The Impact of The Lockdown On The Economy - Part 1

As Covid-19 begins to dominate the concerns of the public health sector, India is on the verge of an unprecedented or a fairly predictable, economic catastrophe. Sure, we have not been able to flatten the corona curve but the curve of the economy is flattening! Over the past few weeks, as lockdowns are being extended across the world, we can see a future free fall in the global economy. Just to take you all to a ride of the economies of the world - China which rides on metro and domestic flights, is down by third; discretionary consumer spending has fallen by 40%, In a survey by Goldman Sachs, almost two-thirds of American small business owners said that their cash would run out in a matter of 3 months. India is no exception of a cringe - more than 45% of households across India have reported an income drop as compared to the previous year. The lockdown has resulted in estimated unemployment of 140 million people. Within a month, India’s unemployment rate rose from 6.7% on March 15, 2020 to 26% on April 19, 2020. Bankruptcies and unemployment are increasing, businesses continue to have a strained balance sheet, weak demand and the list goes on … the COVID 19 crisis has come at a time when the GDP growth in India was already slowing, which makes India’s situation worse off. The scale of disruption of the 21 day lockdown alone is said to be unprecedented in Indian history, it's starker than the global financial crisis of 2008, which had hit our real demand and financial sector but didn’t halt our production, besides at the time, our economy was at a better place to handle the crisis. There lies an undeniable class element not only to the economic impact of the lockdown but also to the division of opinion on when and how to end it.

What makes India different?

Two-thirds of our population lives in poverty, an overwhelming 120 million people or more are estimated to migrate from rural areas to urban labor market, with an estimated 77% of the total national wealth being held by the top 10% of the population, we can be sure of what’s going to happen with the mediocre class group, through tourism alone we generated Rs 16.91 lakh crore or 9.2% of India’s GDP (2018) and supported 42.673 million jobs or 8.1% of total employment, adding fuel to the fire is the novel coronavirus, sending tremors to the Indian trade markets which are dependent on China for imports. Nearly 56% of electronics imported by India are from China, these imports have now slid down to 40%, in light of the outbreak and the subsequent lockdown. The prices of penicillin and vitamins already see a 50% surge. With no air travel, the aviation industry has taken an expensive hit. Be it the industrial sector or the service sector, a complete lockdown is proving to be unjust, inequitable, and in any case, unsustainable in the long run. If we do not think of practical ways to minimize risks, both to public health and to economic well-being, here’s how the economy will look like post lockdown.

Written by: Shifa Munshi and Ritika