Almost all economic operations in the country have come to a halt as a result of the nationwide lockdown. The government, on the other hand, has ensured that vital resources, such as medicine, are available at all times. Even after the lockdown is lifted, demand and supply forces are likely to be disrupted. The economy will take time to recover, and social distancing policies will continue for as long as the health shock lasts. As a result, demand, especially for non-essential goods and services, is unlikely to be restored in the coming months. Consumption, spending, and exports, the three major components of aggregate demand, are expected to remain subdued for some time.
Aside from the unprecedented drop in demand, there would be widespread supply chain disruptions due to a lack of raw materials, a mass migration of migrant workers from cities, slowed global trade, and shipment and travel restrictions imposed by virtually all affected countries. For a long time, supply chains are unlikely to return to normal. Firms will find it more difficult to remain alive the longer the crisis continues. Almost all domestic businesses will suffer as a result of this. This could have a negative impact on investment, wages, profits, and consumption, lowering the economy’s overall growth rate. The aviation, hospitality, and tourism industries will all experience large-scale cascading impacts. Aside from domestic issues, the global recession that is looming large on the horizon would have an effect on the Indian economy. This would almost certainly have spillover effects due to India’s financial and trade ties with the rest of the world. As five stock markets have crashed, foreign investors are still pulling money out of the Indian financial markets and fleeing to safe properties.
At this early point, it’s impossible to know the full extent of the economic harm that the outbreak could cause until it’s over. A preliminary assessment of the magnitude and length of the economic recession that could occur in the future has been made. According to UBS, the Covid-19 would have a significant impact on the Indian economy and may even trigger a contraction, depending on the magnitude of the pandemic, but the recession would be the shortest on record.
THE STOCK MARKET SITUATION IN INDIA
The stock market has become increasingly unpredictable as a result of the increased uncertainty about the potential trajectory and consequences of Covid-19, resulting in massive crashes and wealth loss, which has a negative effect on consumption levels. On March 12, the BSE Sensex and NSE Nifty both fell by more than 8% in a single day, tracking the global stock markets. The BSE Sensex fell 2,919 points, its largest one-day drop in absolute terms, while the NSE Nifty fell 868 points. This single-day drop is said to have wiped out an estimated Rs 10 lakh crore in market capitalization. Investors resorted to relentless selling amid increasing coronavirus cases, and the decline has continued to this day. On March 19, Indian stock markets fell to a new low. The Sensex fell 581 points to 28,288 and the Nifty dropped 205 points to 8,263. With stock markets likely to remain volatile in the future, investors may expect more wealth loss.
The global Covid-19 pandemic, which is causing countries to experience two types of shocks: health and economic. Given the extremely infectious existence of the disease, policy interventions such as social distancing, self-isolation at home, the closing of institutions and public facilities, movement limits, and even country-wide lockdown are all options for containing the spread. To stop the virus from spreading, India’s government declared a three-week nationwide lockdown on March 25, 2020, which was later extended to May 3, 2020.
COVID-19, which began in China and has now been confirmed in over 190 countries, has emerged as a major threat to human health and the global economy across a variety of channels, including trade, production, and supply chain disruptions; decreased demand; reduced tourism and business travel; loss of investor confidence; and productivity losses due to the health impact on morbidity and mortality. The outbreak has posed problems for the Indian economy, causing serious disruptions on both the demand and supply sides, with the potential to derail India’s growth trajectory. According to the study by the Federation of Indian Chambers of Commerce and Industry (FICCI) the economy will impact the economy entirely.