Economic Impact
The spread of pandemic across the globe brought in a lot of uncertainties and implications on all aspects of business. Despite implementation of work-from-home measures, loss of employment and earnings deficit was anticipated. The extended lock-down resulted in waterfall moment as far as jobs are concerned though a revival is seen from June onward when economic activities resumed gradually. Though Government announced first relief package amounting to Rs 170,000 crore yet a large section of populace faced hardships. Additionally, State Governments, NGO, Self-help groups and Corporate enhanced the aid coverage, including daily distribution of free food. Although Corporate earnings announced so far have been better than anticipated yet overall impact would be discernible in coming quarters.
RBI is expecting GDP to contract by 6% in the current financial year whereas HDFC Bank has predicted economy to contract by 7.5%. Debt-GDP ratio of the economy was around 66% at the end of FY19-20, which is likely to increase to around 85% by the end of FY20-21. Besides rise in unemployment, the other pain points would be supply chain stress, fall in tax collections, collapse of tourism and hospitality industry, gap in supply and consumer demand, and reduced fuel consumption. Subsequently, second relief package worth Rs 2,000,000 crore announced, which was equivalent to 10% of India's GDP, with focus on self-reliant India mission. World Bank expects India's economy to contract by 3.2% whereas IMF prediction revolves around 4.5% contraction. The GDP contraction estimates differ from institution to institution due to uncertain times ahead.
Agriculture Sector
According to the published data, 44% of India's workforce is employed in agriculture and it is source of livelihood for 58% of country's population. Agriculture continues to be main pillar of Indian economy, which serves food consumption need of entire country. The set of challenges faced by the sector could be divided into two categories viz. labour scarcity and exports. The labour problem surfaced due to mass exodus of migrant labour to rural hometowns that has also affected supporting infrastructures in the form of storage units (godowns, cold-storage, warehouses, etc.) and milk processing plants. The other challenge pertains to transportation of agriculture produce from one part of the country to other besides export challenges getting unfolded. Government announced relief package, part of overall package, amounting to Rs 163,000 crore for agriculture and allied sectors with emphasis on strengthening infrastructure, logistics and capacity building.
MSME Sector
Many micro, small and medium enterprises have temporarily shut down their activities due to prevailing pandemic, according to a survey. The temporary closure is prominent among metro-cities and those in manufacturing and retail verticals. MSMEs have demanded tax discounts or exemptions or interest free/cheaper rates loans to tide over the crisis. Almost one-thirds of MSMEs have migrated to digital mode of business, enabling themselves with e-commerce functionality. Some of the MSMEs adopted video-conferencing and Whatsapp tools in an attempt to keep business running during these turbulent times. According to the survey, MSMEs often take assistance of web professionals to create website and take plunge into digital mode of transactions.
According to annual report of Department of MSME, there are 6.34 crore MSMEs in the country, out of which 55% are located in rural India, employing almost 11 crore people. Micro enterprises constitute 99.5% of the total MSMEs equally distributed in rural and urban areas. Since majority of micro enterprises are not registered, as they are just too small, leading to constraints in getting government aid. Majority of the MSME funding comes from informal sources as lending institutions fulfill one-thirds of the credit requirement. The total lock-down has raised a question mark on the survival of MSMEs due to scarcity of cash to wither out crisis. Another challenge is in the form of labour unavailability to resume operations.
Government has announced 6 measures to support MSMEs for revival - Rs 300,000 crore collateral free loans; Subordinate debt to the extent of Rs 20,000 crore; Equity infusion to the tune of Rs 50,000 crore; MSME definition revised to enhance coverage; Global tenders to the extent of Rs 200 crore disallowed to foreign firms; pending payments to MSMEs to be released within 45 days, by Government.
Keep watching this space for more update on the economy and current affairs!
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