Coronavirus locking down Indian economy

Body blow to informal sector


March 20, 2020

/ By / Mumbai

Coronavirus locking down indian economy

Coronavirus is the third major blow to hit the Indian economy in the past four years. While large companies will make it, the informal sector is already gasping for breath. A complete lockdown could be the final blow to this large part of the Indian economy.

The last week has seen governments and central banks all over the world announce significant aid packages for a variety of industries and businesses that have been hit hard by the Coronavirus pandemic. The United States has seen the Federal Reserve cut its lending rates and the White House prepare an emergency aid package of USD 1 trillion to help the US economy battle the impact of this unprecedented medical emergency that has gripped the nation.

After weeks of dithering, the European Union, which has now replaced China as the hotbed of the virus, finally decided to open the tap to help its own economy and industry overcome the epidemic and its severe impact on the health of the EU’s economy. On Thursday, the EU announced a package of EUR 750 billion, while earlier in the day, the UK said it was preparing a GBP 330 billion assistance package for its own industry.

In face of such large and generous packages, the Indian government’s silence stands out. So far, there have been vague hints and calls for all kinds of assistance and aid for various industries as well as sections of the society, but no concrete measures have been announced so far, even though the need in India is definitely as serious, if not more, than in any other large economy of the world. Even before the outbreak hit the world, Indian economy was already in doldrums as it has been since the past four years, with sharp reduction in GDP growth and an unprecedented rise in unemployment. Just weeks before, the Reserve Bank of India had cut its forecast for economy to grow by just over 5 pc in fiscal 2021 (ending March 31, 2021), down from 5.8 pc that it had predicted earlier.

The initial signals that an aid package would be announced by the government have started to emerge, but its contours remain hazy. With a sharp rise in fiscal deficit and a slump in demand, the government does not have much room for kick-starting the economy with a bail-out package. At best, the government may announce tax breaks and bailouts like the purported one for the airlines that are already reeling under the impact of the Corona scare.

Whatever be the shape of the package that the government may announce to help the industry, it would address only the tip of the iceberg. But as in the past, these initiatives would entirely by-pass the real motor of the Indian economy, the informal sector as well as the small and medium enterprises. Both these sectors have been hit the hardest since 2016. They were first hit by the terrible idea of demonetisation in November 2016 that saw cash disappearing from the Indian economy for over six months. As the informal sector runs only on cash, demonetisation dealt a body blow, with millions of workers in this sector getting laid off overnight and hundreds of thousands of small companies shutting down.

The next blow was delivered barely eight months later in the form of the Goods & Services Tax (GST), which again caught the SMEs and the informal sector totally offguard as an overwhelming majority of them do not even use a computer in their day to day administration and practically none of them have ever had a chartered account to assist them. The confusing format and different slabs of GST led to yet another collapse and large-scale lay-offs in the economy. The impact of both these blows was multiplied several times over by the complete drying up of credit in the system, starving the companies of much needed cash merely to stay afloat. However, with the credit offtake at its lowest level in over four decades, even large companies were hard put to access capital, let alone these sectors.

In this scenario, the Coronavirus epidemic could be the mortal blow for this sector, especially if the government decides on a lockdown. Not only can these companies and businesses not run off-site or allow work from home, but their owners as well as workers, many times the same persons, lead a hand to mouth existence and almost all workers in the informal sector are on daily wages or without any perks like paid leave, healthcare benefits or insurance. In such a case, locking down cities, as has been called by even the CEOs of several large corporations, is definitely not the solution for a vast majority of Indians.

Hundreds of millions of Indians survive on daily wages today and for them skipping work even for a day can prove to be a large ask. In this situation, locking down cities for several days would push the workers and their families to the brink of starvation. Also, with most of Indians living in dense slums, with four or more sharing a small room, social distancing is not an option.

Another challenge in lockdown is the near total lack of access to healthcare for the weakest sections of the society. At a time when the entire country has only 72 testing centres, most of the attention and space in this very limited infrastructure could be hijacked by the upper classes, denying the poor the possibilities of access, as the queues outside these centres are already beyond serpentine. Even though the government plans to open another 50 centres by this weekend, the numbers simply don’t add up as with barely 14,175 persons tested till Thursday evening, India’s testing rate remains one of the lowest in the world.

Indian hospitals are also very unprepared to receive a flood of patients, in case the virus spreads through community, which could simply be a matter of time. India has currently too few isolation wards or beds, which could get filled up in less than a day should the virus spread in a larger manner. 

Even the simple matter of washing hands with soap, the poor have a huge challenge due to lack of water, one of the most unequally distributed natural resource in the country. More than 163 million persons don’t have access to proper drinking water and over 220 million don’t get water for sanitation purposes. Even in slums in key metros like Mumbai or Delhi, the water supply is highly irregular and one slum dweller woman retorted in a media interview that often she had to skip bathing in order to ensure that there was enough water for cooking and drinking. In this situation, fighting Coronavirus seems not just an uphill task but an impossibility.

Thus, instead of going for a lockdown, the government would do well to take urgent measures focused on protecting the most vulnerable part of the society.



  1. Arvind Rawat says:

    Thanks for this information, Coronavirus locking down Indian economy.

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