Containing The Likely Fallouts Of Covid-19 On Indian Economy
These are times of uncertainty. But something that is certain is that no agency, no analyst can correctly predict the extent to which the global and Indian economy will be impacted by n-coronavirus. Most of the major cities of the world, from London to New York to Mumbai, are under lockdown. Factories are literally shut and no economic activity, except production and transportation of essential goods and services, is being undertaken. Passenger airplanes have been grounded, malls are closed and even e-commerce websites are selling nothing but essentials. This is unprecedented. And when we say ‘unprecedented’, this time the word isn’t symbolic alone. The United Nations has lately termed the crisis as the worst we have seen since World War II.
The reason why we call these times uncertain is due to a number of factors. First, although most countries are operating their sea ports and airports for at least cargo carriers, the ground reality is different. Second, although world leaders, including the US President Donald Trump and India’s PM Modi, have sounded optimistic about lifting the country-wide lockdowns as soon as possible, the rise in number of those being tested positive for coronavirus may only allow for phased lifting of lockdown. And third and the most important argument is nobody knows how the primary driver of economy, the consumer, will react after things turn normal. Will the consumer hold money in anticipation of further risks or will the bulls return to trigger spending of non-essential goods and services? Nobody can accurately predict.
Here, however, let’s see how the COVID-19 crisis will shape a few critical sectors of Indian economy and what can be done in the short-term to address concerns. There are some elements that are out in the open and studying them can at least give a fair idea, if not a certain picture, of how things will be in near future.
For the aviation sector, the outlook is certainly dim. Cash flow has severely been impacted given the ban imposed on domestic and international flights in India. All travel bookings have been cancelled and while some of the companies are giving full refund, others are giving credits to enable bookings at a later date. All in all, the sector is staring at subdued earning till the time when ban on air travel is lifted. Players have resorted to pay cuts and halted fleet expansion. The government can step in to lift the sector out of doom by giving GST holiday for at least some time once the operations resume. Another policy action can be bringing the aviation turbine fuel (ATF) under the GST ambit to enable input tax credit for the industry. Since the revenues have been hit, space rentals, parking and such other charges can be waived off.
The story of Indian tourism sector is no different. In simple words, hotels are without reservations and any region dependent on tourism as a mainstay for its economic growth is under stress. Some analysts even believe that the tourism and hospitality sector may face an impending employment loss with approx. 70 percent of the workforce losing their jobs. The government has announced a three-month moratorium on all term loans for individuals. On similar lines, an extended moratorium to players in these sectors can be worked out. It is widely known that many Indians prefer international travel over domestic for leisure activities. The government will have to staunchly promote domestic tourism and if this involves infusing patriotic fervor, it shall not be looked down upon.
Another key industry impacted by coronavirus-induced lockdown is building and construction. All related sectors, from cement to steel, are set to suffer. The housing sector was already under stress even prior to the COVID-19 pain. Now, even the commercial real estate will feel the pressure as private investment will worsen due to players shelving their plans. From allowing relaxation to players in RERA norms to bringing down lending rates to builders and developers, there is a lot that the government can do to bring the sector out of depression. We know that this industry provides ample employment in the unorganized sector, and hence for the sake of the survival of workers dependent on this, government will have to come out with sops. Now that serving EMIs on loans availed by real estate companies will be a concern, any classification of such loans as NPAs has to be delayed.
Nothing, but essential goods, is selling during lockdown and retail sector has been hit by this proposition. Now what further will impact the sector is restricted spending capacity of Indian households even after the country resumes normal market operations. Indeed, consumers are set to postpone their purchase of at least those goods which are deemed superficial. How many large screen television sets do you think will sell once the lockdown is lifted? Of course, the demand for such items will be muted in the near-term. Here, the players can be allowed to invoke the force majeure clause to delay rents. Another important and inevitable policy action is cutting import duties on raw materials and faster approvals to MSMEs in retail. It is also expected that to boost demand, the government must think tweaking personal tax rates.
Now that we know how the nation-wide lockdown has brought the country to a screeching halt, we also know that not only the above-mentioned sectors but every single fragment of economy will be impacted. Mass reverse migration of labourforce, especially from the unorganized sector, will play its own role. From mining to textiles and banking to insurance services, not a single branch of Indian economy will be spared in the wake of coronavirus. Moreover, India is a major importer of raw materials and even finished goods from China. Chinese factories are slowly resuming work but the picture for Indian importers is not very promising as our other import sources, from Germany to South Korea, are also hit by the coronavirus catastrophe.
In these difficult times, measures undertaken by the Indian government and other authorities including the RBI are the saving grace. Although most of the policy actions announced by the Finance Minister are targeted at providing subsistence support to the poor, they will have a far-reaching impact. RBI, on its part, has resolved to inject liquidity in the market by bringing down repo rates, slashing CRR and increasing marginal standing facility. The PM in his recent interaction with chief ministers has deliberated on the need to have in place an effective strategy for a phased lifting of lockdown. The targeted response of various authorities on coronavirus hotspots are surely making us feel optimistic that the spread of the disease will soon be brought under control, and the engines will soon be up and running. Let’s shun negativity and show resilience.
