Impact of COVID19 on Indian Economy

Impact of COVID19 on Indian Economy

31 August 2023

31 August 2023

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COVID-19 (Coronavirus Disease 2019) was first identified in Wuhan city of China in December 2019. Till now approximately 9.76M people are affected by it and the count is ever-increasing now. There have been more than 4 lakh deaths worldwide due to this pandemic.

Spread of COVID-19 in India

Cases in India have also shot up sharply and have crossed 5.09 lakh as on June 27th, 2020. Indian Council of Medical Research (ICMR) expects the Corona infected people to reach its peak in November now, as various preventive measures like Lock Down, Social Distancing, Frequent washing of hands, wearing masks and PPE Kits have delayed the spread of Corona virus in India. This has given more time to the country, to make proper medical and preventive arrangements to fight the pandemic. 

Effect of COVID-19 on the businesses

According to the survey, COVID-19 is having a 'deep impact' on Indian businesses. The coming month's jobs are at high risk because firms are looking for some reduction in manpower. Further, it is added that already COVID-19 crisis has caused an unprecedented collapse in economic activities over the last few weeks.

COVID-19 and the Indian Economy

On March 27, 2020, The Reserve Bank of India joined the big fight with a host of measures aimed at minimizing the damage from Covid-19. Reserve Bank of India (RBI) Governor Shaktikanta Das has announced a series of measures including policy rate cuts to bolster economy in the wake of covid-19 menace. Sharing that large part of major global economies are likely to be heading toward recession, the RBI governor stated that economic recovery in 2020 would be slow.

COVID-19 is not just affecting the health of the people, but also economies of many countries including India. So, the topic – ‘Impact of COVID-19 on Indian economy is widely discussed.

Impact of Covid-19 on Indian Economy

A notified disaster

Government of India as well as State governments are treating and monitoring the situation closely to control the coronavirus pandemic. The Ministry of Home Affairs has decided to treat Covid-19 as a "notified disaster". This will enable the states to spend a larger chunk of funds from the State Disaster Response Fund (SDRF) to fight the pandemic.

GDP of India

The revised Gross Domestic Product (GDP) estimates for India downwards by 0.2 percentage points for the fiscal year 2020 to 4.8 per cent and by 0.5 per cent for the fiscal year 2021 to 6 per cent. Further, it is stated that the extent of the actual impact will depend upon the severity and duration of the outbreak.

Loss of Jobs

With an increasing number of coronavirus cases, the government has locked down transport services, closed all public and private offices, factories and restricted mobilization. Based on recent studies, some economists have said that there is a job loss of 40 million people (MRD report) in the country, mostly in the unorganized sectors. In this scenario, they are predicting that India would go into recession affecting the unorganized sector and semi-skilled jobholders losing their employment.

Sectorial Impact of Covid-19 in India

Hospitality Industry

The National Restaurant Association of India (NRAI), which represents 5,00,000-plus restaurants across the country, has advised its members to shut down dine-in operations. This will impact operations of thousands of dine-in restaurants, pubs, bars and cafes. By extension, food delivery platforms such as Swiggy and Zomato that are by itself functioning -- have also taken a big hit.

Labor sector

The labor sector is worst impacted as they are not provided jobs due to lockdown, most of the labor sectors are associated with the construction companies and daily wage earners. Travel restrictions and quarantines affecting hundreds of millions of people having left Indian factories short of labor and parts, just-in-time supply chains and triggering sales warnings across technology, automotive, consumer goods, pharmaceutical and other industries.

Food and Agriculture

The food and agriculture sector contributes the highest in GDP i.e. 16.5% and 43% to the employment sector. The major portion of the food processing sector deals with dairy (29%), edible oil (32%), and cereals (10%). The supply of the food and Agri products will be affected in the coming seasons due to low sowing of the upcoming seasonal crops which will affect the operations as said by the Ministry of Agriculture.


The online business in today's economy plays a major role in the economy with a market share of 950 billion dollars. It contributes 10% to the Indian GDP. At mist the social distancing, due to threat of covid-19 the tendency of the consumers to overstock on essential product and commodities viz rice, flour and lentils. This gave rise in the sales of the FMCG companies due to distorted supply chain. The e-commerce sector saw a dip in growth with pressure on the supply chain deliveries and the expectations of the consumers on the companies to come up with newer distribution channels focusing on direct to customer routes.

Tourism Industry

Movement of people is restricted due to the fears over the spread of COVID-19, and hence tourism industry is facing huge losses. Tourists spend money in the countries they visit, so the loss of this money is affecting the economies of many countries. Air travel demand is declined, and hence the aviation industry is negatively affected.

Positive Outcomes of Covid-19 in India

Atma Nirbhar India

On 12 May the Prime Minister, in an address to the nation, said that the coronavirus crisis should be seen as an opportunity, laying emphasis on domestic products and "economic self-reliance", through an Atma Nirbhar Bharat Abhiyan. The following day the Finance Minister started laying out the details of the Prime Minister's vision which would continue into the next few days. Foreign direct investment is welcome, also technology is welcome to help India being a bigger and more important part of the global economy.

China plus one

China has become the leading manufacturer of goods in the world, but economic changes in the country are causing a shift in thought. For instance, wages for Chinese workers have tripled over the course of the past decade. This is causing manufacturers to move some outsourcing to countries where worker wages are still low. As a result, China’s economy has been slowing. This is the China plus one strategy. Many companies are adding new operations to Asia’s developing countries to supplement current production. Growth in digital connectivity, infrastructure development coupled with rising household income, and an increase in India’s consumers spending makes India the best choice to be the "Plus one".

Increased importance of technology

Above points stated mostly the negative impact of the lockdown, but we would miss out something if we do not acknowledge the growth of digital infused technological gain. With the advent of the lockdown most of the sector shifted their functioning online, the MNC are utilizing their work from home option to carry on an uninterrupted working. This present crisis has highlighted the importance of investing in technologies like cloud data and cyber security, self-service capabilities, and e-governance.

Opportunities for India

Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world. Experts feel that India has a good chance of becoming an attractive manufacturing hub given the present situation, provided the government changes some of its trade policies to bring down commodity prices.

Efforts taken by the govt

The Government of India is aiming to attract companies that wish to move out of China or are looking for an alternative to China. The PM's office is conveying to the government, central as well as the state machinery to prepare pro-investment strategies. A total of at least 461,589 hectares has been earmarked for the purpose, as reported by Economic Times.

FDI policy

The finance ministry notified changes in FDI rules, making the govt approval mandatory for the foreign investments from countries that share border with India to prevent opportunistic takeover of the domestic firms amid the COVID-19 pandemic under the Foreign Exchange Management Law.  As per the amendment to   the FDI policy, any entity or beneficial owner of an investment into India or a citizen, based in a country which shares land border with India can invest only under the Government route.


Important Factors

It is important to understand the factors that determine the shape of recovery. These include the overall duration of the pandemic, the effect on jobs and household incomes and the extent of fiscal stimulus provided by the government.

Economic recovery

Experts suggest a V-shaped recovery plan for India. In the second week of May, companies started preparations for restarting operations. Some companies have opened offices with the maximum permitted strength of 33% while others took a more cautious approach of as low as five per cent. The beginning of June saw companies further re-open and making plans to reopen. The five Indian states, Kerala, Punjab, Tamil Nadu, Haryana and Karnataka, are contributing 27% to India's GDP as India emerges from a total lockdown. By mid-June, unemployment levels were back to pre-lockdown levels.

A new way of life

Analysis of Google search trends show that consumers are shifting consumption patterns as they adapt to a “new way of life." The analysis showed there was pent-up demand for salon services, air conditioners, air travel, bikes, vacuum cleaners and washing machines. Searches associated with panic-buying when the lockdown was first announced -- such as pharmacy and grocery stores and liquid soaps have eased.

Adopting renewable alternatives

India should take this opportunity to increase support for renewable energy, particularly rooftop solar, through appropriate policies and business models. Decentralized solar power can help spread critical services in remote regions if the upfront capital constraints can be addressed. Similarly, scaling up the electrification and adoption of public transport will be critically important to reduce traffic congestion and air pollution. This should involve closer coordination with the electricity sector and a greater focus on vehicle charging infrastructure.

Regulating enabling technologies

Finally, it is useful to consider that the future may see greater employment in the e-commerce sectors, as well as in new technologies that can help support future response and resilience mechanisms. While supporting the development of such sectors, it is important to put the right regulations in place to ensure data privacy and consumer protection.

Thus, we shouldn’t let this chance slip and make maximum benefits out of this for developing a sustainable environment as well as a very good economical foundation for 2021. As of now the economic damage caused by COVID-19 is manageable, but with time the damage will increase. Hope the vaccine is developed soon to prevent further loss of lives and also the collapse of economies.

If you want to have a brief idea about how to present these points in front of a group, do watch the video-


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