The economic repercussions of Coronavirus in India

Understanding the economic repercussions of Coronavirus in India

Economy, India
Reading Time: 9 minutes

In India, the Coronavirus (COVID-19) outbreak is taking a toll on the economy, though the disease, at the time of writing this article, didn’t reach the community transmission stage as per official information. It’s not clear in case the Coronavirus becomes a deadly epidemic in India — ie, spreads between two people who neither went to the affected countries nor came in contact with those who did — then how its economic repercussions will be absorbed by the already dilapidated and rattled Indian economy. The Coronavirus outbreak in India is taking place at the worst time of its economy. The economic repercussions of Coronavirus in India will be mammoth, and there is a chance that the government may run bankrupt fighting the menace.

The Indian GDP is anticipated to grow at an 11-year-low of 5% in the financial year (FY) 2019-20 by the National Statistical Office (NSO). The economy is glissading into an abysmal crisis since FY 2017-18, as the demonetisation exercise and the rollout of the Goods and Services Tax (GST) fractured the backbone of the unorganised sector, which employs 93% of India’s workforce. Since then, unemployment is on a constant rise, reaching a 45-year-peak according to leaked data of the NSO for FY 2018-19. The situation didn’t improve and a lack of money in the hands of the people led to a fall in demand for various industries like automobile, consumer goods, textile, etc. Now, as the Coronavirus strikes India and throws normal life into chaos, closing various business enterprises, the fear of the recession snowballing to a depression looks absolutely possible.

For years, Prime Minister Narendra Modi’s government didn’t pay any attention to the economic issues, especially the incessantly worsening unemployment situation. To keep the denial mode on, the Modi regime even imposed an unofficial moratorium on the release of statistical data. The all-is-well narrative didn’t give up even when the GDP growth reached 4.7% in the quarter ending December 2019. Millions have lost their jobs in the crisis-hit industries and the unorganised sector between 2016 and December 2019. There was no contingency plan to accommodate the labour force by providing employment opportunities. Now that the Coronavirus has hit all industries badly, there is a visible effort by the Modi regime to put blame on the pandemic, even for the economic disasters that took place before the first case of COVID-19 was detected in China.

What will be the economic repercussions of Coronavirus in India?

In the wake of the Coronavirus outbreak and the subsequent lockdown, there will be both demand and supply crisis, contrary to the demand crisis that engulfed the Indian economy since FY 2017-18. While the general demand crisis will continue, there will be a massive demand for essential grocery items, medicines, medical equipment, hygiene products, etc. The demand for food will increase, as there will be a frantic attempt to stock by the middle class and the rich, who have the means to buy in large quantities. Though the poor need the food as well, they won’t manage to stock or buy in excess due to the lack of means (monetary/purchase power) to do so.

In such a scenario, while the increase in demand will be seen by many as a booster for the falling and frail economy, the supply side will eventually crumble. The production of goods and services will be hampered due to lockdown. The lack of transport and logistics will also hamper the availability of goods at different places. 

With such lockdown, as the poor people, the daily wage-earners, workers of the unorganised sector and toiling masses will continue to suffer a huge loss of income, which won’t be compensated by the state, the supply contraction will eventually lead to a massive demand contraction due to less money in the hands of the majority of the population and will create a massive economic disaster. Not only in India but globally.

The cost of economic repercussions of Coronavirus in India

Industries like hospitality, aviation, transport, etc, will be worst hit in the Coronavirus outbreak and resultant lockdowns. The big capitalists will definitely lay-off manpower to save their profits, which will add more unemployed people to the already soaring ranks. This will eventually have a deep impact on the demand for goods and services in the long run. The nation looks up to Finance Minister Nirmala Sitharaman’s economic task force on Coronavirus for relief package, but it seems that her offers will be tailored to help only the corporate houses and not the common people.

It’s up to Modi to announce some populist packages, which will come with riders, including Aadhar and PAN linking, or probably bank account transfers to a selected, handful of accounts. One must remember that the Rs 6,000 per farmer family per annum scheme didn’t materialise and with the current reign of tax holidays offered to corporates, it’s not feasible for the government to spend an adequate amount of money to provide relief to the poor as it lacks adequate revenue to do so.

Crisil recently cut the projected growth of India’s GDP for FY 2020-21 to 5.2% from 5.7% given earlier due to the COVID-19 outbreak. This means, there will be only a 0.2 percentage point increase in the GDP in FY 2020-21 if we assume that India’s GDP will grow by 5% in FY 2019-20, which was estimated earlier without considering the economic repercussions of Coronavirus in India. So, while the GDP of India is estimated to be US$1.89 trillion in FY 2019-20 and was expected to be US$ 1.95 trillion in FY 2020-21, then, in the changed circumstances it will only reach US$1.94 trillion, which means a $10 billion loss to the economy in potential terms, forget expanding exponentially. 

As Sitharaman extended the date of filing of GST returns and income tax returns for 2018-19, it appears as the big decisions on the monetary front will be declared by Modi himself. Now that the government is working on a war footing to tackle the economic repercussions of Coronavirus in India, it’s expected that the principal interest of the government will be to bail out the big corporations using the taxpayer’s money. 

The nonchalant government and a helpless public healthcare

The worst-hit of the Coronavirus outbreak in India will be the poor. Though the rich and upper-middle class, who have means to sustain even if the economy shuts down for a longer period, have been the principal carriers and disseminators of the Coronavirus, they are reluctant to loosen their purse strings and share the burden of India’s major healthcare catastrophe in decades. They’re happy with their stunts by clanging utensils and clapping from their balconies, mocking the millions of poor and downtrodden people who await the pandemic to devastate them.

What’s the arrangement for the poor in terms of public healthcare? From masks to handwashes, from doctors to beds, India didn’t prepare itself for the global pandemic. For years, the Indian rulers deliberately didn’t increase expenditure on healthcare and the country remains one of those where the least is spent on public healthcare. When to meet the growing healthcare requirements, the Indian government should’ve been spending around 5% of the GDP in developing a robust and universal public healthcare expenditure, in view of a large number of poverty-affected people who live in India, it’s spending less than 2% on healthcare now. The per-capita health allocation in India is US$ 6, which is quite less than what the “poorest” countries do. 

India’s healthcare budget for the FY 2019-20 was less than Rs 630 billion, the lion’s share of which was allocated towards the National Health Mission and Pradhan Mantri Jan Arogya Yojana, which was launched last year to provide cashless hospitalisation of up to Rs 500,000 per family to the poor for secondary and tertiary level healthcare. This Rs 630 billion project makes the government an insurance agent, as the money goes to buying insurance cover, enriching the general insurance service providers. Rather than building hospitals, upgrading the existing ones, increasing the number of medical colleges to create more doctors, providing free testing and other services, the Modi regime has drawn the limelight by selling insurances! 

India plans to spend 2.5% of its GDP on healthcare by 2025 when the global standard will be 6%, yet, the Modi regime can continue to fiddle with public health because it knows how to create a narrative to titillate and captivate the urban middle class and the rich. It knows that until an epidemic is visible, and people die in a large number, the people can be fooled by asking them to make a public kerfuffle at a specific time.

Can health insurance save the poor from the COVID-19 outbreak at an epidemic stage, when there is a sheer lack of hospitals, qualified doctors, paramedics, equipment, accessories and infrastructure to attend to such a huge volume of patients? Can self-quarantine for 21 days help to flatten the curve as the government hospitals and doctors lack minimal safety gears and testing kit? Can clapping and utensil banging help when a large number of healthcare workers are themselves vulnerable to infection? Can Modi’s Rs 150 billion grant for equipment suffice at this peak hour of crisis?

It’s imperative to understand that the lack of a robust and universal public healthcare not only affects the poor, but it also affects the overall economy during epidemics.

The MSMEs face an existential crisis

Around 75 million micro, small and medium enterprises (MSMEs) form India’s rickety economy’s growth and employment drivers. These MSMEs collectively contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output. They provide employment to nearly 180 million people. About 97% of MSMEs are small and employ less than ten workers, with the majority employing one to three workers. Most of these MSMEs have no financial backup and are cash-driven. While the majority were ruined through the demonetisation and GST rollout, the rest will face the wrath of the Coronavirus outbreak. 

The economic repercussions of Coronavirus in India will be severe on these MSMEs as most of them will suffer due to lockdown, raw material shortage, fall of demand in the industries where they supply their finished goods and in manpower. The lockdown of MSMEs will eventually have a terrific impact on the industrial and service outputs, affecting the national economy in ripple effects for years. The marginalised communities, mostly associated with the MSMEs, will suffer the most under such a scenario.

The economic repercussions of Coronavirus in India on farmers

As the Coronavirus outbreak didn’t reach rural India, it’s so far safe from the impact of the lockdown. However, in case the Coronavirus outbreak reaches rural India, then apart from causing millions of imminent deaths due to the poor public healthcare system in the villages, it will also cause a huge food shortage. The 21-day-long lockdown may impact harvesting of Rabi crops due to labour shortage, which will shoot up prices of wheat, pulses, etc. It will also affect the Kharif season as the rural pandemic will continue for a longer period than the urban pandemic, especially in states like Uttar Pradesh, Madhya Pradesh, Bihar, Odisha, etc. 

The economic repercussions of Coronavirus in India will be severe if it reaches the rural areas and affects food supply. This will add to far more woes for the people, the poor and the working masses and will eventually ruin 43.21% of the Indian workforce employed by agriculture. The imminent threat and the economic repercussions of Coronavirus in India on the rural population will cripple the country’s food security and livelihood of people for many years to come.

How to deal with the economic repercussions of Coronavirus in India?

There is no isolated treatment for the economic repercussions of Coronavirus in India, as this is a global pandemic and has shaken the monopoly-finance capitalist economies of the west. The Indian response will be a part of the global capitalist response only and there will be no revolutionary approach, although it’s a revolutionary approach that’s needed to deal with the issue. There can be no long-term and effective solution for Coronavirus pandemic’s impact on the world economy within the global capitalist framework.

While to combat the healthcare menace in India, there is an ardent need to nationalise healthcare in the public interest and provide adequate infrastructure to the medical fraternity battling the Coronavirus outbreak. Modi has announced a package of Rs 150 billion to train doctors, paramedics and to buy the required equipment, gears, etc, along with the testing kit, to help the doctors. This was a long-pending decision. However, how soon the money will be utilised and how genuine products will reach the doctors and paramedics is a thing to watch out for. It seems like this amount won’t be sufficient to build up the required infrastructure or to mobilise doctors and paramedics with adequate gears and equipment. 

In order to effectively deal with the economic repercussions of Coronavirus in India, a stimulus package needs to be given to the poor. This package can’t be all about helping corporates dodge taxes and accumulate more profit at the cost of the poor. The stimulus package won’t bring any fundamental change in the lives of the poor, it won’t bring a revolution, but for the time being, it will help them survive in a period during which they won’t have a chance to earn their livelihood. Providing essentials like food items per family according to nutrition value, basic hygiene products to keep themselves guarded and medicines should be taken over by the state and not just for the resident poor with ration cards, but also for the migrant labour and poor. This stimulus is a demand of the time to deal with the economic repercussions of Coronavirus in India, and help its poor to recover from the losses, and there is a need to spend around Rs 7 trillion, over a period of next three months, to absorb the shock. The question is, whether the Modi regime will spend such a huge amount?

One of the biggest challenges for the Modi regime in providing a stimulus package for the poor is the revenue deficit of the government. To allocate Rs 7 trillion, the government has to actually give up more than 59.82% of its total revenue from all taxes in the FY 2019-20 (revised estimates). Then how will it run the government? Offering a stimulus package to the rich will help Modi and his sycophants earn huge commissions in return. This is a reason that Modi’s stimulus package will only focus on helping the rich while making the poor fight for the crumbs. Such a stimulus, with all its wholehearted efforts to please corporate boardrooms, does no benefit to the poor and the downtrodden masses. 

Different state governments giving Rs 1,000 to unorganised workers and daily wage earners for sustenance. It’s actually a cruel mockery of the poor. Survival for 21 days with Rs 1,000 and inadequate supply isn’t possible. Even the construction workers’ cess, which the Union labour minister informed the states to pay to the labourers, will leave out 60 million workers as their names were not added in the database, as alleged by trade unions. 

The economic repercussions of Coronavirus in India will be felt for a long time to come and there will be no rescue for the poor under any circumstances, unless the Modi regime allocates at least a Rs 7 trillion package, which can be arranged only through external borrowing at this point in time, to help them sustain. The economic task force under Sitharaman won’t take that step, which is well understood from the behavioural pattern of the Modi regime for years. It’s most likely that a Rs 5 trillion or a larger package will be announced to provide stimulus to the corporate sector and the poor will be left with rhetoric, pain and hunger.

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An avid reader and a merciless political analyst. When not writing then either reading something, debating something or sipping espresso with a dash of cream. Street photographer. Tweets as @la_muckraker

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