ABSTRACT

This project is an analysis of the economic impact of the Covid-19 pandemic in

India. Even prior to the pandemic, the Indian economy was marked by a
slowdown of economic growth and record increases in unemployment and
poverty. Thus, India’s capacity to deal with a new crisis was weak when the
pandemic hit in March 2020. The economic crisis after March 2020 affected all the
sectors of the Indian economy. In agriculture, farmers were faced with broken
supply chains, lack of market outlets, poor demand and falling output prices. In
industry, micro and small enterprises were the most acutely affected. The crisis led
to a loss of employment to the tune of at least 15 million. Using an Input-Output
(I-O) framework, we create four scenarios of losses to the Indian economy. We
estimate that India’s GDP growth rate in 2020-2021 may range from –4.3% to –15%.
The government’s economic response till October 2020 was seriously deficient on
demand side interventions. The government was hesitant to expand budgetary
spending because it feared a rise in fiscal deficit. Given this fiscal stance of policy,
the chances of an early revival in the Indian economy appear dismal.

The COVID-19 pandemic is the greatest global humanitarian challenge the world
has faced since World War II. The virus has spread widely, and the number of
cases is rising daily as governments work to slow its spread. India had moved
swiftly, implementing a proactive, nationwide, 21-day lockdown, with the goal
of flattening the curve and using the time to plan and resource responses
adequately. India’s effort to combat COVID-19 virus has been praised over the
globe. However, the lockdown came with an economic cost and cascading impact
on all the sections of society. The Covid-19 induced lockdown in India was a
huge economic shock. It started across the country on 24 March 2020 and is still
ongoing with restrictions in one form or other. It stalled the economy with

1
complete closure imposed on enterprises across all sectors. Even though
agricultural activities were exempted, in the initial phases of the lockdown the
agriculture value chain also faced large-scale disruptions. This had a serious
detrimental effect on the rural Indian economy. The coronavirus pandemic has
also triggered a massive reverse migration from the urban to rural areas in large
parts of the country.

Times of crisis is a great teacher as along with the inherent challenges it can throw
open many new opportunities. In the present corona virus pandemic also, the
immediate challenge was restoration of the supply chains for essential
commodities as well as reducing the plight of the distressed migrant worker. The
government, through its various interventions specifically through the Prime
Minister Garib Kalyan Yojana and MNREGA has provided timely relief to
migrants in these difficult times. While most of the challenges presented by the
pandemic have been efficiently handled it is also important to make use of the
opportunities the crises provides. A case in point is the new opportunities the
crises has thrown open in the agriculture supply chain network. In many parts of
the country, FPOs stepped in successfully creating supply chains in the COVID
scenario. There are also numerous examples across metros in the way groups of
farmers took the initiative to ensure direct delivery of produce to gated
communities and societies for products ranging from exotic avocados to
perishables like regular fruits and vegetables. The entire logistics chain has been
set in motion, but it currently lacks depth and width. An institutional fillip is
required which builds on this with expertise can generate livelihoods at various
levels.

2
CHAPTER -1
INRODUCTION

3
INTRODUCTION
The novel Coronavirus (COVID-19) pandemic has rapidly spread across
the world,
adversely affecting the lives and livelihoods of millions across the globe. India
reported its first infection on 30 January 2020, prompting the authorities to soon
initiate various measures to contain the spread of the epidemic. Given that the
disease is highly contagious, the much-needed nation-wide lockdown was
enforced starting 25 March 2020 in order to contain the spread of COVID-19
pandemic. During the initial few weeks, the restrictions were strict and all non-
essential activities and businesses, including retail establishments, educational
institutions, places of religious worship, across the country were prohibited from
operating. Subsequently, these restrictions are being gradually eased in a phased
manner in most parts of the country.
As the restrictions imposed due to the lockdown are being lifted, it is an opportune
moment to analyse the impact of COVID-19 on different sectors of the economy.
A number of reports have pointed towards the possibility of contraction of Indian
GDP in 2020-21. This is a worrisome indication, since a higher GDP contributes
immensely towards achieving better living standards, reduced poverty as well as
improvement in other socio-economic indicators. While other sectors are
reported to be under significant stress, it is important to analyse the impact on
agricultural and allied sectors which provide likelihood to majority of the
population in India.

The agricultural & allied sector carries immense importance for the Indian
economy. It contributes nearly one-sixth to the Indian national income and
provides employment to nearly 50% of the workforce. It is fundamental for
ensuring food security of the nation and also influences the growth of secondary
and tertiary sector of the economy through its forward and backward linkages.

4
The performance of agricultural sector greatly influences achievements on many
other fronts. For instance, World Development Report 2008 released by World
Bank emphasises that growth in agriculture is, on average, at least twice as
effective in reducing poverty as growth outside agriculture. Agricultural growth
reduces poverty directly, by raising farm incomes, and indirectly, through
generating employment and reducing food prices. In other words, a thriving
agricultural sector is a boon for most sectors of the Indian economy.

As regards, India’s position in world’s agriculture is concerned, it is the largest

producer of pulses, okra, mango, banana and lemon and the second largest
producer of wheat, rice groundnut, potato, tomato, onion, cabbage, cauliflower,
brinjal etc (Table 2.1). India produces more than one fifth of global production of
paddy and pulses. Similarly, it contributes to more than twenty per cent of global
production of many of the horticulture crops such as okra, cauliflower, brinjal,
banana, mango and papaya. However, the area of concern is the low level of
productivity of major field and horticulture crops in the country.

• Impact on Production – At All-India level, agriculture

production in almost half (47%) of sample districts was adversely
affected by the impact of COVID-19. Magnitude wise, agriculture
production (-2.7%) had not been adversely impacted significantly,
mainly due to the fact that harvesting of rabi crops like wheat was
almost complete by the end of April 2020. However, production in
allied sector had declined significantly, especially in poultry sector
(-19.5%), followed by fisheries sector (-13.6%) and Sheep/Goat/Pig
(S/G/P) sector (-8.5%), primarily due to drastic decline in demand
for these products.
5
 meat, for health related concerns. Similarly, production in dairy (-6.6%)
and horticulture (-5.7%) sub-sector also reduced, owing to reduced demand
for these products and disruption in their supply chain.
• Impact on Farm Gate Prices – Farm gate prices have not declined
significantly in crop sector (-2.2%). However, prices in allied sectors
had declined in the range of 2% to 18%. This decline was highest in
poultry sector (-17.8%), followed by horticulture (- 7.6%), dairy (-5.6%),
fisheries (-4.8%) and S/G/P (-2.9%) sectors respectively, mainly due to
supply disruption caused by restriction on movement of vehicles. On
the whole, 54% of sample districts witnessed adverse impact on farm
gate prices of agricultural produce.
• Impact on Availability of Agri Inputs - Due to restrictions imposed on
movement of men/material and closure of shops, availability of agri inputs viz.
seeds (-9.2%), fertilisers (-11.2%), pesticides (-9.8%), fodder (-10.8%), etc.
declined in the range of 9 to 11 per cent. At all-India level, 58% of sample
districts were adversely affected in terms of availability of inputs.
• Impact on Prices of Agri Inputs - Due to disruption in supply chain owing to
restrictions on movement of vehicles and closure of shops and markets, prices
of agri inputs viz. seeds (8.8%), fertilisers (10.0%), pesticides (9.0%), fodder
(11.6%), increased in the range of 9 to 12 per cent. At all-India level, 54% of
sample districts witnessed an increase in prices of agri inputs, possibly due to
its non-availability.
• Impact on Agriculture Marketing –Even though local procurement centres
were opened by various State Governments under their jurisdiction, yet
restrictions on movement of vehicles had adversely impacted about 74 per cent
of sample districts in smooth operation of agriculture marketing though
mandis. The impact on operation of rural haats was more severe, with 87 per
cent of sample districts being adversely affected. This was mainly due to a

1
 complete ban on opening of rural haats by the local authorities in majority of
the districts in the country.
• Impact on Banking Services – As far as banking services are concerned,
access to credit through term lending and KCC was adversely impacted in
about 89 per cent and 59 per cent of districts, respectively. As regards to
recovery, 94 per cent of sample districts were reported to have been adversely
affected by the pandemic and consequent lockdown. However, a positive
feature that emerged was that 63 per cent of sample districts reported an
increase in digital transactions by the customers during the lockdown period.
• Impact on Microfinance Activities and FPO/FC– At an all-India level,
microfinance activities were adversely impacted in 95 per cent of the sample
districts and the business activities of NBFC-MFIs was adversely affected in
88 per cent of the sample districts. Similarly, adverse impact was reported in
activities of FPOs and Farmers Clubs promoted by NABARD. However, many
SHGs and FPOs seized upon the opportunity of making face mask and
sanitizers as also direct selling of vegetables/fruits to the customers, thereby
helping the local community and administration as also increasing their
business.
• Impact on MSME Sector – MSME sector was the worst hit sector by the
COVID pandemic in terms of impact on price level of raw materials,
employment, production level, consumer demand and disruptions in supply
chains. Decline in production level and employment was reported in 97 per
cent and 96 per cent of the sample districts, respectively. Similarly, adverse
impact was reported on consumer demand (85% districts) and cash flow (80%
districts) of MSME sector thereby increasing hardship of the people at large
decline was the ill-conceived demonetisation of Rs 500 and Rs 1,000 notes in
November 2016, which sucked out about 86% of the cash in the economy in just
a few hours (Ramakumar, 2017).
At the same time, many economists have questioned the veracity of the
2
 growth of GvA between 2011-2012 and 2016-2017. This was be- cause the
macroeconomic indicators universally associated with a rise in economic growth
—investment rate, savings rate, share of exports in the GDP and the growth of
domestic bank credit— had begun to decline after 2011-2012 itself (see Figures
2 through 4). The slowdown in the major macroeconomic indicators after 2011-
2012 also had a direct impact on the lives of people. There was a rise in the level
of unemployment and a rise in the head-count ratio of income poverty between
2011-2012 and 2017-2018
In summary, the Indian economy was slowing down gradually after 2011-2012,
and slowing down at a faster rate after 2016-2017. Thus, when the pandemic
struck, the Indian economy was already in a vul- nerable state.
Though the presence of a slowdown after 2011-2012 was unmistakable, the Union
government consistently refused to adopt a counter-cyclical fiscal policy. As
Figure 7 shows, the ratio of central government’s ex- penditure to the GDP fell
between 2011-2012 and 2018-2019. Throughout this period, the government
remained wedded to the ideological ortho- doxy of fiscal consolidation. Fiscal
deficit turned into a holy cow; any rise in fiscal deficit, it was argued, would
scare away foreign investors (Patnaik, 2019). The fall of public expenditure
was also an indicator of the increasing withdrawal of the state from economic
activities under the neoliberal policy regime.

THE PANDEMIC AND THE INDIAN ECONOMY

As with the global economy, the Indian economy too was faced with multiple
constraints when the pandemic emerged. We shall outline the major features of the
crisis in the Indian economy prior to the pandemic before discussing the economic
situation after March 2020.

3
The Indian economy before Covid-19
A key feature of India’s economic growth performance after 1947 was that
its economic growth averaged about 3% per annum. The economy moved up from
this average annual growth rate only by the 1980s; the economic growth rate in
the 1980s averaged 5.6% per annum (Chan- drasekhar and Ghosh, 2002). From
1991, India began liberalising its economy. Over the first decade of economic
reforms —between 1992- 1993 and 2002-2003— the rate of growth of the
economy was 6.1%, which was only marginally higher than the growth rate for
the 1980s (Reserve Bank of India, RBI, 2003).
The next stage of growth in the economy began by 2002-2003 (see Figure 1). Due
to a number of fortuitous international and national circumstances, and driven
largely by a domestic credit boom, the eco- nomic growth rate (based on the base
year of 2004-2005) rose to an average of 8% to 10% per quarter between 2003-
2004 and 2011-2012, except in the midst of the global financial crisis (see also
Nagaraj, 2013). This phase of growth was backed by a corresponding rise in an
array of macroeconomic indicators: the investment rate, the savings rate, share of
exports in Gross Domestic Product (GDP) and domestic bank credit (see Figures 2
through 4). These improvements in the macroeconomy were also reflected in the
levels of living of people, even if only marginally. There was a decline in
unemployment rates and the head-count ratios of income poverty (see Figures 5
and 6).
These trends were reversed after 2011-2012. Official data show that the growth
rate of Gross Value Added (GvA; based on the new base year of 2011-2012)
continued to rise till the first quarter of 2016-2017 (see Figure 1). From the second
quarter of 2016-2017, the growth rate of GvA began to fall. It fell from 9.3% in
Q1 of 2 to 3.5% in Q3 of 2019-2020 and 3% in Q4 of 2019-2020. One of the
proximate triggers for this.

4
 Y-O-Y growth rates (%)

5.0
2 0 0 5-0 6 Q1

0.0
2.0
4.0
6.0
8.0

10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
10.0
12.0
2 0 0 5-0 6 Q2
2 0 0 5-0 6 Q3
2 0 0 5-0 6 Q4
2 0 0 6-0 7 Q1
Rates as share of GDP (%) 2 0 0 6-0 7 Q2
2 0 0 6-0 7 Q3
2 0 0 6-0 7 Q4
2 0 0 7-0 8 Q1
2 0 0 7-0 8 Q2
2 0 0 7-0 8 Q3
2 0 0 7-0 8 Q4
2 0 0 8-0 9 Q1
2 0 0 8-0 9 Q2
2 0 0 8-0 9 Q3
2 0 0 8-0 9 Q4
2 0 0 9-1 0 Q1
2 0 0 9-1 0 Q2
2 0 0 9-1 0 Q3
2 0 0 9-1 0 Q4
2 0 1 0-1 1 Q1
2 0 1 0-1 1 Q2
2 0 1 0-1 1 Q3
2 0 1 0-1 1 Q4
2012 base years (percentages)

2 0 1 1-1 2 Q1
2 0 1 1-1 2 Q2
2 0 1 1-1 2 Q3

Total gross value added at basic price, 2004-2005 base year

2 0 1 1-1 2 Q4
2 0 1 2-1 3 Q1
2 0 1 2-1 3 Q2
2 0 1 2-1 3 Q3
2 0 1 2-1 3 Q4
2 0 1 3-1 4 Q1
2 0 1 3-1 4 Q2
2 0 1 3-1 4 Q3
2 0 1 3-1 4 Q4
2 0 1 4-1 5 Q1
2 0 1 4-1 5 Q2
2 0 1 4-1 5 Q3
2 0 1 4-1 5 Q4
2 0 1 5-1 6 Q1
2 0 1 5-1 6 Q2
2 0 1 5-1 6 Q3
2 0 1 5-1 6 Q4
2 0 1 6-1 7 Q1
2 0 1 6-1 7 Q2
2 0 1 6-1 7 Q3
2 0 1 6-1 7 Q4
2 0 1 7-1 8 Q1
2 0 1 7-1 8 Q2
2 0 1 7-1 8 Q3
2 0 1 7-1 8 Q4
Total gross value added at Basic Price, 2011-2012 base year

2 0 1 8-1 9 Q1
2 0 1 8-1 9 Q2
2 0 1 8-1 9 Q3
2 0 1 8-1 9 Q4
2 0 1 9-2 0 Q1
2 0 1 9-2 0 Q2
2 0 1 9-2 0 Q3
2 0 1 9-2 0 Q4

Figure 2. Investment rate and savings rate, India, annual, 2003-2019 (percentages of GDP)
Figure 1. Year-on-year growth rates of GVA at basic price, India, quarterly series, 2004-2005 and 2011-

5
Figure 3. Share of exports values in GDP and growth of merchandise exports, India, 2005-2006 to 2019-
2020 (percentages)
18 50

16
40

14

30

Growth of merchandise exports (%)

12
Exports as share of GDP (%)

20
10

8
10

−10
2

Figure 4. Head count ratios of income poverty, India, 1993-1994 to 2017-2018 (percentages)
60

50

40
Head-count ratio (%)

30

20

10

0
1 9 9 3-1994 2 00 4-2005 2 0 1 1-2012 2 0 1 7-2018

Figure 5. Central government expenditure as share of GDP, India, 2004-2020 (percentages)

18

16

14.4

14 14.4 13.3

12
Share in GDP (%)

10

0
2 0 0 4-2008 2 0 0 8-2010 2 0 1 0-2015 2 0 1 4-2015 2 0 1 5-2016 2 0 1 6-2017 2 0 1 7-2018 2 0 1 8-2019 2 0 1 9-2020

6
CHAPTER-2

REVIEW OF
LITERATURE

7
LITERATURE REVIEWS:

ANUKARSH SINGH IN HIS STUDY CONCLUDED THAT:

In spite of being deadly to the Indian economy, the Covid openings the chance
for India to arise as a Global Manufacturing Hub while understanding its Make
in India strategy in evident sense.
India can exploit the adjustment of worldwide standpoint of China's assembling
area following the flare-up of Covid, and become visible as an elective
assembling objective while continuously slicing spillages to China through
accomplishing independence in assembling of data sources. India ought to
endeavour to accomplish independence underway of contributions to similar
style as India advanced to accomplish independence in food grain creation
during the underlying five-year plans.
This should be possible through recognizing the imported sources of info and
working with the foundation of MSME units of such parts. The development
possibilities of MSMEs are high and they have the limit of moving India out of
downturn gave the public authority should sustain them very much like a bird
takes care of an infant bird as the economy limps back to routineness. In the
end, actually like sustained infant birds these MSMEs will spread their wings
and fly while driving the Indian economy towards new highs of development
rate.

DR DIMPLE RANI IN HER STUDY CONCLUDED THAT:

The spiralling and inescapable COVID-19 pandemic has twisted the world's
flourishing economy in flighty and equivocal terms. However, it essentially
demonstrated that the current slump appears basically unique in relation to
downturns of the past which had shocked the country's monetary request.

8
Though the countries, combinations, enterprises and multinationals keep on
understanding the extent of the pandemic, it is without a doubt the need of great
importance to get ready for a future that is manageable, fundamentally more
reasonable for living also, working.

PRAVAKAR SAHOO IN HIS STUDY CONCLUDED THAT:

The boost gauges so far are around 10% of GDP which is a welcome advance
when the economy has halted. Given the assessed drop out of COVID-19 on
Indian economy, the public authority ought not stress over the financial
guideline and go all out in receiving counter repetitive monetary measures to
prevent things from turning sour to more terrible. It is the ideal opportunity for
enormous activities to help firms which rely upon the homegrown economy as
well as on global exchange. Government additionally needs to guarantee that
the improvement measures are all around aimed at a portion of the most
exceedingly awful influenced areas like assembling, development, travel,
transportation, the travel industry, lodging, and so forth Firms in most
noticeably terrible influenced areas are enduring due to close down of industrial
facilities, breakdown of worldwide interest, retractions of orders, delays in
shipments, and so on Thusly, these organizations need support as interest free
working money to take care of their compensation expense and fixed expense
(lease and premium) to make due during these difficult stretches. The monetary
bundle has given credit ensure yet now is the right time presently to support
request so that there is credit take-up. MSME area is work concentrated and life
line of India's assembling and exchange, and the area is gravely influenced by
the interruptions to both organic market basically because of homegrown and
worldwide lockdowns. Aside from credit and other monetary motivators, the
need of great importance is to help firms, business and financial action to get
back on operational mode. The monetary effect of COVID-19 pandemic is

9
tremendous and it would require a humongous exertion with respect to the
public authority, industry, common society and all critical partners to guarantee
that the Indian economy recuperates adequately and soon. The investigation has
further degree to complete the effect appraisal of Indian economy at more
disaggregate level.

ARUNDHATI ROY IN HER STUDY CONCLUDED THAT:

In this exploration, an auxiliary subjective examination has been applied. With

the guide of an account topical portrayal dependent on the job of the help store
and cross country lockdown pandemic circumstance, we examined into the
troublesome circumstance of the Indian MSME area. Moreover, the
arrangement of watchwords was acknowledged through a Boolean table and a
delineation of PRISMA assisted with characterizing the quest methodology for
this exploration. Different impression of the examination strategy were
additionally talked about. The outcomes showed that producers of both
unnecessary products just as fundamental merchandise endured misfortune near
half during the pandemic.

Moreover, private ventures in India encountered an extreme compression in

business because of a negative development pace of net deals. It was examined
that the system of giving offices of credit would empower business people to
embrace the most recent innovation, for example, internet business. Plausible
proposals included dispensing of credit ensure plans, arrangement of
sponsorships and expansion of residency of reimbursement of advances.

10
THE ECONOMIC TIMES ( JUNE 2019 ) SAYS:

" Union Minister Nitin Gadkari on Friday invited the declarations for MSMEs
in the Budget and said his service has chosen to raise the area's commitment to
50% of the country's GDP in the following a long time from 29% as of now and
give occupations to 15 crore individuals. "The claim to fame of this Budget is
that our limited scale and medium-scale ventures have gotten greatest support.
MSMEs have a commitment of 29% in our nation's GDP and the office has
concluded that we will build the commitment to 50 percent of the GDP," said
Gadkari, Union Minister for MSME and Road, Transport and Highways."

JINKIN MOU IN HIS STUDY CONCLUDED THAT:

The COVID-19 is spreading quickly all throughout the planet. Worldwide GDP
will fall by as much as 3%, while non-industrial nations will be the hardest hit,
however much 4% overall, yet some were more than 6.5% and world product
exchange will dive by somewhere in the range of 13 and 32% in 2020 because
of the COVID19 pandemic. In the first place, this paper looks at the effect of
COVID-19 on worldwide GDP with the financial emergency in 2009 and
analyses the adjustments in import and fare sum influenced by the pandemic.

THANKOM GOPINATH ARUN IN HIS STUDY CONCLUDED THAT:

We examined the Covid flare-up and the overflow to the worldwide economy
which set off the worldwide downturn in 2020. Strategy creators in numerous
nations were feeling the squeeze to react to the Covid flare-up. Thus, numerous
administrations settled on quick strategy choices that had extensive positive and
adverse consequences on their separate economy – numerous nations dove into
a downturn. Social removing arrangements and lockdown limitations were
forced in numerous nations, and there have been contentions that such friendly
approaches can trigger a downturn. Our discoveries in area 5 showed that a 30-

11
day social separating strategy or lockdown limitation harms the economy
through a decrease in the degree of general monetary exercises and through its
adverse consequence on stock costs.
Our investigation has a few limits. The principle impediment of this exploration
paper is the brief time of investigation because of restricted dataset. A more
extended investigation period may catch the financial outcomes of government
approaches during the Covid emergency. Likewise, as future situation unfurl,
there could be overflows to different areas that we didn't investigate in this
examination. Future investigations on overflows could be reached out to two
bearings. In the first place, future investigations can analyse the effect on
government strategy on the casual economy. Second, it is critical to investigate
how banks and monetary organizations respond to financial arrangement
advancements during the Covid emergency

MCKIBBIN AND FERNANDO IN THEIR STUDY:

utilised the computable general equilibrium (CGE) modelling and reported that
global GDP would be reduced by around US$2.4 trillion in 2020 under a low-
end pandemic considering the Hong Kong Flu as a reference point. However,
the fall can extend to the tune of over US$9 trillion in 2020 in case of a serious
outbreak similar to the Spanish flu. Ozili and Arun (2020) noted the spill over
effects of COVID-19 and hailed that the social distancing measure of virus
controlling led to the shutdown of financial markets, corporate offices,
businesses and events which in turn may have significant impact on economic
growth.

12
 CHAPTER -3

RESEARCH
METHODOLOGY

13
1.1. Lockdown and the economy: Nature of impacts

India imposed a national lockdown from 25 March 2020, which

crippled economic activities across States. The resultant demand and
supply shocks reverberated across the productive sectors of the
economy.

1.2. Agriculture

The lockdown started when the harvest of India’s second

agricultural crop season (rabi) had begun. Farmers were expecting
good returns from the sale of their produce. But they were
disappointed by the breakdown of global and domestic food supply
chains and falling farm-gate prices. Globally, the demand for
Indian agricultural commodities fell due to the shutdown of
international trade. Domestically, farmers struggled to bring their
produce to the market yards due to the poor availability of
transport facilities and restrictions on the movement of goods.
The broken supply chains drastically reduced market arrivals of
agri- cultural goods in India. Table 1 provides data on the total
market arrivals of 15 commodities between March and September
for two years, 2019 and 2020. For the period examined, market
arrivals of all crops were lower in 2020 than in 2019. It was only in
paddy, lentil, tomato, cabbage, lady’s finger, and banana that
market arrivals in 2020 constituted more than 75% of market
arrivals in 2019. In the case of wheat, barley, pigeon pea, potato,
and cauliflower, market arrivals in 2020 were between 50 and
75% of market arrivals in 2019. For all the remaining crops, market
arrivals in 2020 were less than half of the market arrivals in 2019.

14
 In wheat, the most important rabi crop, only 60.4% of the arrivals
in 2019 were recorded in 2020. Thus, farmers across the country
suffered major economic losses (see Ramakumar, 2020 for a
detailed analysis).

1.3. Animal husbandry

During the lockdown, many regular consumers of milk, such as

sweet shops, restaurants, and hotels were shut. The demand for
milk fell by 20-25 per cent during the lockdown (GoI, 2020).
Milk sales declined, and milk dairies announced milk holidays.
Milk prices declined by 19% between February and May 2020.
Liquid milk procurement from farmers.

Table 1. Total arrivals in the agricultural markets between March and September,
selected crops, India,

2019 and 2020 (tonne and percentages)

Cumulative quantity of market arrivals for

Crop specified periods in 2020 as a share of

corresponding quantity of market arrivals in 2019
(%)

March to March to June July to

September September
Paddy 87.2 88.1 86.2
Wheat 60.4 57.7 62.6
Barley 51.6 43.6 58.8
Gram 39.7 34.8 43.7
Pigeon pea 60.6 62.5 58.8

15
 Lentil 76.5 79.1 74.4
Potato 60.6 64.3 57.7
Tomato 86.2 84.6 87.3
Onion 46.8 47.0 46.6
Cabbage 82.1 86.3 78.6
Cauliflower 73.4 77.1 69.9
Peas 39.4 39.2 39.6
Lady’s finger 75.1 75.2 75.1
Banana 86.9 89.4 85.3
Mango 46.8 35.1 51.6

fell from 53.42 million litres per day (mlpd) in the first two weeks of
March 2020 to 50.39 mlpd by the last two weeks of May 2020 (Ramaku-
mar, 2020). The sale of milk also declined from 38.69 mlpd in the first
half of March 2020 to 34.75 mlpd by the last two weeks of May 2020.
India is the second largest exporter of beef in the world, after Bra-
zil. It exports about 100,000 tonnes of buffalo meat every month, but
exports in March 2020 itself were estimated to have fallen to 40,000
tonnes. Between April and August of 2020, the exports of all meat and
meat products was lower by US$ 336.4 compared to the corresponding
period in 2019. Domestically, on the demand side, there was a sharp
fall in meat sales; people began to believe that eating meat would lead.

to Covid-19 infections. Supply also fell. Sufficient animals could

not be transported from the source areas to the large abattoirs.
Many abattoirs closed down.

16
 Poultry producers were also adversely affected. Broiler birds,
whose life span is about 30 to 40 days, began to pile up in the farms
and grow- ers were forced to keep feeding them with purchased
poultry feed. As a result, birds were culled on a large scale. As broiler
birds grew in size and numbers, and as their markets shrank,
growers incurred considerable financial losses. It is estimated that
about 40% of the poultry producers closed down business.
Chicken prices at the farm gate fell from Rs 85- 90/kg to Rs 5-
10/kg during the lockdown. According to the All India Poultry
Breeders Association, the total loss for the poultry industry was
likely to be US$ 3,333 million.

1.4. Industry

India’s Index of Industrial Production (IIP), which stood at 134.2

in February 2020, fell to just 54.0 in April 2020 (see Figure 8).
While it rose after April till July 2020, it fell again in August 2020
and continued to be considerably below the levels for February
2020 or August 2019.

Figure 1. Index of Industrial Production, India, monthly, 2019 and 2020,

base year 2011-2012 = 100
160.0

140.0

120.0
Index of industrial production

100.0

80.0

60.0

IIP General 2019 IIP

General 2020

17
In a survey by the Federation of Indian Chambers of Commerce and
Industry (FICCI) in March 2020, about 53% of the businesses had responded
that the impact on them was either “very high” or “high” ( FICCI, 2020).
About 73% of the businesses experienced a “big” reduc- tion in orders; 35%
reported a rise in inventories; and 81% reported a “significant” impact on
cash flows. About 52% indicated that the delay in sourcing products was
more than four weeks.
About 40% of India’s total non-farm work force is engaged in micro,
small and medium enterprises (MsMEs). It is estimated that about 60
million MsMEs employ about 110 million workers (GAME, 2020). It was
in the MsME sector that the impact of the lockdown was most severe. The
total losses in this sector are estimated to be about US$ 10,667 million
to US$ 16,000 million in profits (ibid.).
Another survey of MsMEs by the FICCI in April 2020 showed that
about 73% of the MsMEs reported a drop in orders (Global Alliance for
Mass Entrepreneurship, GAME, 2020). About 50% of the MsMEs reported
a rise in inventory levels by more than 15%. Another survey by the All
India Manufacturers’ Organisation (AIMo) in May 2020 covered 46,525
companies (AIMo 2020). It showed that about 35% of the MsMEs reported

18
 their future as “beyond recovery”; they had “no chance of recovery” and
had begun “shutting down their operations”. Another 39% reported their
recovery to be at least six months away. Yet another survey in July 2020
by the GAME and the Krea University, covering 1500 micro-enterprises,
showed that 57% of the micro-enterprises had no cash reserves, and
65% of them had to access finances from personal savings to continue
operations (GAME, 2020).

1.5. Other economic indicators

We shall now discuss three other indirect indicators of economic activity.

First, there was a fall by one-third in the total Goods and Services Tax
(GsT) collections in India between February and April 2020 (see Figure
9). The cumulative shortfall of GsT collections between March and Oc-
tober 2020 was US$ 20,251 million compared to March-October 2019.
This shortfall was about 19% of the GsT collections between March and
October 2019.

Figure 2. Total collection of GST, India, monthly, nominal figures, 2019

and 2020 (Rs million)
A. Total collection of goods and services tax
1,053,
660

1,000,000 1,034,
910

800,000
GST collections, in RS million

600,000

400,000

200,000

0
January February March April May June July August September October November December

19
 Secondly, the total quantity of revenue-earning freight moved by the
Indian Railways was lower in 2020 compared to 2019 (see Figure 10).
If we consider the period between March to September 2020, the
cumula- tive freight movement was lower by 69,770 tonnes (or about
10%) than between March and September 2019.
Thirdly, India’s exports fell after February 2020 (see Figure 11). The
value of exports fell from $27,742 million in February 2020 to $10,153
million by April 2020 before improving to $27,585 million by Septem-
ber 2020. But if we consider the period between March and September
2020, the cumulative value of exports was lower by $45,191 million (or
about 24%) compared to March-September 2019.
Spokespersons of the government have chosen to celebrate the higher
year-on-year numbers in GsT collection, freight traffic and exports in
September and October 2020 as a sign of a major revival in the Indian
economy. We feel that this may be a premature assessment. In all likelihood,
the higher numbers in September-October are a reflection of the pent-
up demand among certain sections of the society, particularly given the
easing of the lockdown after August. Once the pent-up demand is
exhausted, it is very likely that economic activities will show sign of
stress again.
Revenue earning freight traffic,
cumulative figures

20
 Monthly cumulative values of total exports

300,000

250,000
Value of exports, in US$ million

200,000

150,000

100,000

50,000

0
January February March April May June July August September October November December

Impact on employment

The economic shutdown after March 2020 led to a major rise in unem-
ployment. Here, we use monthly data from the nation-wide employment
surveys of the CMIE. First, seekers of employment exited the labour force
in large numbers in March and April 2020 (see Table 2). The size of the
labour force shrank in March and April 2020. There was some recovery
from May 2020, but the total size of the labour force in October 2020
was still lower than in February 2020 by 13.2 million persons.
Secondly, the total number of employed persons shrank at a faster
rate than the labour force. There was a fall of employed persons by 2.5%
in March 2020 and 29% in April 2020. Despite recovery after May 2020,
the number of employed persons were less by 8.9 million in October
2020 compared to February 2020.
Thirdly, there appears to be a strong “discouraged worker effect” among
the labour force. The number of unemployed persons not looking for
employment rose eight times between February 2020 and April 2020.

21
It fell back to 13 million by August 2020 but rose again to 22.6 million
by October 2020 (or 11 million more than in February 2020).
Fourthly, unemployment rose significantly. The monthly unem-
ployment rate, which hovered around 7.8% in February 2020, rose
to 23.5% in April and May 2020 before falling back to 7% by October
2020. However, this is no reflection of the reality, as large number of
workers exited, and still remained out of the labour force in October
2020. The impact of unemployment was most severe on the
historically disadvan- taged and oppressed sections of India’s society:
Scheduled Caste (SC) and Scheduled Tribe (ST) persons.
Fifthly, the impact on employment was not limited to the informal
sector, but also the formal sector. The total number of salaried jobs in
India was 86.1 million in 2019-2020 (Vyas, 2020a). In April 2020, this
number fell to 68.4 million. By August 2020, it had risen to 73.8 million,
but was still 12.7 million less than in February 2020.
Finally, young job seekers, particularly between 15 and 39 years, were
the most acutely hit (Vyas, 2020b). Persons in the age group of 20-24 years
constituted only 9% of the total employment but accounted for 35% of the
total employment losses. Persons in the age group of 25-29 years were only
11% of the total employment but accounted for 46% of all the job losses.
Table 2. Selected indicators of labour force and employment, India,
February to October 2020 (million and percentages)
February March April
Variable
2020 2020 2020

Labour force (million) 440.1 433.8 369.0

Labour participation rate (%) 42.6 41.9 35.6
Employed persons (million) 406.0 395.8 282.2
Unemployed persons actively looking for
34.2 37.9 86.8
employment (million)
Unemployed persons not actively looking for
10.4 16.3 88.6
employment (million)
Unemployment rate (%) 7.8 8.8 23.5

22
 Unemployment rate for Scheduled Caste
7.2 9.4 32.0
groups (%)
Unemployment rate for Scheduled Tribe
6.4 4.4 18.7
groups (%)

2. QUANTIFICATION OF THE ECONOMIC IMPACT

In this section, we attempt an exercise to quantify the direct and indirect

losses to the Indian economy on account of the pandemic.

2.1. Input-Output analysis: A methodological departure

Many multilateral agencies have used either prevailing economic models

or sector-wise estimates to arrive at the direct economic losses due to
the lockdown in India. We provide a list of such estimates for the Indian
economy in Table 3 (an exception is Asian Development Bank, ADB,
2020). But the Covid-19 lockdown did not just directly disrupt production
in each sector, but also indirectly affected other sectors either because
of an impact on inter-sectoral demand for inputs or due to slowdown
in final demand due to reduced incomes and employment. In this
paper, we depart from such traditional methods, and present
estimates

23
 May 2020 June 2020 July August Sep Oct 2020
2020 2020 2020

396.5 420.0 424.3 428.3 426.0 426.9

38.2 40.3 40.7 40.9 40.6 40.6

303.4 373.8 392.7 392.5 397.6 397.1

93.1 46.2 31.5 35.7 28.3 29.8

50.0 31.8 15.5 13.0 11.9 22.6

23.5 10.9 7.4 8.4 6.7 7.0

30.6 14.6 8.8 8.5 6.7 7.7

23.2 7.8 3.3 4.5 5.1 4.7

of economic losses based on an Input-Output (I-O) analysis. The I-O

analysis includes direct and indirect impacts due to multiplier effects in
each sector resulting from changes in other sectors.
The common criticisms directed at I-O models are three: 1) the
technical coefficients that determine inter-sectoral dependence remain
constant over time; 2) the analysis assumes constant returns to scale;
and 3) the elasticity of substitution for all inputs is zero. It is argued that
the above three characteristics of I-O models are deviations from the
actual behaviour of the economy. While these criticisms are valid to an
extent, they apply mainly to analyses that attempt forecasting of futu-
re economic behaviour. Further, this paper does not attempt to forecast
economic activity into the future. The only time dependent analysis that
we attempt is the estimation of an I-O table for 2019-2020 and 2020-
2021 based on the coefficients for the years 2016-2017. The period of

24
forecast here is relatively short. While all the coefficients may not hold,
it is reasonable to assume that the variation may be relatively small.

TABLE 3. Forecasts for real GDP growth, India, 2020-2021 (percentages)

Month of
Agency/Institution 2020-2021
release
Centre for Monitoring Indian Economy (CMIE) October –12.3
Reserve Bank of India (RBI) October –9.5
RBI forecasters survey (Median) October –9.1
Ministry of Finance September -
International Monetary Fund (IMF) October –10.3
World Bank October –9.6
Asian Development Bank (ADB) September –9.0
Organisation for Economic Co-operation and De-
September –10.3
velopment (oECD)

United Nations Conference on Trade and Develop-

September –5.9
ment (UNCTAD) [calendar year 2020 and 2021]

State Bank of India (sBI) September –10.9

S&P Global Ratings September –9.0
Fitch Ratings September –10.5
Moody’s September –11.5
ICRA September –11.0
CRISIL September –9.0
CARE Rating September –8.0 to –8.2
India Ratings September –11.8
Goldman Sachs September –14.8
Nomura September –10.8
UBS Securities September –8.6

There is a reason why we rely on an I-O table for 2016-2017. An I-O

table for 2019-2020 is not available. The last official I-O table published
by the Government of India is for 2007-2008. At the same time, an I-O
table for India for 2016-2017 has been published by the Asian
Development Bank. The ADB’s is a 34 sector I-O table closed with

25
accounts for private consumption, government consumption, exports,
imports, capital accumulation and savings, value added and indirect
taxes. Using this table, we estimate the loss in economic output across
different sectors of the Indian economy for 2019-20 and 2020-21.
The method used in this paper has previously been used in studies that
estimated economic losses due to natural disasters. Yasuhide Okuyama
has a series of papers on the use of this method for assessing losses due
to natural disasters (see Okuyama and Santos, 2014; Okuyama, 2007;
Okuyama, Hewings, and Sonis, 2004). I-O models have also more
recently been used to assess the impacts of Covid-19 in specific
sectors. For example, Baldwin and Tomiura (2020) applied the I-O
method to assess the impact of Covid-19 on international trade. The
ADB has evaluated the economic impact of Covid-19 on developing
Asian economies (ADB, 2020). The method used in this paper broadly
follows Okuyama and Santos (2014).

2.2. Our method

We begin with the I-O Table for India for 2016-2017. From this table,
the matrix of technical coefficients [A] was calculated using Equation
[1]. The Leontief matrix [L] was then calculated using Equation [2].

A = Z  xˆ−1 ….[1 ]

L =[I − A]−1 ….[2]

where Z is the matrix of intermediate consumption by each sector, which

represents the distribution of an industry’s output across different sec-
tors of the economy; x is the vector of total outputs from each sector;

26
and x̂ is a square matrix with diagonal elements representing the total
output in each sector.
A pro-rata growth rate for the final demand in each sector was then
applied to derive the actual final demand for 2019-2020, and the expect-
ed final demand for 2020-2021. This gave us the final demand vectors
[f2019-2020] and [f2020-2021]. The growth rate in final demand was assumed

27
and adjusted such that the expected GvA for the two years, without Cov-
id-19, matched the projections made by the Government of India. The
I-O coefficients represented by the matrix [A], and the wages-to-profit
ratio, were assumed to be constant over this period. Applying the stand-
ard Leontief equation, i.e., x = L f, to the two demand vectors [f] for
2019-2020 and 2020-2021, we obtained x2019-2020 and x2020-2021. We could
therefore calculate Z2019-2020, Z2020-2021, GVA2019-2020, GVA2020-2021, and then
create I-O tables for 2019-2020 and 2020-2021 assuming that these were
normal years without Covid-19.
The next step was to estimate the impact of Covid-19 on economic
activity and the total potential losses. At the outset, we must state a few
limitations of the exercise. First, it was difficult to estimate the exact
value of loss as the economic situation is evolving and changing rapidly.
Secondly, because the output varies across the year and the quarter in
which economic activity is halted will affect the total loss estimations,
a sub-annual analysis was difficult to do; quarterly I-O tables and
output estimates are not available. Thirdly, the unprecedented scale and
impact of Covid-19 is likely to result in changes in structural inter-
dependen- cies in the economy represented in the I-O table. In such a
dynamic context, it was difficult to arrive at very precise estimates.
Fourthly, the I-O table fails to capture all the information about the
informal sector, which plays a significant role in the Indian economy.
Due to all these reasons, the estimates of economic loss that we present
here should be considered conservative estimates. The scenarios we
construct address this uncertainty by providing a wide range of
possibilities.
We constructed four scenarios based on a range of potential lockdown
days for each sector in the economy. The loss per day was calculated as
the ratio of total potential economic output in a normal year for each
28
sector and the number of days in the year. The product of the lockdown
days and potential output per day gave us the total output loss in each
sector i represented by the vector [ xi]. The standard linear I-O analysis
using the Leontief matrix required a change in the final demand [ f].
Therefore, the change in output was converted to a change in final demand
by dividing the total output vector [Δx2020] by the diagonal of the square
matrix [L], as shown in Equation [3]. This methodology is discussed in
detail in Miller and Blair (2009). The direct impact of a loss of output
on final demand was captured by the diagonal elements of the matrix
[L].

[f ] = [L ]−1 [x]

The resultant vector [ f] is the corresponding loss in final

demand. The total potential output loss as well as the reduction in
final demand was then estimated for 2019-2020 and 2020-2021. The
new final de- mand vectors [fCV] were estimated by subtracting [ f]

from [f]2. New row vectors [XCV], square matrices [ZCV], and column
vectors [GVACV] were calculated and new I-OCV tables were
constructed for both years to reflect the system of economic
transactions after Covid-19.

2.3. Our estimates

We construct four scenarios by varying the potential down-time for

each sector across the economy. Table 4 shows the average down-
time across all sectors of the economy, and the resulting loss in GvA
for each scenario in 2019-2020 and 2020-2021. While the first Covid-
19 case in India was registered on 30 January 2020, the pandemic

29
truly arrived on Indian shores only by March 2020. Therefore, the
workdays lost in 2019- 2020 are likely to be relatively less. Our sector-
wise assumptions about lockdown periods are broadly based on
Government of India’s official notifications on the classification of
which goods and services were “es- sential”, and the respective rules
applicable to these sectors at different points in the five months
between 24 March 2020 and 30 August 2020. The results show that
India’s economic losses in 2019-2020 itself range from 2% to 3% of
the expected GvA if indirect impacts are also considered. In 2020-
2021, the losses are considerably higher. The total direct and indirect
losses due to the pandemic in 2020-2021 range from 12% to 26% of
the expected GvA without the pandemic. This results in an actual
negative growth rate in the GDP that ranges from –6% to –21%. On
31 August 2020, the Cso (Central Statistics Office) published its first
estimate of the growth of GvA and GDP for Q1 (April-June) of 2020-
2021. It estimated that Q1 growth rate of GvA was –22.8% and of
GDP was –23.9%.

Table 4. Projected losses in GVA due to Covid-19 lockdown, India

2019-2020 2020-2021

Direct + Direct +
Indirect Growth Indirect Growth
loss Rate in loss Rate in
Average compared real GDP Average compared real GDP
Scenario
lockdown to the with lockdown to the with
period* expected respect to period* expected respect to
(days) loss in the GDP in the (days) loss in the GDP in the
year: I-O previous year: I-O previous
analysis year (%) analysis year (%)
(%) (%)

Scenario 1 5 2.3 6.2 31 11.9 –6.0

Scenario 2 7 2.9 5.6 40 16.1 –10.5
Scenario 3 9 3.4 5.0 53 20.4 –15.1
Scenario 4 9 3.4 5.0 70 26.3 –21.4

30
 Note: * These are averages across all sectors. Source: Computed by
authors.

negative. It is likely, therefore, that the losses would be much higher

than those estimated by other agencies (see Table 3). In our
assessment, the annual growth rate for 2020-2021 is likely to be
between scenarios 3 and 4 (see Table 4).

3. THE GOVERNMENT’S ECONOMIC RESPONSE

Given the economic losses, firm closures, and losses in employment,

it would be wrong to assume that the economic activities would
return to normal when the lockdown is lifted. When the lockdown is
lifted, supply chain disruptions would ease even if supply may
normalise only with a lag. Here, the extent to which production
would be restored depends also on the extent of firm survival and the
success of credit and liquidity injection measures. On the other hand,
losses in employment are a huge drain of aggregate demand in the
economy. Employment levels may not reach February 2020 levels
anytime soon in 2020-2021. Even if levels of employment are restored,
they are still likely to be of less-skilled and less- paid forms. In such a
circumstance, stimulus measures by governments would have to play
a central role in reviving demand.
Governments in the developed world have stepped in with
unprece- dented levels of intervention in the economy. These
interventions have taken multiple forms. Compensations to farmers
for economic losses, furlough packages to pay firms up to 80% of
wage bills, direct cash payments to workers, injections of liquidity,
provision of credit at zero interest rate or without collateral, free
supply of food or food stamps and recapitalisation of banks are
31
examples.
The IMF classifies interventions into two types: one, direct
spending and revenue measures called “above-the-line measures”;
two, loans, equity injections and guarantees called “below-the-line
measures”. IMF’s estimate in October 2020 was that $11.7 trillion was
the total size of the planned interventions of governments across the
world. Of this, about half was to be through direct spending and
revenue measures. The remaining half was to be through loans,
liquidity support, equity injections and guarantees (IMF, 2020).
It is in this context that we study India’s economic response to the
pan- demic. India, till 30 October 2020, has announced a total of US$
279,600 million as the Covid-19 economic stimulus package. This
amounts to about 10% of India’s GDP, which makes the package
appear impressive. However, we would add important qualifiers.
First, the appeal of the size of India’s stimulus package is
deceptive. Many announcements made as part of the package were
already included as part of the budget for 2020-2021 presented prior
to the lockdown in February 2020. Of the US$ 279,600 million
announced, only US$ 41,333 million constituted direct fiscal
spending or exemptions. In other words, only 15.4% of the Indian
package can be termed “above-the-line” measures, as opposed to about
50% globally (see Table 5). The rest con- stituted loans, credit
guarantees and liquidity enhancement measures from the banking
system. If we consider only above-the-line measures, the size of the
India’s package would shrink to just 1.5% of the GDP. The
corresponding figures were 9.3% of the GDP for advanced economies
and 3.5% for emerging market and middle-income countries (IMF,
2020). Thus, India’s stimulus package was smaller than those
announced by other major economies of the world.
32
 Secondly, the size of India’s package was also small relative to the
stringency of its lockdown. The Oxford Covid-19 Government Re-
sponse Tracker (OxCGRT) estimates a country-wise Stringency
Index for lockdown based on 17 indicators, such as school closures
and travel restrictions. The index ranges between 0 and 100 (100 for
most stringent). More stringent the lockdown, larger is the expected
size of the stimulus package. India had one of the most stringent
lockdowns in the world. Yet, the size of India’s stimulus package
was smaller than in countries with less stringent lockdowns (see
Figure 12). In Japan, the package constituted 21.1% of the GDP. In
Sweden, with one of the most relaxed lockdowns, the package
constituted 12% of the GDP.

Table 5. India’s Covid-19 economic stimulus package (percentages)

Outlay as Share in
Type of intervention Details
share of GDP total outlay

Provision of in-kind (food;

cooking gas) and in-cash
Above-the-line transfers to lower income
measures: direct households; insurance
spending and coverage for workers in 1.4 14.6
foregone/deferred the healthcare sector; wage
revenue support and employment
provision to low-wage
workers.
Increase number of
Above-the-line
hospital beds, ventilators,
measures: Improving 0.1 0.8
intensive care facilities and
health infrastructure
quarantine centres.
To support businesses and
shore up credit provision
Below-the-line
to several sectors of the 8.5 84.6
measures
economy and sections of
the population.
All measures 10.0 100.0
All above-the-line measures with direct bearing on
1.5 15.4
the government budget/deficits

33
Source: Computed by authors from government documents and
releases.

Thirdly, even within the above-the-line measures, only a small share

was aimed at raising aggregate demand or increasing capital invest-
ment in the economy. In fact, India’s package has been aptly called
a supply-side package.
Fourthly, the overriding reliance in the package on fresh loans
through the banking system, as well as moratorium on loan
repayments, has raised fears about the long-term health of the
banking system. India’s banks, even prior to the pandemic, were
burdened with high levels of non-performing assets (NPA). There was
no indication that forcing banks to provide fresh loans, with little
attention to creditworthiness, would be associated with any measure
to recapitalise banks. In the absence of recapitalisation, the long-term
outlook of the banking system may be adverse.

34
CHAPTER-4

RESULTS AND
DISCUSSIONS

35
As per the official data released by the ministry of statistics and
program implementation, the Indian economy contracted by 7.3%
in the April-June quarter of this fiscal year. This is the worst
decline ever observed since the ministry had started compiling
GDP stats quarterly in 1996. In 2020, an estimated 10 million
migrant workers returned to their native places after the imposition
of the lockdown. But what was surprising was the fact that neither
the state government nor the central government had any data
regarding the migrant workers who lost their jobs and their lives
during the lockdown.
The government extended their help to migrant workers who
returned to their native places during the second wave of the
corona, apart from just setting up a digital-centralized database
system. The second wave of Covid-19 has brutally exposed and
worsened existing vulnerabilities in the Indian economy. India’s
$2.9 trillion economy remains shuttered during the lockdown
period, except for some essential services and activities. As shops,
eateries, factories, transport services, business establishments were
shuttered, the lockdown had a devastating impact on slowing down
the economy. The informal sectors of the economy have been
worst hit by the global epidemic. India’s GDP contraction during
April-June could well be above 8% if the informal sectors are
considered. Private consumption and investments are the two
biggest engines of India’s economic growth. All the major sectors
of the economy were badly hit except agriculture. The Indian
economy was facing headwinds much before the arrival of the
second wave. Coupled with the humanitarian crisis and silent
treatment of the government, the covid-19 has exposed and
worsened existing inequalities in the Indian economy. The
36
contraction of the economy would continue in the next 4 quarters
and a recession is inevitable. Everyone agrees that the Indian
economy is heading for its full-year contraction. The surveys
conducted by the Centre For Monitoring Indian Economy shows a
steep rise in unemployment rates, in the range of 7.9% to 12%
during the April-June quarter of 2021. The economy is having a
knock-on effect with MSMEs shutting their businesses. Millions of
jobs have been lost permanently and have dampened consumption.
The government should be ready to spend billions of dollars to
fight the health crisis and fast-track the economic recovery from
the covid-19 instigated recession. The most effective way out of
this emergency is that the government should inject billions of
dollars into the economy.
The GDP growth had crashed 23.9% in response to the centre’s no
notice lockdown. India’s GDP shrank 7.3% in 2020-21. This was
the worst performance of the Indian economy in any year since
independence. As of now, India’s GDP growth rate is likely to be
below 10 per cent.
The Controller General of Accounts Data for the centre’s fiscal
collection indicates a gross-tax revenue (GTR) of rupees 20 lakh
crore and the net tax revenue of rupees 14 lakh crore for 2020-21.
The tax revenue growth will be 12 per cent, which would mean the
projected gross and the net tax revenues for 2020-21 would be
rupees 22.7 lakh crore and 15.8 lakh crore respectively.
This suggests some additional net tax revenues to the centre
amounting to rupees 0.35 lakh crores as compared to the budget
magnitudes. The main expected shortfall may still be in the non-tax
revenues and the non-debt capital receipts. If we look down in the
past, the growth rate for the non-tax revenues and non-debt capital
37
receipts have been volatile, but if we add them together, they
average to a little lower than 15% during the five years preceding
2020-21.
How have different sectors been affected due to Covid-19?
• Hospitality Sector:
As many states have imposed localised lockdowns, the hospitality
sector is facing a repeat of 2020. The hospitality sector includes
many businesses like restaurants, beds and breakfast, pubs, bars,
nightclubs and more. The sector that has contributed to a large
portion of India’s annual GDP has been hit hard by restrictions and
curfews imposed by the states.
• Tourism Sector:
The hospitality sector is linked to the tourism sector. The sector
that employs millions of Indians started bouncing back after the
first wave, but the second wave of covid was back for the
devastation! The tourism sector contributes nearly 7% to India’s
annual GDP.
It comprises hotels, homestays, motels and more. The restrictions
due to the second wave have crippled the tourism sector, which
was already struggling to recover from the initial loss suffered by
the businesses in 2020.
• Aviation and Travel sector:
Aviation and other sector establishments faced a massive struggle
during the second wave of the pandemic. The larger travel sector is
also taking a hit as people are scared to step out of their homes. For
airlines and the broader travel sector, its recovery will depend on
whether people in future will opt for such services. At present, the
outlook for the aviation and broader travel sector does not look
good.
38
 • Automobile sector:
The automobile sector is expected to remain under pressure in the
near term due to the covid-19 situation in India.
Real Estate and Construction sector:
The real estate and construction activities have started facing a
disruption during the second wave as a large number of migrant
workers have left the urban areas. The situation has not been grave
as of 2020 for this sector.
• Fiscal Deficit:
The Covid-19 pandemic has not affected our fiscal deficit and
disinvestment target much. In this year’s union budget, Finance
minister Nirmala Sitharaman announced a fiscal deficit target of
6.8% for 2021 to 2022. India’s fiscal deficit for 2020-21 zoomed to
9.5% of GDP as against 3.5% projected earlier. Our finance
minister has promised to achieve a fiscal deficit of 4.5% of GDP by
2025-26 by increasing the steaming tax revenues through increased
tax compliance as well as asset monetization over the years.
According to the medium-term fiscal policy statement that the
government had presented in February 2020, the fiscal deficit for
2021-22 and 2022-23 was at 3.3% and 3.1% respectively.
The impact of the lockdowns and restrictions:
The extent to which localised lockdowns and restrictions have been
imposed in the past have impacted the economic recovery
timeliness. There is a scope for sustained fiscal stimulus going
throughout the year. To some extent, if credit is made available to
businesses at low-interest rates, then monetary stimulus is also
possible. The second wave has pushed back India’s fragile
economic recovery. Rising inequality and strained household
balance sheets have constrained the recovery. From growing only
39
4% in 2019-20 to contracting 7-8% in 2020-21 to staring at
another low economic growth recovery in 2021, India has been
virtually stopped in all its tracks. Therefore, fiscal policy must lend
a generous helping hand to lead vulnerable businesses and
households towards economic recovery.
What is the path to recovery?
If the outbreak worsens over time, or if the case numbers are very
high, this would elevate the risk to India’s economic and fiscal
recovery. The Indian economy should resume its recovery once the
covid waves recede and the Indian economy will continue to grow
at a faster pace than its peers at similar levels of per capita income
around the world. On the downside, there will be less vigorous
recoveries in the government revenues and severe downside
scenarios may entail additional fiscal spending. Commodities and
the automobile sector are severely affected by the initial stream of
infections and associated lockdown measures. It recovered strongly
in the second half of 2021.
The recovery in the global economy has made it unlikely that a
sharp price decline like 2020 will happen again. The pent up
demand in the automobile sector will likely drive a strong recovery
when curbs are relaxed as was seen in 2020. The second wave of
covid-19 has challenged an otherwise strong recovery for Indian
Infrastructure. As consumers strive to maximize their utility, they
will maintain earning due to regulated returns, fixed tariffs and
quick recovery in demand. Airports are most at risk with
international traffic recovery likely delayed by another year. This
may impede a strong domestic recovery if the government
increases the severity and scope of restrictions on mobility. A
strong recovery is needed after a crushing 2020. As the outbreak
40
grew worse the state governments have applied restrictive
lockdown measures that halted the budding economic recovery in
tracks.
Downgrades are a warning not to take economic recovery for
granted. The slow pace of vaccinations is likely to be a burden on
India’s economic recovery. The Indian recovery has been vigorous
across many sectors particularly in the last quarter of fiscal 2021.
Halts to domestic air traffic and subdued international travel have
dismantled recovery for airports. The covid wave has hit small and
medium-size enterprises particularly hard. It has delayed recovery
in banks’ asset quality. Mobility has been down to 50-60% of the
normal levels. Therefore, people are staying home more and
spending less. Recovery will take hold later this year. India’s
budding economic recovery throughout March solidified
government revenues.
Power Sector: The Indian power sector will generate huge revenues
and it would track the recovery of the GDP of India.
Airports: The second wave has threatened India’s air recovery
traffic. The domestic passenger traffic has decreased by 75% of the
pre-covid levels. The traffic recovery in the worst-case scenario
could be 10% lower than what is predicted. Weaker traffic hits the
cash flows of the airports. There will be a sharp recovery in road
traffic after a short disruption. The commercial vehicle traffic will
see better resilience as it supports logistics and essential services.
Ports: A modest recovery will be witnessed by import volumes.
Fertilizers and containers will increase at a greater pace than crude
and coal segments.
Operating cash flows will recover most infrastructure and utilities
such as water, sewage, dams and natural gas segments. Credit loss
41
will remain high in the fiscal year 2022 at 2.2% of the total loans
before it recovers to 1.8% in 2023. India’s strong economic
recovery and the steps taken by the central governments and the
state government to mitigate the effects of the economic crisis have
lessened the burden on the banks. Additionally, banks have raised
capitals to strengthen their balance sheets. This will smoothen the
hit from covid related losses. The weak consumption accompanied
by large scale job losses and the salary cuts in the formal sector
may hit the banking sector’s loans and ‘credit card’ loans. This is
accompanied by lower recovery rates in the bank’s non-performing
assets. That could lead to a rise in weaker loans.
If we have to move towards sustained and real economic growth
against v-shaped, k-shaped or w-shaped paths, the states and the
centre need to work towards a cooperative strategy through their
“cooperative federalism” scheme to increase the vaccination drive.
Last year, the government chose life over livelihoods. By choosing
to protect the former, the covid 1.0 was delayed in September and
its intensity was much lower than predicted. By January 2021, the
government had declared victory over covid-19. The first threat to
economic recovery is the regional cases which are resulting in
further extension of lockdowns and hence they are limiting the
pace of economic recovery. The second threat is the vaccination
rates arising from the vaccine supply. Without inoculating a major
portion of our labour force, there is a threat that viruses will disrupt
our real economy. It is apparent from the worldwide cases of
Covid-19.

42
CHAPTER-5

CONCLUSIONS

43
CONCLUSIONS
On the whole, at the national level the impact of COVID-19 and the
resultant lockdown had been quite harsh on agriculture and allied
sector in majority of districts. Among various subsectors, rabi crops
were least affected as its harvesting was on the verge of completion
but allied sectors such as poultry, fisheries and pig/goat/sheep sector
witnessed a drastic fall in demand due to misplaced rumours leading
to declining production as well as declining farm gate prices.
However, prices of agriculture inputs were estimated to be rising
mainly due to disruption in supply chain and closure of shops and
markets. Although banking activities were exempted from
lockdown, yet basic banking services viz, loans, deposit and
recovery were severely hampered in majority of the sample districts
in the country. However, the silver lining was the increase in digital
banking transactions in majority of the sample districts. The
microfinance sector and MSME sector were the biggest casualty
with disruption in more than four-fifths of the sample districts
thereby seriously hampering the livelihood in the unorganised sector
which provides maximum employment in the rural areas. The
activities of FPOs and FCs also came to complete halt. However,
these rural institutions including SHGs grabbed the opportunities
provided by the situation of stitching face masks, PPEs and
preparation of sanitizers thereby helping the society as also earning
some income for their members. Further, FPOs in close coordination
with local administration in some of the districts were quite
instrumental in door to door delivery of fruits, vegetable and dry
rations to the needy there by extending a helping hand to the
society. These rural institutions like SHGs and FCs were also active
44
 in creation of awareness in rural areas about COVID 19 and its
preventive measures.

Policy Implications/Action Points

Based on the findings of the survey and feedback received from the
stakeholders, a few policy suggestions for mitigating the impact of COVID-19
on rural India are as under:
i. Due to decline in agriculture and allied sector production, direct income
support may be provided to farmers in general and those engaged in poultry
and fisheries sector in particular. In this connection, enhancing the income
support through PM-KISAN could be a good option.
ii. Due to disruption in marketing of agri produce in mandis and rural haats, and
reduced farm gate prices, the income of farmers declined leading to poor
recovery. Therefore, interest waiver for agri term loan for at least one year may
be thought of.
iii. Microfinance activities need to be reactivated through injection of liquidity to
NBFC- MFI sector so that small business activities on pavement and road side
shops could be resurrected in semi-urban and rural areas.
iv. Banks should be nudged to enhance credit linkage and /or next dose of credit
to eligible SHGs
v. MSME sector to be supported through enhanced credit support (working
capital) at lower interest rate, interest subvention and waiver of interest for at
least two quarters for existing loans
vi. Opportunities for mask making, sanitizers, direct delivery of food grains,
vegetables, fruits to be encashed by SHGs and FPOs.
vii. A provision may be considered for NABARD grant assistance to FPOs for
purchase of small road transport vehicle to take advantage of new emerging
opportunities for direct selling of agri and horticulture produce to consumers.
viii. Awareness programme on COVID-19 by SHGs, FPOs and FCs in rural areas
may be done on massive scale to check the growth of corona pandemic
ix. Universalization of MNREGS for covering more and more labourers, including
those migrant workers who have returned from bigger cities.
x. Model farm equipment bank/ fodder bank with FPOs may be developed with
support from NABARD.

45
CHAPTER-6

REFERENCES

46
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