The economic impact of the virus will be HUGE, humongous. That’s a given. But how much? We cannot assess that till all this settles and the country starts production and all other activities. In the current state of inactivity, it is very difficult to fathom.
But here are a few random thoughts on how this could unravel in the coming months.
1: The cost of fruits and vegetables will shoot through the roof as harvests are getting impacted and as such, seasonally, once summer sets in, food inflation goes up – only this time it will be more pronounced.
2: In the cities, all the repressed buying will come in. Right from malls to restaurants, everything will be chock-a-block once fear has subsided. Staying home might have brought in the feeling of being imprisoned and once free, it will translate into more consumerism.
3: The cost of labour will sky rocket – remember so many have migrated? It will take a while before all of them come back to work.
4: If the price of commodities are repressed currently, be assured that it will also change the other way in 4-6 months from now.
5: The only growth we will see, many are predicting a GDP of around 2 -3%, will mainly come from agriculture and allied services.
6: Lets not expect anything from Q4FY20 and Q1FY21 earnings – most of them will be in shambles.
7: One plus side of millions of people returning to their villages – rural demand will see a spike up.
8: Tourism can be written off for the next six months – till the fear psychosis does not go, people will be unwilling to travel. Ditto for aviation which is going to need a lot of hand holding from the Govt to merely stay afloat.
9: If domestic demand surges, we can beat all odds – in 2008, we grew because we remained inwards focused and maybe the same truth will hold fort in this crisis too.
10: FIIs are major sellers now and will remain so for some time. But they are not going to pack their bags and scoot forever. Once our demand bounces back, despite macro economics being in shambles, they will come back.
11: Health care will be a decisive factor – as Urjit Patel righty said a few days ago – FIIs will now invest more in countries where health care is robust. How we come out of this pandemic, how we get out of the lockdown while keeping death rates low will be key.
12: Unemployment was always a problem and now CMIE saying that it currently stands at over 23% is worrisome. Once mills/factories start running and things return to the new normalcy, employment is sure to pick up.
13: Govt has to come out with more sops once the crisis is gone to generate employment, increase manufacturing activity – building only roads will not suffice. Major infra building push is needed, which in turn will generate domestic demand across all sectors. But will the Govt do that?
14: The very bitter part – many SMEs and MSMEs will simply pull down their shutters. Most cannot sustain in this 21day lockdown and if it is extended, it will be the death knell for many. MSMEs employ close to 10 million people and if even 25% of these companies go under, the human catastrophe will be huge. Major sops for this sector in terms of tax breaks, easy access to credit, GST write-offs, and reimbursement or concession for wage-guarantee should be considered; hopefully it will not a carrot-and-stick like the EMI sop!
There is no easy way out here. At this point of time, we are not looking at recession. But if the pandemic is not contained, we don’t know how much in the abyss India could sink. And that’s why the lockdown needs to be in place till the end of the month - at least till death rate and new cases rate comes down.
Lets be optimistic and think like Ben Bernanke, former chairman of the US Federal Reserve. In a TV interview, he said, “If there’s not too much damage done to the workforce, to the businesses during the shutdown period, however long that maybe, then we could see a fairly quick rebound.”