How COVID-19 has affected the Indian Economy

Given the rapid spread of the coronavirus, the whole world continues to reel under its effects. It has been 10 months since COVID-19 has been declared a pandemic. We are yet to see the vaccines being inoculated the world over and how effective they are in changing the status quo.

Among the major economies of the world, the Indian economy has also been impacted severely, with several consequences for the people and businesses coming to light. While some have had disastrous consequences, there is also hope that the country will recover fully in the coming months. However, it is necessary to understand what transpired in the past few months, so that we find the right remedies for the challenges.

Let us look at how the Indian economy has been affected:

One of the biggest impacts has been on the services sector, owing to the limitations on free movement imposed by state governments since the virus began to spread. It had led to a spike in unemployment, as people were unable to travel to their workplaces through public transport. Moreover, a large majority of employment in India continues to remain unorganized, forcing migrant laborers to return to their hometowns due to the lack of work. There has been an adverse impact on the tourism, retail, and hospitality sectors. On the bright side, subsequent unlocks have improved the situation and brought the demand back to a great extent. The Diwali season observed a 10.8% uptick in demand, according to the Confederation of All India Traders (CAIT), and the market seems to sustain the momentum generated.

2. The other issue concerns the structural changes companies had to make in their operations. The outbreak led to the proliferation of ‘work from home’ and ‘work from anywhere’ options due to social distancing norms. This would have been unthinkable before COVID-19, as people had to physically report to work. A win-win scenario has emerged for both organizations and employees alike as it has allowed companies to lower their fixed overheads while it helped employees saving on commuting time. Employees are also able to save the related cost incurred as they now usually stay in their hometowns. Companies, on the other hand, are reducing expenses over real estate and other overheads. They are now actively hiring from tier 3 and 4 towns, as employees need not relocate.

3. The situation in the health sector is similar as well. The health and pharma sectors witnessed a rise in stock prices as companies were able to achieve larger sales volumes. Pharma and health tech companies are tapping into the digital space as customers are using mobile apps to consult doctors for their medication and health plans during the current health crisis. The industry was on a growth trajectory even before the spread of the virus. COVID-19 accelerated the growth further. As a consequence of these developments, we are now seeing a greater focus on health and wellbeing from all stakeholders.

4. In the wake of COVID-19 crisis, Governments and central banks have responded with monetary and fiscal measures bigger than the ones announced during the peak of the global financial crisis which has led to near zero rates in developed economies. This led to a surge in global liquidity resulting in large FII flows into emerging markets including India as we received flows of over `2 Lakh Cr so far in FY2021. It has also led to a strong bull run in the stock markets with benchmark indices trading at their all-time highs. One of the key highlights of the market recovery has been the significant increase in retail participation as investors took advantage of cheap valuations to enter the markets.

5. Lastly, the pandemic has taught us the merits of financial prudence. If you do financial planning with regular investments and liquid funds, they ultimately help you during such crisis periods. Not only do they empower you to cope with them better, but also help to tap into a market opportunity as and when it emerges. Above all, it serves as an additional source of income and helps you beat inflation. There always has to be a contingency plan for everything from your primary source of income to your secondary one. In addition to this, the lack of liquidity affected families severely during the lockdown. To emerge out of such situations, people need liquidity to tide over the crisis period, which can happen only through alternate income sources.

– Mr. Jyoti Roy, Equity Strategist, Angel Broking Ltd