The economy of the world has been adversely targeted by the breakdown of pandemic novel Corona Virus attack. The period of 2019-2020 will be recorded as the most dangerous in world history. This had not caused only the loss of persons but had also impacted the education and economic sector. The worst infected areas United States of America, Brazil, India, Italy, and so on. Millions of life and Billions of money have been spent to cure of this disease. This pandemic had a direct hit on India’s Gross Domestic Product (GDP) rate. India’s GDP lower down to rates which are beyond expectations of government. This contingent situation had really destroyed all future plans (for development) of government. The government had expected the nation’s GDP growth to be at 7.5% but the corona situation did not allow this expectation to turn into reality.
India being the third most infected country in the world, had recently announced to follow Self Reliance (Atm-nirbhar) policy. Through this, the Modi Government had initiated a step to make India so much capable so that there is no need of being over-reliance on other foreign markets. Through this policy, Mr Modi had focused on efficiency, equity and resilience and to build India as the main centre of mass production and investment. Moreover, in order to be self-reliant, India had banned 50 Chinese apps as well as lessen the import and export with Chinese markets.
According to several economists, in its 73 years of independence, India had never experienced such a downfall in the economy. A survey done by Reserve Bank of India (i.e. the central bank of the country) says that the Indian economy would contract only by 1.5%. India had an average annual growth rate at 5.87% recorded from 1951- 2020. Furthermore, it had been recorded that the first quarter of 2010 had 11.40% of GDP which is the highest and the lowest marks in the second quarter of 2020 with the rate of -23.90%. With this downfall, India is at the verge to go into depression, which is worst than recession. It had ruined the whole budget for the coming years and it had raised difficulty level of government to pay the salaries, loans, etc. Overall, governance of the country had become difficult with such a major economic loss.
According to some Secretary of Union Finance Ministry, the government is expecting to recover from the upcoming quarter. For this, even the government had planned to mould certain tax rates (which could be one of the measures to get out of depression) and simplify Goods and Services Tax.
Meaning of GDP Rate
In simple term, it tells us about how healthy our countries’ financial condition is? Gross Domestic Product is the overall market value of finished goods and services manufactured within a country’s territory in a particular time period. It is used in evaluating economy size and growth rate. It helps in determining which country had a strong financial condition. According to last statistics recorded, USA had the largest economy in the world followed by China at the second position and Japan at the third one. India had 5th largest economy in the world.
The GDP rate is counted in percentage as it is termed as a change in percentage time to time. It is counted mostly either yearly or quarterly. GDP is calculated using three ways i.e. through expenditure, incomes or production.
Business Cycle Phases in economy-
Business cycle had a simple meaning that is the alteration in economic activities from time to time throughout the country. This cycle can be determined by viewing the country’s GDP growth rate. It consists of 5 different phases-
- Expansion- It is the first stage where the economy grows for 2 or more subsequent years. Even in the business cycle, it comes after the trough and recovery and led the economy to peak stage. Here, the Per Capita Income resumes growing, the unemployment rate declines, etc.
- Peak- When a country’s economy is at its peak point, then this means the country has a flourishing GDP rate. It determines that a country is producing maximum output or finished goods and services. Full employment is there in this period.
- Contraction- In this stage, the country’s economy starts declining. The contraction abandons at the Trough. It is the starting phase of a weak economy. Expenditure starts rising and revenue lowers down.
- Trough- It is just opposite of Peak. In this phase country’s economy is at the lowest and of declining nature. The trough comes after contraction and after reaching the stage of trough economy starts to recover and expands and further on reaches again to peak stage.
- Recovery- It comes after the recession. In this phase, the economy regains and tries to expand to reach a peak phase. It is a turning point in the business cycle where economy leaves contraction and reaches to the expansion phase.
Depression- Once the economy remains stagnant at recession phase and does not expand, and then the situation of depression arises. It is severely downtrodden in the economic rate of a country. It is an extreme or advance stage of recession which lasts for a long duration of 3 years or above. These are not as frequent as mild recessions. This results in a high rate of unemployment and inflation.
Recession- It occurs when there is a general decrease in the economic growth rate. It is the period during which trade and commerce decline. It occurs at the time of economic crisis, bursting of economic bubbles, trade shock, during pandemic situation or supply shock. A recession is a period between peak to trough. Currently, the Indian economy is suffering from the recession due to the spread of Corona cases.
Effect of Corona pandemic on global economy-
This global recession of 2019- 2020 is the worst since the IInd World War, as the largest portion of economies declined in per capita income. This outbreak had created tension in the political, economic, social, financial structures of the world. According to the International Monetary Fund, the World economy had been lower down to -3% in 2020 statistics. Countries with the highest economies like the USA, China, Italy, Germany, France, etc. have been badly damaged. If we talk only of Asian countries (i.e. China, India, Indonesia, Japan, Singapore and South Korea) have alone accounted for 85% of Corona cases. In between this grave situation, China had reopened its market removing the lockdown which could be worse than dangerous. Stock markets have been battered. Just in one week, 3.3 million Americans were unemployed. Presumption of COVID- 19 effect on the 2nd quarter of the 2020 year, had led to widespread firm bankruptcy, loss of jobs, etc. The global growth is expected to raise up to 5.8% till 2021. The GDP rate of China declined by 36.6% in the first half of 2020. On the other hand, in South Korea, the economy declines to 5.5.%. Amongst European countries, economies of France, Italy and Spain had been hit very badly with 21.3%, 19.2% and 17.5% respectively.
Due to the attack of the novel coronavirus, various economic activities have been affected. Some examples are- Demand of Oil and Natural Gas declines due to abatement of transportation had resulted in global market fluctuation. Lockdown has an adverse effect on industrial metals as industries were ordered to shut down. This directly affected Chinese commerce as world’s 50% of industrial metal demands was fulfilled by China. Supply Chain disruption and concerns for food security, prices for foods (like tea, meat, etc.) had been fall by 2.6% and prices for cereals, oranges, Arabica coffee had been increased.
Hence, all the countries need to fight this adverse situation maintaining co-ordination and co-operating with each other. This will help in preventing human and financial loss. Hence, the country should not be fighting against each other but with each other against COVID- 19. Following this, G- 20 nations were called to have deliberation on this worldwide issue and to prevent the loss occurring from it. Many assumptions have been made that it will take at least next years’ duration to recover from financial losses.
COVID- 19 and its impact on Indian economy-
It is the worst phase today, though, which the world is going on. The period of 2019 – 2020 will be written as the most ill-fated year in the pages of history. Not even a single area is left unaffected by Corona. From life to occupation of people, from food supply to industries, from health to education and from market to country’s economy, the devastation had been caused. The financial crisis had hit India 3 times earlier also i.e. in 1957- 58, 1965- 66 and 1972- 73. After that, the Indian economy goes into recession in 2020- 21. The impact of Corona is such that it had made the country having the 5th largest economy (i.e. India) in the world into a recession. India had been one of the fastest-growing economies in the global financial world. To combat Corona pandemic, Government announced lockdown twice. After lockdown, several manufacturing industries and units get closed, most of the poor class (i.e. rickshaw puller, vegetable seller, auto- driver, etc.) and migrant labourers went back to their native places because of no earning. Several middle class also get suspended from the job leading to a financial crisis in their homes.
Majority of the people belonging to middle and lower class have cut their expenses because of no earning. Even those who are working, they have also started saving more than expending as there is a possibility that they could also be fired from the job. It had even caused a devastating effect on the newcomers in the business. Similarly, firms and industrial units do not know when their products will be returned to them. The businesses are struggling with enormous variability regarding their future. All the products (which are already manufactured) in the industries are left out there as no means of conveyance is available. At the same time, banks and other financial institutes are also facing plenty of problems. The deposition is up to 11.1% while their corresponding credit growth is only been 5.5% (i.e. 5.37 lakh crore). It is that a small virus had affected the whole economy of the world.
The possibility has been made by several economists that India could go in the depression phase. The GDP contraction has been more severe during the lockdown period. According to veteran economist Mr. Arun Kumar, 75% of India’s GDP had been eradicated during the month of April, 2020. Economists had even predicted that India would be the first country of the contemporary globe to go down into depression. This lower down of economy is sufficient for such a country where the poverty rate is already high and now the unemployment rate had raised to its peak. It refers to that not only Indian citizens are being suffered from this pandemic but also the Indian Government had been the victim of such a devastating situation. The government had been facing the main casualty of tax revenue. Tax rate had been fallen from 16% to 8% which had ultimately created difficulty for the government to pay salaries or pay off the debts.
Recently, Finance Minister Mrs. Sitharaman had brought some threatening tax proposals in her first budget that will be a menace for foreign capital flows and reduce investor’s credence. This was criticized and Mrs. Sitharaman was compelled to take those proposals back. This time India’s economic downtrodden is a sudden and surprising one. This sudden downtrodden was something beyond expectation. According to a survey conducted, Indian businesses are facing severe implication in the coming years as firms will desire to employ less labour force. As per the statement given by FICCI, that unless a common financial package has been announced by the government with an immediate effect, there could be a permanent impairment to a large section of manufacturing units.
Measures planned by government to curb this downfall-
A collaboration of Modi government and Reserve Bank of India is trying to curb out the slowdown of the economy due to the attack of Corona pandemic. Even various meetings are held focusing on MSMEs and migrant labourers. Even P.M. Modi had announced Rs. 20 Lakh Crore economic package for the same. Some steps were announced. According to K. Subramaniam (Chief Economic Advisor of India) said that the nation is currently working on measures to be taken and policy formulation in the same direction to curb the impact of Corona effect on economy. These are as follows-
- Regarding Banks- Mr Shaktikant Das (Governor of RBI) had abated the clock on loan reimbursement in the middle of unusual 3 weeks lockdown starting from April. All the lenders were given relief from loan repayment for these 3 months. Lenders are not required to pay an interest rate on working capital for a period of 3 months. All the gathered interest can be paid later on and the loan amount (not paid during these 3 months) would not be considered as defaulted. Moreover, loans taken for commercial property projects which get delayed due to the reasons beyond the control are taken as a pendant for next year.
Central Bank will be sanctioning Rs. 1 Lakh Crore to other inferior banks for investment purposes in corporate bonds which focuses at simplifying cash devour at companies.
- Boosting up Private Investments- It is on the primary level being kept in focus as being the most affected sector in the economy. So, the government will try their best to boost up the private sectors mostly by lowering the corporate tax, merging of private banks and recapitalization of banks, lowering down GST and repo rates. The Central Bank has even cut down the repo rate by 135 basis point from the month of February- October, 2019.
- Sovereign Rupees- In its policy review (February), RBI stated that it would provide 1 Trillion Rupees at long term repo operations to help in financial transmissions.
- Regarding Capital markets- Government will allow corporate sectors with an extra 45 days time period to submit their quarterly and annual reports. Stock’s trading gap increased. Allowing extra 1-month tenure to top 100 listed Indian companies to hold their Annual General Meetings.
- Reliefs regarding the Consumers- Government decided to give 800 million poor people with 5 kilograms of wheat or rice. Along with this, 1 kilogram of pulses per month from April to June and 80 million poor with free cooking gas. The government announced cash transfers i.e. Rs. 500 per month to 200 million women, senior citizens, widows, and disabled will be given Rs. 1000 and 87 million farmers were provided with Rs. 2000 under the program. The government announced that migrant workers, farmers, street vendors (Rediwala or Thelewala) were included under ‘One Nation One Ration’ scheme.
- Self Reliant India- On 12th May, 2020, Mr. Narendra Modi, while addressing the whole nation, stated that Corona Virus shall not be viewed as an opportunity. He focused on more and more use of domestic products by starting Self Reliant program. Mrs. Sitharaman had outlined the details regarding PM’s vision forward. She informed about the aim of this policy is the spontaneous growth of the country by more and more use of domestic products but this does not mean isolating from the rest of the world. It could be proved 2nd version of ‘Make in India’.
Moreover, Mrs Sitharaman proposed a threshold of Rs. 15 Lakhs for taxation of the income of non- residents who did not pay tax in the other jurisdictions. Government is planning to increase additional Excise Duty on Petrol to Rs. 18 per litre and diesel up to Rs. 12 per Litre. Special Excise Duty on commodities rose to Rs. 2.
Other Situations where India faced GDP crash-
The year 2019- 2020 is not the first time when India had experienced a fiscal deficit. Earlier also India had been a victim of fiscal deficit. In the year 1991, an economic crisis occurred in India due to the formulation of poor economic policies which led to a trade deficit. By the last period of 1990, an adverse situation created where the government was at its own fault of not fulfilling its financial duties and severe depreciation created which successively aggravated twin deficit problem. This made country incapable to borrow short term loan thus worsening the Indian economy. One of the world’s biggest financial institutions, the World Bank and International Monetary Fund also stopped providing support to India. In the end, India left with the only option of mortgaging gold for all the repayments.
Even two conditions which worsen our economy had occurred in the Modi governance. Two big steps taken by Modi was the introduction of GST (on 1st July 2017) and Demonetization (on 8th November 2016). No doubt these two steps were taken for the benefit of our country and its citizens but ultimately, this had affected our country’s economy rate. Introduction of GST has been done after repealing three indirect taxes i.e. Custom Duty, Excise Duty and Service Tax. In Demonetization, old notes of Rs. 500 and Rs. 1000 were banned and new notes of Rs. 500 and Rs. 2000 were introduced to seize black money and prevent corruption. Banks had played an important role during the demonetization period as old notes need to be exchanged with new ones.
Mr Raghuram Rajan (former RBI governor) had also stated while giving second Bhattacharya Lectureship on the Future of India that- “The two successive shocks of demonetization and GST had been adversely affected India’s growth rate.”
These two initiatives have been justifiable in terms of raising the tax. But contrary to this, post-GST implementation, Central Government’s indirect tax collection could only be raised by 1.8% (i.e. from 4.86% to 5.06%) which is very lower than the earlier data.
Demonetization had adversely affected the real estate and property sector. Builders were adversely affected by this as their transactions are done in cash rather than transferring through banks. It had raised liquidity problems as people were unable to collect a sufficient amount of cash even for purchasing of their basic life needs. It had affected the country’s economy because of the decrease in consumption, income and investment which last for at least three-four months. The people started depositing more and more money in the bank just to get their old notes converted into new ones. The main aim of introducing the demonetization (i.e. to curb black money) was not fulfilled as there is a very small amount of black money which were kept in cash form and major portions were kept in form of land, gold and bank deposits in n foreign banks. Through demonetization, the government could only seize the black money which was in form of cash.
India had been suffering from a severe economic crisis. COVID- 19 could be considered as the financial cyclone for India as adversely affected the economy in history so far. As it has been proved that year 2019- 2020 is not the first time when we are suffering from recession but yes it is the most dangerous one so far. Government is being suffered from the financial crisis as their finances are fully exhausted. Tax revenues have been stricken. Both Central and State Governments have been bled badly in managing this pandemic. The country that has been considered to have the 5th largest economy is now at 2nd position in COVID cases. This year government is not behind the disaster through which the whole nation is suffering and the government is trying her level best to curb out these financial crises and for the rapid growth of the country’s GDP. Even economists have been so far predicted that our economy could be improved by the year 2021. People who are able to pay taxes must not evade or avoid it. India had witnessed so many economic crises since the 1950s whether it may be due to partition (between India and Pakistan) effect, or wars with China (in 1962) and Pakistan (in 1965) or major droughts in 1965- 66, we have faced it and overcome it. So, this time also, let’s hopes for the best and citizens have to give their best support to curb this global problem.