Impact of COVID 19 on Economy

Impact of COVID 19 on Economy

Currently whole world is suffering from COVID 19 (Corona Virus Disease 2019) which is killing lives across the world. At a same time it has impacted Global Economy and pushed it into Recession mode. COVID 19 is Wuhan (Capital of China’s Hubei Province) originated virus and China reported their first case of COVID 19 on 31 December 2019 to World Health Organisation (WHO). Since more than three month has been passed and COVID 19 cases are increasing in other part of world it is has impacted each and every sector of industry across the globe.

As of now, COVID 19 has reached in more than 200 countries and reported 59K + (4th April 2020) deaths. The India is not an exception. India reported their first case on 30th January 2020 and since then 2900+ cases has been reported.

Considering Global Crises, on 11 March 2020, WHO declared Novel Corona Virus Disease (COVID-19) outbreak as a pandemic. Further considering no. of cases are increasing in India, Prime Minister of India has announced a 21 day nationwide lock down. Such lock down will remain in effect from 25th March 2020 to 14th April 2020. However under lock down, manufacturing, trading and transportation of essential commodities will be allowed.

Prior to announcement of lock down, India has constituted task force to combat COVID 19 impact on the Indian economy. On the recommendation of task force, government has announced tax relief package for business houses. Such tax relief packaged providing certain relaxation for tax payment and filing of returns. Further RBI also reduced Repo and Reverse Repo rate and asked banks to defer EMI for three months. If borrower don’t pay his EMI for 3 months then no legal consequences shall be arise except payment of interest.

What are factors indicating that World Economy entering into recession phase:

As world’s most powerful country USA has reported highest COVID 19 affected cases across world, Europe witnessed most deaths in world and various countries announced complete lock down for more than 20 days is a clear indication that GDP’s of various countries will fall drastically. Further USA has reduced bank rate to zero percent. Following are the factors which may indicate symptoms of recession:

  • Announcement by International Monetary Fund:

On 1 April 2020, The International Monetary Fund (IMF) announced that the world has entered into recession, which is as bad as–if not worse than 2009. The IMF also states that they only expect a recovery in 2021 if the world can successfully overcome COVID 19.

  • Statement from White House:

President Donald Trump has warned, advising people to be prepared for the “hard days” ahead. He also said that white house projects 1 to 2 Lakhs casualties due to COVID 19. If we trump’s prediction went well then nothing can be worse than this.

  • Shut Down of Indian Railway:

Indian Railways passenger trains finally come to a halt. India stopped Indian railway operation since first time its Independence.  It is a clear indication then something big can be happen which can never be expected.

  • Lock down by Countries:

Various countries went into lock down and many countries increased time limit of lock down. Such countries are India, New Zealand, South Africa and Singapore. Point to be noted that these countries have lesser cases as compare to top 5 COVID affected countries.

  • Change in ratings:

On 2nd April 2020, Moody’s Investors Service changed the outlook for Indian Banking system to negative. Previously they gave stable rating. The Moody’s said Banks’ asset quality will deteriorate leading to pressure on profitability and capital.

Considering above factors, anyone can easily expect that something worse is around the corner. This worse can lead to retrenchment from employment result in increase of unemployment. Those global crises will impact certain industry which may insists such industry to discontinue their operations.

Here is list of industry which may impact the most:

  • Tourism: This industry is going to suffer most. As per World Travel and Tourism Council (WTTC), India ranked 3rd among 185 countries in terms of travel & tourism’s total contribution to GDP in 2018. As international tourism is going to reduced, tourism industry is going to perform worse since independence.
  • Aviation: Before COVID 19 attack, aviation Industry is already burning and few companies about to sell off or discontinue their operation. As international tourism and transportation is going to be decreased which will directly lead to worse performance of aviation sector.
  • Real State: Whenever economy has liquidity, real estate sector always performs well. As overall Gross Domestic Production (GDP) is expected to perform poor which will impact real estate sector brutally.
  • Entertainment: Entertainment Industry is dependent on upper middle class segment. Upper middle class belongs to business man or industrialist who is going to suffer most because of lock down. Hence Entertainment industry will also face challenges due to COVID 19.
  • Automobile: Automobile Industry required high level of liquidity in economy to survive. Commercial Vehicles sector may face worse situations ever as in coming months very rare business houses are going into expansion or replacement of their existing vehicle. Further luxury car industry may lead to reduction in their installed capacity of production due to less cash liquidity in hands of buyer.

Impact of COVID 19 on Individuals:

As we aware that there is complete shut down in India for 21 days, which will definitely going to reduce profitability of various industry because of continuous incurring of fixed cost. Healthcare expert are expecting that this lock down may increase for further period or partially relief can be given. Considering uncertainty in market, reduction in profitability, discontinuation of operation and huge deaths across the world, following impact can be seen in short period of time:

  • Reduction in perquisites of salaried employees
  • Announcement of Voluntarily Retirement Scheme
  • Layoff in big organisations
  • Habit of work from option shall be developed
  • Dependency on health insurance will increase
  • Hygiene habits will improve gradually

*Above blog is based on the basis of information available in public domain and  to the best of knowledge of Author. The author shall not be responsible for any action or decision taken on the basis of above blogs.  

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