Impact Of Covid 19 On Economy

On 22 March 2020, Government declared a lockout throughout the country (79 districts). Everyone is worried about the health and death of people and fighting against epidemic coronavirus. Lots of parents are concerned about their sons daughters staying abroad and watching news to get updates from other countries of the world. On one side, government has taken measures for preventing the spread of this epidemic in the country whereas on other side government also planned and appointed economic task force working on financial stimulus, and measures for combating the impact of the shutdown on the economy of country.

The panic has been triggered across the world due to the spread of coronavirus and this has shaken not only the country but also the confidence of every citizen of country and even of the investors. The other dynamics prevailing amongst countries also created effects on the economy. The crude oil war between Saudi Arabia and Russia in regard to production of oil worsen the things and created more panic and volatility in other assets.

Due to the COVID 19 virus, the impact on equity and debt market was seen but now the commodities and currency market also affected due to crude oil war.
Let us understand the reason behind this Turmoil. Till March 12 only 29% of active cases where in China and remaining 71% where in other parts of the world while the situation now has improved in China and worsened in countries such as Italy , South Korea and Iran.
Many countries in Europe and US are facing a grim situation. This will certainly create an impact on the global economic growth.
These conditions across globe and the disease will obviously have an implications on the Indian economy. The current restrictions, lockouts by government which are necessary for preventing the virus created impact on economic activities mostly like travelling, tourism ,Hospitality, event management, and service sector(aviation).
Due to supply chain disruptions ,manufacturing will also have an impact and this, in turn will delay capacity additions and capex spending by government and private sectors.

At present the overall demand for crude oil has gone down so increase in production at a time when demand is low is not good for crude oil market. But it may be a blessing in disguise for oil importing countries like India

The negative impact of COVID 19 virus on Indian economy will lessened due to reduction in oil prices and so current account deficit ,fiscal deficit and inflation will also come down
India recently faced challenges due to the slowdown of the domestic consumption which was then prompted by fiasco of large Financial Institutions such as PMB, DHFL, ILFS and Yes Bank

It is observed that during the time when the demand for other commodities decreased , the prices and demand for gold has increased. This may be because Indian finds gold as safe investment during lots of uncertainty. The other reason for this demand may be due to fall of value of Indian rupee. Gold exposure bring down the risk in portfolio. The asset for investment in the country without risk is Government Security. But at present the yield of 10 year government Bond in India is near to the lowest of 10 year returns.. This is because US has already cut @ by 50 Basis points in the debt market and hence in India everyone expects similar rate cut by RBI to fight the weakness in domestic economy. Bond yield and prices are inversely correlated and this is seen in long term funds. The yield range is between 6% hand 6.25% but short term security may get a better yield then this.
The return of 10 from capital markets shown on Sensex is negative but this negative rate can be an opportunity for long term investments. The hope is that the low prices of crude oil will help few sectors to flourish which will include Paints, specialty chemicals, hair oil ,cement ,PVC pipes.
Many people of lower strata affected badly due to shut down and closures of establishments. So there is a need that, government should support them with some financial assistance. There are lot of recommendations suggested to government by FICCI,CII and association of MSMES
.On one side there are demands of MSMEs and on other ,Banks, and Financial Institutions are also expecting RBI to reduce CRR ratio to 1% Banks also want the regulator to extend on loan recovery timelines to give the breathing space to loan takers . Banks Association has also requested for term loan instalment for 6 months extension of time period for classification of NPA on short term loans like cash credit overdraft letter of credit from present 90 days to 180 days
With these expectations from MSMES, banks along with challenges of overspending on health sector, reduction in revenue in PSUs ,tourism, Aviation hotel industry and excessive spending due to COVID 19 is going to be tough for Indian government. Now to face these challenges there is need to have massive support from big corporates the way it is done is western Countries. Economics always suggested that 80 percent of wealth of country is enjoyed by 20 percent of people. But the present time, conditions and needs require lot of support from India Inc. combating various challenges of future, includes shortage in medicines, equipment’s ,devices, paramedical staff, skilled people to handle ventilators and other medical devices ,cutting of Jobs, massive financial requirements in healthcare and Pharma sector ,Black-marketing, profiteering ,excessive Inventories and supply chain in essential products and services.