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History is evidence of the fact that epidemics such as swine flu, Asian flu, yellow fever, the Great Plague of London resulted in economic changes in the short and long run. Likewise, COVID 19, the recent lethal epidemic will cause major changes in the short term and give a new normal way of life.
Short term impact
According to Fitch Ratings, India’s gross domestic product (GDP) growth rate will come in at 0.8 percent for April 2020 to March 2021 (FY21), compared to an estimated 4.9 percent growth in the previous fiscal year.
This rapid decline in GDP will lead to a rapid increase in public indebtedness, potentially leading to new financial instability. You see, there is GST on consumption of goods and services, VAT on fuel, property transactions and taxes on vehicles.
Young start-ups have been affected by reduced funding. New strategic alliances or business partnerships are unlikely to emerge during this period.
Among the informal sectors and daily wage groups are the most at-risk. A large number of farmers across the country who grow perishable are also facing uncertainty. Various businesses are cutting salaries and retrenching employees.
Despite efforts by central banks to lower interest rates, liquidity is expected to remain tight. Banks and financial institutions will be under immense pressure as multifaults will increase due to fear of NPAs, insolvency and insolvency. The government will focus on meeting hyper demand for essential goods, while non-essential businesses will focus on recovering their receivables and money owed from debtors.
Sectors prefer for convenience of choice
Textiles will be adversely affected due to disruption in labor supply, non-availability of raw materials, lack of working capital and restricted movement of people and restricted demand due to purchasing capacity. The auto sector, including autos and auto parts, will face challenges due to slackening demand due to the global slowdown. Furthermore, it is highly unlikely that people will travel for leisure. So the tourism sector is most likely to go down. Shipping, non-food retail and building and construction will face similar scenarios.
Selection of sailors
On the other hand, some regions will see growth. Along with the digital and internet economy, ad-tech and online education, there will be a big growth in online skill development and online groceries. There will be a sudden increase in demand for content, digital content will be in demand more than ever. FMCG and retail will benefit greatly. With continued fear, food-based retail chains, and companies catering to low-ticket consumption demand will emerge as winners. Special chemicals and pharmaceuticals will also jump due to the increasing demand for disinfectants, drugs and medicines.
the new normal
Hopefully after lockdown, the way things are done will never happen. The economy will adopt new methods and a new normal way of working.
Change in technology
Trend will pick up. Spending on sophisticated IT infrastructure will change human resources. Job creation will be limited with more offers on a contract basis rather than full time construction.
Technology was, until today, considered a support function for many businesses. This is set to change as technology will now become a frontline requirement in most organizations. Its importance will be comparable to revenue generating functions – sales and business development.
Working from home will be the new normal. In some areas firms will realize that employees working from home are just as productive compared to them when working from the office. This will also help in saving infrastructure costs.
Temporarily, the loan will take a backseat. Heavy businesses related to oil, commodities, infrastructure will lead to asset-light model, where their activity will be financed through structures such as public trusts, REITS, INVITs. Equity financing will take over debt financing as businesses will become reluctant to seek leverage.
Thus in the walnut shell, the corona virus has caused great difficulties for citizens as well as the government, but has also created development opportunities in some areas. Nevertheless, it has changed the way economic operations are conducted.
Public debt is the total amount borrowed by the country’s government. In the context of India, public debt includes the total liabilities of the central government to be repaid from the Consolidated Fund of India.
Real Estate Investment Company (REITS) and Infrastructure Investment Trusts (InvITs) are innovative vehicles that allow developers to monetize the revenue generating real estate and infrastructure assets, while the investors are actually willing to invest in these assets. Are able without
GST on consumption of goods and services, VAT on fuel, property transactions, tax on vehicles and liquor tax are the major sources of revenue of the state government.