June 13, 2024

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Delighting finance buffs

Coronavirus: Make or break choice for India as lockdown ends on May 3

India’s government has a tough decision to make next week when the nationwide lockdown to contain the spread of Covid-19 officially ends on May 3.

While reports indicate that the government will partially ease lockdown rules from May 3, there has been no official word on the exit strategy. To what extent the lockdown will be eased is a question that has kept the entire nation on the edge.

For many of India’s working population, especially those from the unorganised sector, it will be a ‘make or break’ decision as they are hoping to urgently get back to work. They have been living without an income throughout the lockdown and are solely surviving on relief materials.

However, experts said an extension of a complete lockdown is something India cannot afford.

The six-week lockdown has already resulted in millions of job cuts and pay cuts across sectors and has left the economy gasping for liquidity, which has dried up due to economic inactivity.

A recent IndiaToday.in article discussed sectors that have bled the most during the lockdown and are in urgent need of liquidity. They have already urged the government to allow them to resume businesses partially to avoid further layoffs.

These sectors where workers — unlike many others which are offering essential services or have the luxury to shift operations online — have no option but to sit tight during the lockdown, announced over a month back to contain coronavirus.

Contagion effect

The distress is gradually spreading to other sectors which depend on primary economic activities liking manufacturing, exports, construction and farming that play a big role in driving India’s economy.

For instance, with no new non-essential products being manufactured, exports have come to a standstill. At present, there are hardly any sectors that have not faced the wrath of Covid-19 lockdown.

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Some industries like automobiles, electronics and consumer goods have seen a complete collapse of their supply and demand chains. The advertisement industry has also suffered as a result of the shutdown as demand for new advertisements has plummeted.

If the lockdown on production and exports continue, the number of layoffs could shoot up much higher during the year.

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Simply put, a chunk of India’s revenue has been completely erased since the lockdown, effects of which are having a direct and harsh impact on several Indian firms.

While the severe nationwide lockdown was inevitable, any further extension of a harsh lockdown could result in numerous businesses shutting shops.

If the revenue channels continue to remain damp, more sectors could be impacted.

For sectors like exports and imports, not adhering to commitments could lead to permanent loss of businesses and revenue.

Also Read: India’s March exports fall as lockdown dents global trade

Several industry bodies including FICCI have already urged the government to allow firms to start operations gradually, as India cannot afford another extension of a strict lockdown.

Make or break choice

In case strict lockdown measures are extended after May 3, the government would need to come out with further measures to support the economy — something that would make the country’s debt pool heavier.

In fact, the economic cost of bearing a lockdown is already giving nightmares to experts. A ratings agency recently said each day of the lockdown is costing India over Rs 35,000 crore per day.

Another report by British brokerage Barclays said an extended lockdown may result in an economic loss of almost 18 lakh crore for India.

A bunch of ratings agencies have also cut India’s growth forecast sharply and fear that the economic outlook will soon turn negative if the lockdown continues.

Also Read: Moody’s slashes India growth forecast to 0.2{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} for 2020

Easing up restrictions partially to help restart key economic activities including farming, manufacturing and construction is crucial in such a scenario.

Early recovery from Covid-19 could also amplify India’s role as a contributor to the global economy. Ritika Agarwal, a chartered accountant and Senior Director at Rajeshree Sabnavis & Associates, explained that India is “well-positioned” to step in as a possible alternative global manufacturing.

But for that to happen, India needs to formulate a sound exit strategy and a relief package to help support key segments of the economy.

Read | Coronavirus: Speeding up cash flow key to reviving virus-hit economy

Also Read | Coronavirus: What mutual fund investors should know amid rising credit risks

Watch | India’s GDP growth gloomier due to corona pandemic, predict global financial institutions

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