IMPACT OF CORONA VIRUS DISEASE (COVID) ON THE
GLOBAL AND INDAIN ECONOMY
Corona virus (CoV) is a large family of viruses that causes illness. It ranges
from the common cold to more severe diseases like Middle East Respiratory
Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-
CoV). The novel corona virus is a new strain of virus that has not been
identified in human so far. To combat with COVID-19, Indian
Government extended the date of lockdown to 3rd May, 2020. The virus has
spread widely, and the number of cases is rising daily as governments work to
slow its spread. India has moved quickly, implementing a proactive, nationwide,
21-day lockdown, with the goal of flattening the curve and using the time to
plan and resource responses adequately. The effect of the virus is likely to be
seen long after medical science offers a cure or at least a vaccine for Covid-19
(the disease caused by the new corona virus). That’s because the economic cost
of shutting down large swathes of the world is going to be steep. Barclays
estimates that India’s aggressive 21-day lockdown could bring the country’s
growth down to 2.5% from the 4.5 per cent it had earlier estimated. As Prime
Minister Narendra Modi said in his address to the nation when he announced a
21-day lockdown, if this pandemic is not contained, it could set us back by
decades. Ben Bernanke, former chairman of the US Federal Reserve, is much
more optimistic. In a television interview, Bernanke said: If there’s not too
much damage done to the workforce, to the businesses during the shutdown
period, however long that maybe, then we could see a fairly quick rebound.
However, even if global economies bounce back sooner than expected, Indian
MSMEs are likely to pay a high price. These companies are too small to have
enough of a cushion to last through a pandemic like this one. Add to this the
fact that many of these companies have been asked to down shutters or curtail
operations while still paying employees and that’s apart from meeting costs for
taxes, power, and other utilities. Available data show that MSMEs employ
upwards of 110 million people; asking companies to keep paying during a
prolonged lockdown is not a sustainable solution in the medium- to long-term.
What can the government do? Along with tackling healthcare on a war
footing, the government will have to pay attention to the brewing economic
crisis. It has been pointed out by some American economists that a downturn
could feed upon itself; as more layoffs happen, there will be lower demand,
leading to more companies going out of business. It could be a vicious
downward spiral, and the government needs to step in to prevent that. The
Finance Minister has announced a few tweaks by extending tax filing deadlines.
The government has also raised the threshold for starting insolvency
proceedings to Rs. 1 crore. Apart from this, bank charges have been lowered for
digital trade transactions for all trade finance consumers. Former Finance
Minister P. Chidambaram has recommended a slew of measures the government
can take to help industry, including more tax breaks and softer terms for loans.
These are short-term measures intended to relieve the immediate pain for
MSME. According to CII data in a report released last year, the MSME sector
added 13-15 million jobs annually. It is vital that this sector, a key component
of the Indian economy, be protected during times of crisis.
Global Conundrum of Corona virus could Cost the Global Economy $2.7
Trillion. COVID-19 pandemic is the defining global health crisis of our
time and the greatest global humanitarian challenge the world has faced since
World War II. Along with an unprecedented human toll, COVID-19 has
triggered a deep economic crisis. The global economic impact could be broader
than any that we have seen since the Great Depression. Covid-19 pandemic has
hit the world at a scale and speed that we have only seen so far in doomsday
movies. Truth, as we are seeing it today, is way more frightening than fiction.
The human cost of the corona virus is going to be unimaginably high. Worse,
it’s going to end up having a long tail too. In the wake of a pandemic like this
one, demand is likely to soar, while supply will be extremely weak. Raw
materials will likely be in short supply, as free trade will be curtailed for a
while. At this point in time, China seems to have entered the post-peak period.
According to the WHO, this is when levels of the disease drop from the peak
and the process of recovery begins. Much of the rest of the world is still in the
early stages of the pandemic. This means China could get its industries up and
running in time to meet the global post-pandemic demand. A 2019 joint report
from the World Health Organization (WHO) and the World Bank estimates the
impact of such a pandemic at 2.2 per cent to 4.8 per cent of global GDP (US$3
trillion). That was well before the world knew of Covid-19.While that may be
good news for a connected world; it could be another severe blow to Indian
MSMEs who manage to survive. Given raw material, transportation, and labor
issues that manufacturers are likely to face, they are not going to be able to drop
their prices. China, with its head start, could still manage to get low-cost
products to the world, creating a massive competition issue for Indian exporters.
