Coronavirus Pandemic: Opportunity of Economic Growth for India

Covid-19 that originated from China, has claimed its toll in Italy, Germany, Taiwan, Singapore, Hongkong, France, Canada, Russia, USA, India among other countries. Lakhs of people have been infected globally by the Covid-19 with five to ten percent deaths due to thi deadly disease. The World Health Organization (WHO) is taking twists and turns in its announcements about Covid-19 pandemic.

 

Cases in India have also shot up sharply running into lakhs. Various preventive measures like Lock Down, Social Distancing, Frequent washing of hands, wearing masks, PPE Kits have delayed the spread of Corona virus in India. This has given more time to the country to make proper medical and preventive arrangements to fight the pandemic.

 

Latest Update: The total number of cases in India, infected by Corona Virus have gone up to 3,32,783 and the death toll has gone up to 9523 as on June 15, 2020. In a single day more than 11000 cases have been added. Government of India has applied five countrywide lock down  since March 22, 2020 to check the further spread of Corona Virus  

 

Relief Package Announced
Government of India has announced Rs.20 lakh crore relief package to revive the economic growth. The Reserve Bank of India has already announced the  key policy measures to counter economic slowdown and joined the fight against the corona virus. 

 

India expects most multinationals operating from China to leave that country and establish the new manufacturing base in India which will help the Indian Economy to bounce back with high growth rate. 

 

Global Economy, which was already reeling under severe slow down, is facing the brunt of the virus. Visa bans on tourists and restrictions on visiting the other countries have put the tourism, aviation and hospitality industry in jeopardy. Social gatherings, malls, schools, multiplexes are closed till the situation improves.

 

More than 100 countries in the world are affected by the virus and apart from China from where the virus spread, they include India, USA, UK, Canada, Hong Kong, Singapore, Taiwan, Italy, Iran, Japan, South Korea, North Korea, Thailand, Malaysia, Philippines among others.

 

India has however taken timely measures to control the situation. A few have fully recovered while others are recovering fast.

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‘Notified Disaster’

Government of India as well as State governments are treating and monitoring the situation closely to control the coronavirus pandemic. The Ministry of Home Affairs has decided to treat Covid-19 as a "notified disaster". This will enable the states to spend a larger chunk of funds from the State Disaster Response Fund (SDRF) to fight the pandemic.

 

Opportunity for Growth of Indian Economy

India’s economy was already suffering from slow down. The corona virus has brought various segments to stand still. For example retail, entertainment, hospitality, aviation, tourism sectors are suffering the most. Yet there is silver lining for India, as it could turn this problem into an opportunity also with more exports and achieving high growth rate.

 

The impact of Coronavirus outbreak in China could have been disastrous for India, had the selective steps not been taken by India.

 

Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world.

 

Experts feel that India has a good chance of becoming an attractive manufacturing hub given the present situation, provided the government changes some of its trade policies to bring down commodity prices. An example of Vietnam, which has gained a huge growth boost due to higher density of electronics manufacturing, is before everyone.

 

H Nemkumar, Head - Institutional Equities, IIFL, said that ill-fated coronavirus outbreak in China has offered India with an opening to revive the 'Make in India' programme.

 

According to the Chief Economic Advisor of India, Krishnamurthy Subramanian the coronavirus outbreak in China provides an opportunity for India to expand exports. India is one of China's leading trade partners in Asia and has a huge trade deficit with that country.

 

Sharing his views at IIM Calcutta, Subramanian said, “The coronavirus outbreak in China provides a good opportunity to India to expand trade and follow an export-driven model."  He said that China imports a lot of components, parts, assembles and integrates and then exports them.
 

"India has been following the same pattern in terms of mobile manufacturing in the country. So, if one looks from this perspective, it provides a good opportunity for India." said Subramanian

 

RBI Announces Policy Rate Cuts: Takes Measures to Counter Economic Slowdown

The Reserve Bank of India joined the big fight with a host of measures aimed at minimising the damage from Covid-19. Reserve Bank of India (RBI) Governor Shaktikanta Das has announced a series of measures including policy rate cuts to bolster economy in the wake of covid-19 menace.

 

Sharing that large part of major global economies are likely to be heading toward recession, the RBI governor stated that economic recovery in 2020 would be slow. This came hours after Moody's Investors Service cut its estimate of India's GDP growth during 2020 to 2.5 per cent from an earlier estimate of 5.3 per cent.

 

Following key policy announcements were made by the RBI Governor on March 27, 2020:

  • A 75 basis points cut in repo rates was announced as a measure to counter the economic slowdown caused by the COVID-19 pandemic. Now the Repo rate  stands at 4.40% as against 5.15% earlier
  • The reverse repo rate has been cut by 90 basis points to 4 percent. According to RBI Governor this has been done to make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors
  • CRR has been reduced by 100 bps to 3%, for 1 year to release 1.37 lakh crores
  • Minimum daily CRR balance reduced from 90% - 80% till 30/06/2020
  • 3.74 lakh crore liquidity injected
  • Banks are allowed 3-month moratorium on all loans. According to RBI, “All commercial, regional, rural, NBFCs and small finance banks are being permitted to allow 3-month moratorium on payment of instalments in respect of all term loan EMIs outstanding on March 31." This is going to be a huge relief for all EMI payers, especially for those — such as the self-employed — whose income had become uncertain in the wake of the lockdown
  • Interest on WC facilities to be deferred by 3 months. Such deferment not to be considered for NPA
  • Total liquidity injection 3.4% of GDP
  • Along with it, the Central government on March 26 announced the first instalment of a fiscal relief package, worth Rs 170,000 crore, to protect the weaker sections of the society from the economic fallout of Covid-19 in the country. Announcing the measures, Finance Minister Nirmala Sitharaman said the PM Garib Kalyan Yojana will benefit migrant workers, rural poor and women.

Three-way liquidity injection

  • Auction of targeted long term repo operations of 3-year tenor for total amount Rs 1,00,000 crore at floating rate. Will add this to liquidity in the market
  • Reduction of CRR for all banks by 100 basis points will release Rs 1,37,000 crore across banking system
  • Accommodation under Marginal Standing Facility to be increased from 2% from SLR to 3% with immediate effect till June 30. It will release Rs 1.37 lakh crore into the system...

Repo Rate Reduced further
On April 17, 2020, addressing media for a second time within a month, RBI Governor Shaktikanta Das unveiled fresh measures aimed at maintaining adequate liquidity in the system, facilitating and incentivising banks to ensure better credit flow and enabling normal functioning of the financial markets.
 

RBI slashed the reverse repo rate for the second time after March 27, 2020. The Repo rate was reduced by 25 bps to 3.75 per cent, making it less attractive for commercial banks to park cash with the central bank.
 

The measure freed up more capital for banks to lend as RBI announced a fresh Rs 50,000 crore targeted long-term repo operation (LTRO 2.0) to address the liquidity stress of shadow banks and microfinance institutions and hinted at the possibility of further rate cuts going forward.

 

Corona Virus a War
The RBI governor warned not to make mistake as it is a fight never seen before. Outlining the risks to Indian economy from coronavirus, he stressed upon the need to keep the credit flowing to the stressed areas of the economy.
 

Hopefully, the peak of the virus may pass if public health measures in India are ultimately successful in containing its spread. A recent surge in order queries has been received by Indian traders across various domains. Trade analysts expect more investment opportunities for emerging economies in the backdrop of the coronavirus outbreak in China.

 

However, it now remains to be seen whether the government can ease policies and pitch India as a strong investment destination for major companies around the globe.

 

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