Indian Economic Outlook

Indian Economic Outlook

The COVID-19 pandemic created structural damage to economy & bankruptcy, unemployment, financial crisis. The GDP is falling down and it depends on the virus spread, the effectiveness of public health response, and the effectiveness of government economic policy. India’s GDP is at its lowest in the past six years. The PMI (Purchasing Manager’s Index) of china loss to 40.3 on February 20, 2020, from 51.1 on January 20, 2020, the below 50 PMI indicates recessionary conditions.

Restaurant businesses are completely closed during the lockdown. Social distancing leads to collapse inactivity. Lockdown affected the consumption of non-essential goods and it leads to a loss in their business. The unruly impact on demand has created substantial cash flow gaps for corporates.

In India, Apparel market which contributes more than 2 % of GDP & more than 45 million direct jobs (as per 2018-2019) is getting affected, manufacturing and exports of yarn, fabric, apparel will get affected from 20-29% & price of imported man-made fiber will be raise by 20-25%. The Indian textile & apparel sector production is expected to reduce by 10-12 %.

The automobile & Auto components sector contributes 7.1% & 2.3 % of GDP respectively which creates employment of approx. 40 million. The manufacturing plants are shut down and it leads to stop the export of raw material. It is directly affecting the import of ready auto-components. While the automobile sector was already struggling in business and due to lockdown in pandemic customers are delaying the vehicle purchases. The companies will be postponed to new launches. The pandemic will affect Aviation and Tourism industry by at least 22 billion USD. The travel sector will reduce by 25 % result which can create unemployment of 50 million.

The real estate is one of the largest employment generation sectors and it contributes to 13% to GDP. More than 1600 big projects have stopped due to a shortage of liquidity. The overall closure in the manufacturing of Cement, steels, building material causing the slowdown in the real estate sector. There are weakened sales in the residential segment and commercial segments like retail and hospitality due to lower footfalls affecting the slowdown in fresh equity investment in the real estate sector. Raw material prices of Petrochemical have fallen down due to lower global demand and additional supply causing price war between Russia and Saudi Arabia. The maximum production of petrochemical in India consumed within the same country so there is no much impact on exports.

The education sector is affected by the closure of classroom lessons. The schools and colleges are trying to conduct online classes but it is working to some extent only due to the availability of the Internet, technology, and delivering skills. The Placement and internships of students are on hold.

Banks' profitability reduced due to fewer transactions in lockdown, reduced loans, and low-interest rates. The customer will move towards strong banks for a more safe deposit impacting small private banks and small finance banks. Meanwhile, the insurance sector witnessed rapid growth. The life insurance grew by 18 % and health insurance by 31 % as compared to Feb 19. The digital health products sales have increased substantially.

As agriculture is announced as an essential category, there is a micro impact on the sector. Harvesting of rabbi-seasonal products is impacted due to the availability of seeds & fertilizers and Agro-chemicals. In the lockdown, online grocery selling businesses are growing. The unavailability of labor & raw materials resulted in factory operations shut down & shipment of products has stopped.

The economy can restart only when people will immune to COVID-19 disease or a strong health system that can detect and respond to cases.

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