Corona Virus- A contribution to another Global Economic Catastrophe
The Corona Virus or popularly known as COVID-19 has been a big blow to the worldwide economy. The impact can be felt on multiple levels in terms of various sectors in the economy. The world has come to a total halt in terms of daily functioning, in terms of the normal course of the lives of people. It is said that the governments across the globe have called in afro a complete shutdown. To put it into perspective most of the companies including fortune 500 firms have called in for complete work from home policy. Most of them have called in for a complete lock-down to control the spread of the virus.
The main focus is said to be on the control of the spread of the virus, from spreading across the communities across the world. But the fact still remains that the declaring of the disease as a pandemic was realized at a much later stage by the WHO. The world health organization or popularly known as the WHO has failed to take the necessary steps to control the spread of the virus. The fact that the control of the virus was not taken seriously from the source, i.e. the Wuhan province of China which is supposed to have reported the first few cases of the virus and its spread. The nations around the world failed to take notice of the situation. Since the last November of 2019, the cases kept increasing and the nationals from across the globe were being affected due to the virus. This has led to the spread of citizens across the globe.
For the economies worldwide the spread of the virus has costed many sectors in terms of revenues and the indices for projecting a better growth trend in the quarters to come do not show a promising picture. This being said the important fact to note that the economies in order to pick up pace have hopes pegged in the year 2021. Be it the software industry or in terms of the building and infrastructure sector, all the projections have seen a major slump in terms of growth. The important trend to note is that of the unemployment trends. The significant drop in the economic activity in the country, which has led to mass layoffs as well. To put in perspective 23% of the Indian workforce is said to be laid off from the companies. Global unemployment is said to be estimated at 2.5 million, which is said to be highest recorded in the recent decade. This is an alarming figure that all the nations are supposed to look at a macroeconomic scale since its repercussions can be felt even once the economies come back on track. This phenomenon cannot be reversed since many of the firms are not able to meet up the targets.
Almost all the industries have shown a tremendous slump in terms of the production and the consumption front. The fact still remains we were going through a slowdown, during the second quarter of 2019. But this aggravated the situation way further when the consumption indices fell drastically. To add to the woes the detection of the pandemic at many later stages, further slowed the economy, with the closure of all the production plants and various firms across the country. To see how much daily life is left us affected, we can see it through the regular supplies of our necessary items. Many of the industries have stopped or reduced the capacity of production. Further in my article will lead to different sectors that have felt its impact both in Indian as well as global scale.
The electricity sector is said to be one of the important sectors for providing the basic functioning of the economy in any part of the world. The fact that the consumption levels have dropped by a huge margin signifies how much of the economy is said to be functioning. The major reasons being due to the absolute aspect of social distancing practices many of the major factories which produce the major manufactured products like heavy equipment, machinery, heavy-duty vehicles, passenger cars and so on. These being the reason the economy is said to be in a much more recessionary bound state. In the European market, power consumption has seen a dip in terms of consumption levels. Most of the consumption slump is mainly due to the climatic conditions. Some of the neighboring countries have seen a massive increase due to household consumption in places like London. But if one may take in the 5-year average of the consumption levels it said to be the lowest. In India too we can see a dip in the power consumption levels as well. The overall dip of close to 2.78 million units is said to be one of the highest dips that have been seen in the power sector as well. To put into perspective the largest state in the country, Uttar Pradesh, which is supposed to consume the highest amount of power is said to have reduced by 40% taking the combined average of the neighboring states like Himachal Pradesh and Uttarakhand.
There is a need to look into the employment aspect is one that needs to be looked into closely. The aspect is more a kind of an important aspect as this impacts the economies of the world to a great extent. The companies are now on the verge of major collapse especially in the major manufacturing sectors across the globe this is said to be one of the most important aspects to ascertain how much all the nations are going to be affected.
If one takes the production levels of major food corporations, passenger and heavy-duty vehicle segments have seen a major dip. One of the best examples one can take is the case of United States of America. One of the largest developed economies in the world. The unemployment rates are startling, and is showing a similar trend to that of the’ great depression of the 1930s’. It's more like a culmination of a financial shock along with a massive terror attack as pointed by Gregory Deco an economist at Oxford University.
Many of the states have looked upon at a complete lockdown so as to contain the spread of the virus. California was the first to implement the same and the repercussion for the same was being felt in terms of the unemployment trends in the state. Close to 2.8 million people have filed the unemployment claims. It's not only the claims for California state alone. This is the scene across the continent. It's really an alarming trend. The trends across the continent are said to show an uneven trend, caused by a variety of conditions. The damage is done in many of the states, the genuinely filed petitions can be picked up from two out of a possible five members filed.
Many of the regions across the states, we can see the destruction caused by many natural disasters. As this part of the continent is more prone to natural disasters like hurricanes and massive thunderstorms, it has done the damage even this time of the year as well. The states like Puerto Rico, Michigan, and Maryland are still recovering from the major losses from the destruction from the hurricane, from the previous years. Apart from this, the major slump in the oil prices has added additional woes to the cause of a standstill in the job growth in the region as well. Most of the companies are not able to pay their new employees during the time as well, almost all the companies are not able to pay up to the existing firm employees as well. The worse still is the fact that most of the employees are asked to take a pay cut in order to stay on the job. It seems to be the only way out for many of the employers since the economy seems to be functioning in the lowest possible trend.
This seems to be pretty much an expected scenario, since, social distancing is the only way to fight the virus. And since most of the people can only do this by staying at home. As of now the plans to revive the economy or jump-start the economy is on cards for the governments as well as for the governors of all the states. From the news gathered over a period of time, it might start off with normal services like garbage collection, milk, and other daily services. All this is possible with a relief package that should be sanctioned and some regulations that could help the economy to function. This could help in reviving the economy to an extent.
In the Indian context, the scenario is far worse than it was anticipated. Many of the employees are being let off without any prior notices, which seems to be the case as in the present case. The case such as these seems to be on the rise with the number of cases rising in the country. The scenario is supposedly headed on a worse track since the jobs going to be lost over the course of, the year is going to be beyond our imagination. Many of the export-oriented units have reportedly shut shop and had resulted in massive job losses. With an increase in overseas cancellation of orders, the workforce is being let off, by many of the firms. It's said that if this trend continues, we as an economy will have to deal with close to 15 million in terms of job losses. This is one side of the industrial spectrum, another side where industries include the labor-intensive units like gems, handicrafts, engineering works and so on, have seen a lot of layoffs in recent months. The fact still remains, that many of the industries have not cleared the dues over the past few years. The present pandemic added more woes to all the industries.
In terms of the funds the government promised to disburse, the industries have said that it would go in terms of cleansing, sanitation, and related activities. This would invariably mean a lot of layoffs in terms of workers so as to cater only to limited labor supply. Many of the workers would be out of jobs for the fat of rising costs due to the mentioned safety factors. In spite of assurances from the prime ministers to avoid layoffs and job cuts many of the industries since they are facing a lot in terms of losses, are been laid off. The problems mount further since there are no further jobs available in the market. The medium and small-scale industries India are been hit widely due to this lockdown and many labor layoffs been reported in the industrial towns across the country. Even when speaks of automotive sales, not all the players in the market have been doing well due to the pandemic. Quite a few of them have projected a mild rise in the profit margins. As far as an overall estimate in losses the automotive sector has shown a loss of $2 billion. This is due to the massive dealership shutdowns across the country. Many of the players in the market have gradually reduced the number of dealerships been opened.
An innovative step, many of the manufacturers have taken up is of providing relief measures to COVID affected individuals. Be in terms of providing medical equipment, offering their other entities in terms of leasing as healthcare facilities have been the new initiatives taken by many firms. Mahindra and Mahindra, Maruti Suzuki and many others have plunged into battle out the pandemic.
The RBI or the reserve bank of India have come up with certain guidelines in terms of battling the pandemic and also many measures in order to battle the pandemic.as on 17th April 2020, the set of guidelines brought forth by the RBI, seem to be a boon to the banks who are supposedly the ones’ lending credit to the economy. At present where payments overdue more than 90 days were considered as a nonperforming asset, now the central bank has given the directive of more than 180 days after a three month of mortarium. This way the amount of bad loans is said to be kept in check in almost all the commercial banks in the country.
Relief is given to that of the retail bankers, who fear the cause of the rising defaults by the current segments of the working and the high-income groups of the country. Equally, banks with large MSME and mid-sized corporate exposure may stand to benefit as those industry segments are considered most vulnerable. The RBI’s announcement does not specify whether this 10 percent provision must be maintained for all accounts which apply for a moratorium or only those which remain in default even after the moratorium period ends. The higher provisions will hurt all banks but those which have a lower provision coverage ratio may face more pressure.
The RBI said that these funds should flow to smaller non-bank lenders and microfinance institutions. Banks must invest at least 10 percent of the funds raised in securities or instruments issued by microfinance institutions. 15 percent should be invested in instruments and securities issued by NBFCs with an asset size of Rs 500 crore and below. 25 percent of the funds raised must be used for instruments issued by an asset size between 500-5000 crores. In addition, it extended relief on asset classification for real estate projects to include those funded by NBFCs. In the case of NBFC exposure to commercial real estate, the regulator said that the date of commencement of commercial operations can be extended by a year, without it being considered debt restructuring. This, in turn, will allow NBFCs to avoid classifying these loans as non-performing.
Considering the fact that these are the measures it is only a matter of time that things take time to settle down. The efforts must be now focussed on providing adequate healthcare to all the citizens who are being affected. The need to focus on the development of infrastructure to cater to the rising patients of the virus must be given utmost importance and the fact that the welfare of the citizens to be kept in mind should be in the watchful eyes of all the institutions across the spectrum.
Economically the fact that the countries are affected to a great extent. The variation to the extent of the damage can depend on the extent of the size. Its impact is felt across the spectrum with the effects of the recessionary trends peeking into the world economy since the second quarter of 2019. The fact that its signs began to show way back in 2017 when the automotive sales started to fall, its final blow came in in 2019, with a big bang effect. Now that the virus has created a pandemic the need now is to fight the disease and come back to full health.
The economy can be strengthened by a strong relief package to revive various sectors. This also can be done by favoring a round of talks with the countries who have operations across the world, to show constant support, so that there would be a sense of trust and reassurance can be built-in. Apart from relief packages, the focus is mainly in need to develop measures to sustain the economy so as to keep in the steady growth phase. Central banks across the world, could come together and develop an ingenious measure to fix their issues within their respective countries.
The world should come together to bring their economies together and prevent any kind of bias, that will hamper the relationships within the national groups. Since it’s a global issue, it must be fought via global effort. It would also be in the hands of the respective finance ministries to focus on the development of the relief packages to all the industries be it small- or large-scale ones. All the sectors must be given prior importance since everyone contributes a significant portion to the country’s growth. Another fact that the government should look into the growing unemployment, across the sectors. Certain measures or norms could be set to avoid large scale unemployment in the country.
Development of vaccines and kick-starting the regular course of life should be the long-term goal. The containment of the virus and the development of vaccines should be given more importance. Economy seconds the country’s prospect of growth. This can be done with well-set measures and cooperation from all the citizens across the country. Its all the matter of time that the economy settles down and everything falls in place. All we can do is to cooperate with the health directives and the government so that we can go back to our regular lives and get the economy back in track.