Prospects for Economic Recovery Due to COVID-19 Outbreak

Covid-19 has already generated a sharp fall in global GDP and a rapid rise in unemployment, but what kind of recovery can we expect once the crisis passes? With the world economy already experiencing a sharp fall in GDP and rapid rises in unemployment, forecasters have been struggling to work out how big it will be and how long it will last. This article presents analytical views on economic recovery due to Covid-19 Outbreak.

Projections reported by Gita Gopinath, the IMF Chief Economist, suggest the world economy will shrink by 3 percent in 2020, instead of 3.3 percent growth forecast just three months ago. Assuming an early peak in the incidence of the virus (and that the countervailing policies are successful), it will recover strongly in 2021 to achieve growth of 5.8 percent.

Pandemic economies are different from normal economies. The coronavirus pandemic has caused damage to our economy in almost all sectors. It has affected almost 185 countries. It has posed severe challenges to the international market networks as well as the mobility of domestic resources. It has also created a huge dilemma between addressing the virus and handling the economy to the government. The shutdown of a large parts of the economy such as industries, sports leagues, workplaces, and cultural sites has had an impact on the financial status of the country. This pandemic has managed to potentially trigger the economies of all types.

Fighting COVID-19’s economic effects will take more than interest rate cuts while having over 8000 Indians affected by it. Though this is the most spontaneous response that could be taken by the central bank, this decision might not provide expected results given that interest rates have already hit rock bottom level. Only monetary policy cannot repair the supply chain. Liquidity injection by the banks can restructure the global traffic undoubtedly only when there are issues with the flow of finance. But the current major problem is the abrupt stoppage of production. It has created both demand and supply problems.

It is tough days for retail industries that are completely shut down except medicals and groceries. The industries have a tough phase to go through, they need to substantially discuss the consequences of the steps they take. More importance should be given to the essential items to suffice the basic needs of people to maintain the money supply as well as to procure a healthy workforce. The most important resource, the people are either unwell or quarantined which has reduced the demand. The reduction of demand will lead to inflation and eventually to stagflation (falling GDP). The real need is strong fiscal measures and tax reforms to prevent companies and banks from becoming bankrupt and compensating underemployment.

A vigorous risk management process should be made to diversify the supply chain. The industries should start prioritizing. Small businesses and FMCGs’ are affected the most, in fact, they are the ones that produce and supplies the day to day requirements of common people. They do not have enough cash inflow and have a huge number of creditors lining upon them. Government, by providing the manufacturers with adequate funds and extending their credit repayment period can help the timely supply of essential goods to retailers for sale and to keep a track of money flow in the economy as well. Since all these businesses are at the mercy of the government huge industries such as automotive, aerospace and luxurious goods industries will still be affected, but it’s equally important to understand at present short term achievement matters more than long term accomplishments. According to the recent study of FIEO (Federation of Indian Export Organisation), there will be as many as 1.5 crore job losses. The airlines and ocean shipping which are the primary catalysts for exports can speed up themselves in exporting of spices (something India is known for), fabrics, medical drugs to compensate underemployment in the workforce.

The faster the plans are executed the greater responses the economy derives. The available resources should be deployed in collaborative and active planning. E-commerce is not the only survivor of the retail chain since they carry huge overhead costs. So only those industries that have diversified business and plan on having an integrated supply chain can survive the post-pandemic phase. Besides this having more empathy towards social and civic interaction post-pandemic helps build on international relations.

Economic Recovery Due to COVID-19 Outbreak completely depends upon the degree of response to the pandemic.

Revised TDS Rate Chart for FY 2020-21: Effective from 14th May 2020


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