Author: Madan Sabnavis
When the corona epidemic hit the claw last year, the world was stunned. Even after retaliation, the lockdown India took steps in this direction in the last week of March 2020. Implemented it strictly in the next two months. The unlock process began in June. During this, the means of livelihood of millions of people were snatched away. Shops and other units had to be closed. Trading and trading declined. The investment was stalled. The government’s revenue also came down due to reduced tax collection.
Dilemma of states
States took different steps to deal with the virus. Maharashtra decided to lockdown by the end of April. In cities like Delhi, Jaipur, Bangalore, Indore, there is a lockdown of different levels. Most states have started demanding negative Kovid reports from those coming from other states. In such a situation, the question is arising that what will be the effect of these steps?
The first thing is that no one knows how long the virus will be controlled. Therefore, it cannot be said with certainty that the lockdown or the restriction will be relaxed on the first of May. Coronation cases will increase in the coming days due to the manner in which the rules of social distancing in Uttarakhand for electoral states and Kumbh Mela were hoisted This is also seen in Haridwar. It also means that the states will be caught in the dilemma as to whether the restrictions should be relaxed or not.
The second thing is that whatever the lockdown is, the movement of people decreases and this affects the consumption. Consumption of services like hotels, tourism, air travel, retail shopping will decrease significantly. Businesses are affected if you have to close shops or units of goods and services which are not in the required category.
The third important thing is that even though consumption of goods and services will affect the local level, it will affect the production plans of most companies. Auto companies in Pune are already in a tizzy over whether to run the factories at full capacity or because a one-month lockdown can drag on for two months. The same is true of textiles, which are not considered essential commodities. In the lockdown, if e-commerce sites are not able to place orders for clothing, then the demand will decrease. This will affect the production of this industry.
The fourth aspect is that all construction activities have stopped. The medium and small enterprises, ie MSME, are facing the fear of worsening of the situation. In such a situation, migrant laborers from Maharashtra once again started to take the path of their respective states. Increasing uncertainty will increase the number of returners. The Maharashtra government has announced a relief package of Rs 5,550 crore. It should be implemented immediately so that the confidence of the workers can be restored and they remain in the state. They have not forgotten what the migrant laborers suffered last year.
Fifth is that government revenue will also be affected. Last year, all the states got into trouble with the GST collection. There was a big drop in collection. The Center was not able to compensate the states through the Cess Fund. Sixth point is that the closure of many enterprises will also have an impact on the financial sector. If there is a decrease in the production capacity of any company or industry, then the income and profit will also be affected. This will also affect the ability to repay debt. This is a major concern for the banking sector. After the Supreme Court’s order in late March, the banking sector is already in a tussle over debt repayment. Its sinking debt figure may increase.
Reduction in estimate
So if all these things are linked, then what picture is made? It is estimated that India’s GDP in the current financial year will be more than 10% compared to the previous year. CARE Ratings estimated GDP growth to be over 11 per cent. But Maharashtra and other big business destinations are now under lockdown. Therefore, the GDP growth estimate can decrease from 0.5 to 0.6%. That is, a difference of about 70 thousand crores can also be seen due to one month lockdown. The loss will also be larger if the lockdown is prolonged. The revenue of the states which will impose restrictions will also be affected.
Last year there was a nationwide lockdown. This time it is in different places. Hence, the total loss on the production front is not as much as last year. But the spread of the virus is increasing and due to this many problems can arise in the country.
(Author is Chief Economist of CARE Ratings)
Disclaimer: The views expressed above are the author’s own
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