Economic Impact of Covid in India

Covid pandemic has impacted all walks of societies across the world. It has impacted social, political as well as economical aspects of almost all countries. It has impacted developing countries like India the most, because of the nature of the economy. India is a peculiar case where though the service industry contributes highest in GDP, it employs the least number of people. Service sector has remained the backbone of Indian economy since 1991 LPG reforms. Fortunately, the service sector in India is dominated by IT services. However, non-IT services, where quick transition of work to digital platforms is not possible, is impacted hugely. Level of Digital Literacy and even access to basic infrastructure like digital devices, power, internet etc made our economy difficult to shift online immediately. And what led to exodus from the city because of lockdown related unemployment. 

As Prof Anup Malani discussed during in his paper titled Explaining the Income and Consumption Effects of COVID in India, Covid pandemic has adversely impacted income and consumption of Indians. There has been a large drop in income across the sections of society, whether salaried or otherwise. Incomes of salaried people fell only by 35 % which is smaller as compared to heat faced by daily labourers who experienced a 75 % drop in incomes. There has been an increase in efforts for switching of occupation in order to absorb the income shocks. It was also observed that consumption fell less than income. Also, consumption of food and fuel fell less than consumption of durables such as clothing and appliances (Gupta, Malani and Woda 2021). 

Covid pandemic also showed that one has to diversify the source of income and skill sets, in order to come out smoothly from any job shock like this. Many of the households, who could quickly take advantage of digital technology, could find job assignments quickly. This makes us question the traditional approach towards a job, joining a firm and retiring at 60. This does not hold true in a changed scenario. Work From Home (WFH) is the new normal. It not only reduces overhead cost for employers but also gives a lot of flexibility to employees as well. This trend will, in fact, give rise to office-less culture. Not having a physical office is a huge saving for employers, which can be used for attracting talent to organisations. 

Covid pandemic had different levels of impacts on different sectors of the economy. Information Communication and Technology based services were agile in adapting the changed scenario. They could relocate easily from conference room to zoom rooms. However, other services sectors like Tourism, Hospitality and Hotelling, Restaurants, suddenly came to halt. Agriculture sector sustained and the pharma sector boomed. Those under the Essential Services Act, managed to pass their boat through the pandemic. Other services faced existential crises. 

During the first wave of pandemic, the national wide lockdown and restrictions on movement were imposed by the central government. It had larger repercussions on the economy. Suddenly, metro cities were disconnected from each other. People were not prepared to handle this crisis, mentally as well as economically. However, learnings from the first wave were effectively used to tackle the second wave. During the second wave, states were taking decision for localised lockdowns. This helped to restore the wheel of economy in the country. States like Maharashtra, divided districts into different zones like Red, Orange, and Green to impose specific restrictions on the movement of people, even within the state. 

Disruption in the supply-chain mechanism caused by Covid pandemic, has deeply impacted the manufacturing sector. Suddenly, almost all casual labourers working in these small and medium manufacturing enterprises, were compelled to go back to home. Even full automated assembly lines stopped because of sudden disruption in supply of components. This will take time to come back to normal. 

There could be some early policy decisions, like ramping up vaccine production by incentivising domestic manufacturers like Serum or not sending out vaccines to other countries etc. This could save many lives and livelihoods. Economic recovery depends on the mental peace of the citizens, for which vaccination is very important. Complete vaccination can boost the confidence of investors in the economy. Delay in completing vaccination is a huge cost to a country’s economy. 

Covid has taught an important lesson to all of us as economic agents of the society: to remain financially independent, we need to have multiple sources of income. Decentralisation, which was seen more in the second wave, played well to contain the spread of virus than over centralised decision making, as seen in the first wave. Re-emergence of the state was seen to tackle unprecedented health pandemic. All these things will take time to recover. Looks like Covid has extended our dream of becoming a 5 trillion economy by 2025. 

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Bibliography 

Gupta, Arpit, Anup Malani, and Bartosz Woda. 2021. Explaining the Income and Consumption Effects of COVID in India. Chicago: University of Chicago.