What's New :
ITS 2025: Integrated Test Series & Mentorship Program for Prelims and Mains. Get Details

Reviving the Indian Economy post COVID-19

Published: 10th Aug, 2020

The economic impact of COVID-19 has been much discussed. There is unanimity among economists that the global economy will experience one of its worst years in history. India is no exception and its economy is expected to contract significantly


The economic impact of COVID-19 has been much discussed. There is unanimity among economists that the global economy will experience one of its worst years in history. India is no exception and its economy is expected to contract significantly

The current economic situation

  • The Pandemic has caused a shock for the Indian economy as well. The four legs on which the Indian economy had been growing have all been impacted adversely.
    • Consumption: because of the Demand shock caused by Lockdown and Social distancing.
    • Manufacturing: hit by large scale Supply chain disruptions: Even in case of essential services for which there is a demand, no one is able to produce due to this disruption in the last 60 days
    • Exports: on a pause mode as global consumers pause
    • Capital flows: Pandemic causes risk aversion and Emerging markets have felt the impact of capital outflows or slowdowns in Capital Inflows.
  • All this and general psychological fear about the Pandemic have impacted our economy. Some have tried to compare the 2020 Economic shock to the 2008 Financial crisis, but that is completely inaccurate.
  • The 2008 crisis was restricted to liquidity for the banking sector. This current shock is deeper and broader and impacts almost the entire real economy.
  • It is a larger stop sign across areas like consumption, demand, manufacturing, supply chain and capital.

Understanding the ‘true’ impact on economy 

  • Reversal of economic progress: Economic contraction is not merely a GDP number for economists to analyse and debate. It means a reversal of many years of progress.

  • Slipping back into poverty: A significant number among the weaker sections of society may slip back into poverty, a rare occurrence for a developing nation.

    Severe unemployment:
    Many enterprises may shut down. An entire generation may be lost due to severe unemployment. A contracting economy can adversely impact the ability to feed and educate our children owing to a shortage of financial resources.
  • There is extreme duress among India’s poor. At a time when agriculture activity has been robust, data show that just in the month of June, 62 million people demanded work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) programme at minimum wages.
  • This is thrice the usual number and 10 times more than the total number employed by the entire listed corporate sector.
  • It is evident that most of them are displaced non-agricultural workers, struggling to make ends meet.
  • Such is the scale and enormity of despair in our labour force. Fortuitously, the MGNREGA programme has proved to be a bedrock of support in such times but it is not enough.
  • More liquidity: A meaningful cash transfer can restore confidence in these families. Money in the hands of people can provide an immediate sense of security and confidence, which is the cornerstone to restoring economic normalcy. 

Economic Projections

  • The previous growth estimate of 5.8% made by the International Monetary Fund (IMF) for FY21 was slashed down to a paltry 1.9%. The International Monetary Fund called it the worst downturn in the global economy since the Great Depression.
  • The World Bank has estimated India’s growth for the same fiscal at a mere 1.5%-2.8% - the lowest since the 1991 economic reforms.


  • Lack of revenues: The government requires significant financial resources. However, finances are already stretched with a major shortfall in revenues. New avenues for tax revenues are not feasible in the short term. Higher borrowing by the government is inevitable. India cannot afford to be too fiscally restrained in these distressing times.
  • Low demands: India is facing a structural demand problem, one that predates the COVID-19 This challenge has been exacerbated over the past few months as jobs have been lost and incomes have collapsed.
  • Lack of investment: Investment shrank by almost 3% over the year. Until then, India hadn’t seen investment shrink for almost two decades, according to World Bank data. (It grew about 10% in 2018-19.) And this shrinkage began well before the pandemic — in April 2019. In India, the virus struck an economy with pre-existing conditions.

Steps taken by the Government

  • The Government announced?20Lcr ($c. $281bn) Atma Nirbhar Bharat COVID-19 Economic stimulus package.
  • Though a number of economists believe that the actual stimulus package amounts only 2% of the GDPin reality, as opposed to the 10% claimed by the Government.
  • Most critics affirm that it fails to provide the stimulus that the economy needs.
  • The salient features of the package include
    • a stimulus to Micro, Small and Medium Enterprises (MSMEs)through a ?3Lcr ($40bn) loan scheme
    • helping other stressed business sectors such as Non-Banking Financial Companies (NBFCs), power distribution companies and the real estate sector
    • provisioning of free food grains to migrant workers for the next two months
    • provisioning of a ?1Lcr ($13bn) subsidy to agricultural cooperative societies
    • hiking the allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) by ?40,000cr ($5.3bn)
    • extension of credit facilities to street vendors, interest subvention for small businesses, etc.

What needs to be done to ‘flatten the Corona curve’?

  • Instant action: The deleterious impact of an economic contraction is long and deep, especially on the poor. It is thus imperative to act with utmost urgency to nurse the economy back to good health.
  • Injecting conference: The slowdown in economic activity is both a function of external factors such as the lockdown and behavioural changes of people and enterprises, driven by fear. The foundation for reviving our economy is to inject confidence back in the entire ecosystem. People must feel confident about their lives and livelihoods. Entrepreneurs must feel confident of reopening and making investments. Bankers must feel confident about providing capital. Multilateral organisations must feel confident enough to provide funding to India. Sovereign ratings agencies must feel confident about India’s ability to fulfil its financial obligations and restore economic growth.
  • Reviving the banking sector: There is urgent need to revive the banking sector. Reviving the sector is not merely about capital infusion or disinvestment of public sector banks. Allowing institutions such as the RBI, public sector banks, bankruptcy boards, securities and insurance regulators to function freely and professionally is the foundational step to restoring confidence in the financial system. It is critical to allow processes such as the insolvency process to function smoothly without intervention. 
  • More borrowings: India must make full use of loan programmes of international institutions such as the International Monetary Fund and the World Bank.


Recovery needs reform. India has postponed competitiveness-enhancing measures long enough. In a crisis of this magnitude, there are no excuses left.


Verifying, please be patient.

Enquire Now