As we all know India is in the middle of a major lockdown of 21 days ordered by the PM Narendra Modi to curb the spreading of the dreadful COVID-19 virus. On one end this is a highly courageous and noteworthy decision in India’s history. On the other end, there is a major impact of this decision on the Indian economy, which we cannot ignore.
As per expert economists and analysts, COVID-19 lockdown may cost the economy Rs. 8.76 lakh crore, which will be a major hit on its already-under-pressure GDP. However, kudos to PM Narendra Modi for putting the lives and health of Indians above the economy.
India’s biggest economic crisis since Independence
After 73 years of Independence, India is now facing its greatest ever economic crisis. In order to prevent COVID-19 virus from spreading, and to flatten its growth curve, the GOI took the all-important decision to lockdown India for a period of 21 days.
The decision was taken to enforce and encourage self-distancing to help prevent the spreading of COVID-19. Unfortunately, this decision has brought the Indian economy to a complete stand still. Obviously, this will have serious cost implications.
Sectors that have been impacted by the lockdown big time
It is very important for us to know the sectors that are completely shut and those that are open during the lockdown. This would be a good starting point for the cost implication analysis.
The essential services such as electricity, gas, water supply, broadcasting, financial services (banking), public administration, and defense are open despite the lockdown.
However, all the other sectors of the Indian economy, which have been completely shut. That said, the exact impact of lockdown on the agriculture sector cannot be known given the seasonal nature of the sector.
In order to assess the impact of lockdown on the Indian economy, we need to consider the following:
- The sectors closed during the 21-day shutdown period
- The additional days of the operating cycle required before a material or service can be back to operations.
It is important to understand that each sector of the Indian economy has its own dynamics as well as different cycles.
Therefore, it has been assumed that at least 1 week is required considering the factors of production (people, material, labour ) to get back into operations and achieve production capacity. Thus, the effective loss of Rs. 8.76 lakh crore has been assessed for the period of 28 days, which includes 21 days of lockdown and 7 days of pre-operative time to get back to full production capacity
Here’s the table that shows the calculation of expected losses per sector:
*figures of 2018/19 (Source: Reserve Bank of India, Handbook of Statistics on the Indian Economy 2018/19)
Agriculture and public administration in services have been excluded from the above table for computation of economic disruptions. Moreover, we have to assume that a few functional sub-sectors mentioned in the above table may have a nullifying effect on the disruptions in other excluded sectors such as agriculture and public administration. Thus, it cannot be quantified accurately.
For more information related to financial and stock markets , write us at [email protected]