salaries during the lockdown period adhering the norms of the honour payment commitment. Beside the governance mechanisms, the citizens, civil society and all the concerned stakeholders should display their utmost responsibility towards combating this pandemic in this hour of peril.


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Dr. Manish Sharma is Professor, Department of Economics, Institute for Excellence in Higher Education (IEHE), Bhopal, an autonomous institution under the aegis of the Govt. of Madhya Pradesh

Dr. Vinod Sharma is Professor, Department of Economics, Govt. P.G. College of Arts and Science, Ratlam, Madhya Pradesh.

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