EFFECTS ON INDIAN ECONOMY DUE TO COVID-19 PANDEMIC

Abstract

Research Project Objective: The aim of the Project is to analyse the impact of COVID-19 on different sectors of Indian Economy. The highlights of the project: • Trend analysis of Indian economy (FY 2010-FY 2020). • Study of background of COVID-19, global outlook, disruption of supply chain and impact on Indian Economy. • Understanding the impact of COVID-19 on different sectors of Indian economy, i.e., agriculture sector, industrial sector, services sector, capital market, crude oil prices. • Analysis of monetary policy and fiscal policy measures undertaken by RBI and Union Government. • Identifying opportunities for Indian economy amid COVID-19. • A statistical model to study the impact of aggregate demand (Government Final Consumption Expenditure, Private Final Consumption Expenditure, Gross Fixed Capital Formation, Net Exports) on overall economic growth (GDP) of India.

Summary of the research project results: • Indian economy has evolved over the years and emerged as one of the fastest growing major economies of the world. FY 2019 and FY 2020 witnessed a slowdown in economic growth which further got amplified by nation-wide lockdown owing to coronavirus pandemic. • COVID-19 adversely affected every sector of Indian economy along with Global economy. • Global economy is projected to contract by (-) 3% in 2020 as per IMF and projected to grow by 5.8% in 2021. • World trade contracted by 3% in Q1 2020-2021. • GDP growth rate of India for 2020 is 4.2% against an earlier estimate of 5%, whereas growth rate for Q4 FY2020 is 3.1%.

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• Lack of labour availability and restricted movement of goods due to halted transportation are the major problems faced by agriculture sector. • Agriculture sector provided a ray of hope with increase in food grain production by 3.7% owing to good monsoon. • Industrial production contracted by 17% in March 2020, manufacturing activity contracted by 21% and production of capital goods declined by 36% in March. Core industries output recorded a fall of 6.5% and Manufacturing PMI hit its highest fall in April with 27.4. • India’s exports contracted by 60.3% in April 2020 and imports fall by 58.6%. The trade deficit reduced to US$ 6.8 billion in April 2020, (lowest since June 2016). • Global services PMI was recorded at 5.4 in April 2020. As per ICRA, growth of services sector may fall by 3-5% in FY21 against previously estimate growth of 6-8%. • Coronavirus pandemic and oil price war between Russia, U.S.A and Saudi Arabia led to drastic fall in oil prices to $32.01 per barrel of Brent crude in March 2020 and $18.38 in April 2020. For WTI, oil prices were $29.21 in March 2020 and $16.55 in April 2020. • Prices of future contracts of crude oil for the month of May for WTI fell to negative ($- 37.63). • Capital markets globally have been very volatile and uncertain. COVID-19 has shaken investor confidence and created panic in global financial markets. Out of fear and high degree of unpredictability investors have been in the panic selling mode. • From an all-time high in January 2020, major global indices saw sharp fall in March 2020. • RBI adopted accommodative policy an undertook various monetary policy measures to inject liquidity into the system such as reduction in repo rate, reverse repo rate and CRR, Introduction of TLTROs, moratorium of loans, deferment of interest on working capital facilities, export credit, to name a few. • Union government provided fiscal stimulus through various economic packages covering various sectors such as MSMEs, farmers, vendors, vulnerable sections.

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• Every problems comes with an opportunity. Similarly, India can also take advantage of various opportunities in this time of crisis such as providing impetus to domestic manufacturing sector and attracting global investors to make India a manufacturing hub, infrastructure development, undertaking structural reforms, attracting FPI etc. • Statistical analysis shows existence of strong relation between aggregate demand and GDP. Thus, aggregate demand has a strong impact on overall economic growth. • Regression analysis shows that 99.53% (which is the value of R square) or 99.47% (which is the value of Adjusted R square as more than 1 independent variable is used) changes in GDP could be explained by changes in the aggregate demand.