As COVID-19 impacts Indian citizens and their livelihoods alike, the Government must balance lockdowns with economic stimulus packages in order to avoid financial ruin
The country's economy faces the biggest ever threat as public income and consumption are severely under 'forced' compression with the Coronavirus scare spreading across states. Thousands of Indian workers abroad, regarded as a great asset for the country, remitting billions of dollars annually, the highest by overseas workers in any country, have suddenly turned into a big liability. The government is under pressure to bring a large number of them back as the COVID-19 has become a pandemic.
There is no official record of the actual number of Indian workers based abroad although the World Bank reports country-wise annual remittances. In 2018, India retained its position as the world's top recipient of remittances with its diaspora sending a whopping $80 billion back home. India was followed by China ($67 billion), Mexico and the Philippines ($34 billion each) and Egypt ($26 billion), reported the global lender. Many of these home-bound workers are feared to carry the highly contagious virus. A large number of Indian pupils studying abroad are also trying to rush back home as their institutes are faced with temporary closure in the face of the COVID-19 scare. They have been asked to vacate hostels. With over three lakh students studying overseas, India is the second-largest source of international students after China.
The virus scare has already taken a heavy toll on the government's GST collection as a large number of businesses across the country have been forced to cut down operations. From cinema halls, restaurants, clubs, shopping malls to public buses, trains and airlines, all have been forced to either shut down or severely restrict operations. The elderly population, numbering around 100 million, are increasingly choosing to stay self-quarantined for fear of catching the Coronavirus which tends to become more fatal for those above 70.
With above 65 per cent of India's economy being in the services sector, where regular human contact is unavoidable, consumption and distribution have markedly slowed down. For instance, in Mumbai, buses have been asked to ply at 50 per cent capacity to restrict body-contact among travellers. This is an unusual situation. Airlines, feared to be a big proliferator of the virus inside their compressed air cabins, are among the worst hit. The temporary shutdowns of schools, colleges and other educational institutions will also have an unspecified impact on demand, consumption and distribution, all having effects on the budgeted tax collection provisions of the central and state governments. At the same time, the government's expenditure to combat the near-emergency situation is expected to rise sizeably during the year.
According to the Asian Development Bank, the Coronavirus outbreak could cost the Indian economy up to $29.9 billion in personal consumption losses alone. Given the uncertainties, the ADB cited best-case, moderate-case, worse-case and hypothetical worst-case scenarios to assess the impact of COVID-19 on various developing countries in Asia. The ADB's scenarios were based on an earlier assumption that the outbreak was mainly concentrated in China. "While outbreaks have now occurred in the Republic of Korea, Italy and Iran, none is anywhere near the scale of the China outbreak at this point. But with the possibility of intensification and of similar outbreaks occurring in additional economies, including developing Asia, ADB will update its assessments as the situation warrants, with the next update coming in the April 2020 edition of the Asian Development Outlook," it said in a note. The ADB cautioned that the outlook should not be interpreted as predictions. "Rather, they are meant to guide policymakers in determining how costly an outbreak could be, so they can properly evaluate the benefits and costs of prevention and early response."
International impact of the epidemic and actions by governments and industries will also impact the Indian economy and revenue collections of the centre and states. A BBC report stated that the global slump in air travel could cost as much as $200 billion in the worst civil aviation crisis ever. An earlier International Air Transport Association (IATA) assessment said global airlines stand to lose $113 billion in sales if COVID-19 continues to spread. These figures are being updated almost daily. The civil aviation slump will slow down aircraft manufacturing.
Several global automakers are either temporarily shutting down units or reducing production for want of demand. In India, most automotive manufacturers are opting for a temporary shutdown of units. Aviation fuel prices have nosedived. The global supply chain has been badly disrupted. Expectedly, import-led Indian economy can't escape the situation. Industries in Europe, Canada and the US are looking for tax relief and direct financial assistance from their governments. With tax revenues going down, fresh financial help from governments can only raise the deficit burden. Ironically, the climate is simply not conducive to investment by any sector — manufacturing or services.
The global as well as local investor sentiment is at its lowest ebb. Global stock markets lost trillions of dollars. The US stock market has wiped out the entire $11.5 trillion of value it gained since Trump's 2016 election victory. Up to three million jobs could be lost until the summer in the US. The situation in India, where the stock markets are almost 70 per cent controlled by foreign investors, has been quite grim. For instance, investor wealth worth Rs 19.49 lakh crore got wiped out just in four days of bear hammering on BSE and NSE stocks last week. The massive hot money outflow has brought the value of the rupee down below Rs 75 for a dollar. Local businessmen are fast losing confidence in the rupee. They are investing big in gold to protect wealth. Unfortunately, the government is yet to make a statement about how it intends to tackle the country's dwindling economic situation under the virus threat. The economy badly needs a strong stimulus. The lockdown should be highly selective. Protecting the economy is as important as protecting the people. IPA
Views expressed are strictly personalAs COVID-19 impacts Indian citizens and their livelihoods alike, the Government must balance lockdowns with economic stimulus packages in order to avoid financial ruin