Views & Voices

India’s Economy and the Covid-19 Pandemic: An Antithesis: Lot to learn as suggested by Experts

By News Desk & inputs from agencies/reports.

It has been more than a year and a half since we witnessed the deadly COVID-19 pandemic seep through the foundation of human lives and shook us to the core. The pandemic has adversely affected the world while India being one of the most severely impacted. The impact of it on India has been enormously disruptive in terms of the economic growth of the country as well as the number of human lives lost. Almost every sector has been negatively affected by the pandemic as domestic demand and exports sharply dropped. A brief overview of some of the key sectors of India which had a huge impact due to the deadly virus has been depicted in this article.

Food & Agriculture

Agriculture is the backbone of the Indian Economy and thus the government had announced agriculture as an essential category. This reduced the blow of the pandemic on both primary agricultural production and the usage of agro-based inputs. However, the nationwide lockdown during the first wave was a great issue for the supply chains of the agricultural products which led to a rise in the prices of some basic items. The introduction of the farm bills around the year-end of 2020 was a huge trigger for the farmers and was called to be one of the collapsing moments in the history of the Indian agricultural sector.

The online food grocery platforms have been heavily impacted both positively and negatively due to the restrictions by the government on easy movement. Having said that, these online stores have seen a rise in sales over the lockdown as multiple marketplaces remained shut.  The rural food production was insulated soon after the lockdown, which showed slight positive signs on the macroeconomy if seen in the larger picture.

Aviation & Tourism
The contribution of the Aviation Sector and Tourism to our GDP stands at about 2.4% and 9.2% respectively. The Tourism sector served approximately 43 million people in FY 18-19. Aviation and Tourism were two of the very first industries that were hit significantly by the pandemic. The overall lockdown came as a huge shock to both domestic as well as international aviation and tourism sectors. The common consensus said that COVID will hit these industries harder than 9/11 and the Financial Crisis of 2008. These two industries have been dealing with severe cash flow issues since the start of the pandemic and stared at approximately 38 million lay-offs, which translates to 70 per cent of the total workforce. Although after the first wave both the sectors saw a short rise in revenue as the people relentlessly travelled during the November-March period, it was brought down again once the second wave hit the country. With that, the pandemic has also brought about a wave of innovation in the fields of contactless boarding and travel technologies.

There has been a recent rise in the prices of raw materials imported from China due to the pandemic. In the generic market, India is facing high competition from China for the supply of APIs (active pharmaceuticals ingredients) as the latter country is providing it at a lower cost. India imports 70 per cent of the API needs from China. This created a lot of hardship for some of the domestic pharmaceutical firms that are manufacturing certain key APIs. India’s health security was under threat due to the heavy dependence on China coupled with a shortage in supply of key APIs. Generic drugs were very highly impacted due to heavy reliance on imports, disrupted supply-chain, and labour unavailability in the industry, caused by social distancing. Simultaneously, the pharmaceutical industry is struggling because of the government-imposed bans on the export of critical drugs, equipment, and PPE kits to ensure sufficient quantities for the country. The increasing demand for these drugs, coupled with hindered accessibility is making things harder. During the second wave, the excessive shortage of oxygen cylinders and untimely management had created immense panic among the citizens that led to a huge plummet in the pharmaceutical sector. Easing the financial stress on the pharmaceutical companies, tax-relaxations, and addressing the labour force shortage could be the differentiating factors in such a desperate time.

However, one of the very few industries which saw a rise post-pandemic is the pharmaceuticals industry. The Indian pharmaceutical industry supplied over 50 per cent of the global demand for various vaccines. India is the 3rd largest producer of drugs in terms of volume and vaccine production accounts for 60 per cent of the global production, contributing to the second-largest share of the pharmaceutical and biotech workforce in the world. Indian pharmaceutical products are exported to more than 200 countries in the world, with the US being the key market. India exports Hydroxychloroquine to various countries like the US, UK, Canada etc. Covid has led to a surge in the market size of the Indian pharmaceutical industry which was $55 billion during the beginning of 2020.

The Overall Impact on the GDP
On May 31, the Indian government released the data for GDP that illustrated that during the financial year 2020-21, GDP contracted by 7.3 per cent. It is the most severe dip that India saw since its independence. The reasons behind this trajectory are obvious – the lockdown imposed by the government resulting in the closing of business units, increasing unemployment rate and a significant decline in domestic consumption.

The rating agencies across the globe have downgraded it due to the impact of the second wave of COVID-19. Moody’s initially projected 13.7 per cent of growth for FY 2021-22, but later lowered it to 9.3 per cent. The same goes for the S&P Global Rating. They have lowered the 11 per cent growth to 9.8 per cent in case of moderate impact of the second wave, but for a worst-case scenario, it was said to be 8.2 per cent. The ideas around a third wave are not helping the situation at all. Many rating agencies and banks have lowered their FY22 GDP forecast for India in just a matter of months. While India’s March quarter (Q4FY21) GDP growth improved, economists believe that the gains have been eroded by the second wave of the pandemic.

With the ending trail of the second wave, the stock markets had witnessed a surprising rise, multiple companies have seen all-time highs, IT and pharmaceuticals being the leaders, but with the third wave knocking our doors, things are a little sceptical. Nevertheless, analysts and experts expect some betterment in the economy by the end of this quarter.

Given the level of disruption caused by the pandemic, it is evident that the current downturn in the markets or the economy, in general, is fundamentally different from any other recessions that the country has seen so far. The sudden shrinkage in demand & increased unemployment has altered the business landscape. However, as we move ahead, the business units are adapting and adjusting to the change accordingly. Adopting new principles like ‘shift towards localization, cash conservation, online usage, supply chain resilience and innovation’ is somewhat helping businesses in treading a new path for themselves in such uncertain times.

(Story by KSHVID News Desk & inputs from agencies/reports)

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