In an unprecedented move, in the face of COVID — 19, India locked itself down for 3 weeks. The economic repercussions of lock down are expected to be felt for months. With a large population, and already faltering growth rate, India will need to choose between fiscal prudence and keeping our economy afloat. India’s growth was anyways steadily decelerating over the past many quarters presenting challenges to policymakers tasked with reviving growth. Now COVID — 19 has disrupted supply chain and sapped business confidence. Before COVID — 19, there were hopes of a gradual rebound in economic activities led by a bumper winter crop and signs from sectors including automobile which were experiencing some optimism. Now, as a possible global recession looms with the widening outbreak, forecasters are revising growth estimates downwards.
Various Indian industries, viz., electronics, pharmaceuticals, automobile manufacturers, apparel industry, etc., all sourced many of their crucial raw materials from China. An earlier full lock down in China has disrupted supply chain globally. Serious production shortages will be faced not only by large enterprises, but more importantly by MSMEs which contribute almost 40% of India’s GDP. In addition, with global travel industry at a complete standstill, hospitality and related sectors are facing a severe downturn. The result: possible huge unemployment and slackening demand.
In India there are growing fears that ‘stagflation’ — a term coined to reflect the twin strains of a stagnant economy and rising consumer prices — is squeezing household incomes as COVID spreads. Stagflation is when demand remains stagnant, with rising prices. Another noticeable feature of stagflation economy is unemployment or lack of job security, which make people spend less. India is experiencing decade high unemployment. With manufacturing shutting down in organized and unorganized sectors, services industry being hard hit, consumer demand may become flat or even decelerate. Under normal circumstances, this would have led to a deflationary spiral. However, under the current unprecedented circumstances, shortage of products due to supply chain disruption may eventually lead to spike in…
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