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![India’s Position Before COVID-19
India was already facing a economic slowdown prior to the outbreak
with stagnation of growth which is reflected in various parameters
Trade and Taxes [Growth %]GDP Growth rate [%]
Source: MOSPI
Source: RBI, MoF](https://image.slidesharecdn.com/covid-19impact-200325123324/75/COVID-19-Economic-Impact-13-2048.jpg)
![Contd.
Consumption and Investment Indicators [Growth %]
IIP - Index of Industrial Production
Electricity Generation [Growth %]
Source: Central Electricity Authority
Source: MOSPI](https://image.slidesharecdn.com/covid-19impact-200325123324/75/COVID-19-Economic-Impact-14-2048.jpg)
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COVID-19: Economic Impact
- 1. COVID – 19: Economic Impact CA Divakar Vijayasarathy
- 2. Research Credits Thirumal V CA JugalN Gala CA Sundara Rajan T K
- 3. Legends used inthe Presentation ETF Exchange traded funds FTA Free Trade Agreements GDP Gross Domestic Product IFC International Finance Corporation IMF International Monetary Fund OECD Organisation for Economic Cooperation and Development PBOC People's Bank of China RCEP Regional Comprehensive Economic Plan VAT Value Added Tax
- 4. Presentation Schema Introduction OECDMeasures Measures Taken by Various Countries Measures by World Organisations Statistics India’s Position Before COVID-19 India’s Economic Revival Measures in Past 6 months Reserves and Currency Statistics Inference Impact & Caveats Path to Recovery Marshall Plan Measures by Indian States Top Trade Partners China’s Crucial Role Observations & Learnings India’s Leadership Role Conclusion and Way Forward
- 5. Introduction The ongoing Coronavirus2019 (COVID-19) pandemic is causing a severe health and humanitarian crisis across the world. The unprecedented pandemic has also brought unexpected economic and financial shocks to the global economy It has set in motion a major economic crisis that will burden countries for years to come Such a situation requires quick and appropriate response in terms of policy measures from the Governments
- 6. OECD Measures The Organisationfor Economic Cooperation and Development (OECD) has indicated potential emergency tax policy measures to assist policymakers. Temporarily provide more generous welfare payments and income support Waiving or deferring employer and self-employed social security contributions, as well as payroll related taxes Providing tax concessions for workers in health and other emergency-related sectors Deferring payments of VAT, customs or excise duties for imported items Speeding up refunds of excess input VAT, with measures to limit fraud risks Simplifying procedures for claiming relief from VAT on bad debts Adjusting the required advance payments on the basis of a revised expected tax liability Deferring or waiving taxes that are levied on a tax base that does not vary with the immediate economic cycle, e.g. recurrent property taxes Increasing the generosity of loss carry-forward provisions Preparing for recovery including through tax policy Extension of Deadlines Deferral of Tax Dues Suspending Penalties and Interest Debt Payment Plans Suspending Debt Recovery Quicker Refunds Provide Tax Certainty Relaxing Tax Audit Policies Enhances Taxpayer Services Clear Communication
- 7. Measures Taken byVarious Countries
- 8. Country Demand-side measuresSupply-side measures Amount (USD) United States Stimulus package $ 1 trillion $1000 direct payments to adults • $50 billion bailouts for airlines • >$500 billion loans to businesses France • Substantial social-security tax cuts • Unemployment benefits for people forced to work part time • Guaranteed bank loans • A fund to help shopkeepers and the self-employed $376 billion Germany Lending of $610 billion by state-run bank $632 billion $21.6 billion response fund United Kingdom £20 billion in other aid • £330 billion in loans • A business rates holiday, and grants for retailers and pubs • Airline bailout in consideration $410 billion Euro Zone European Commercial Bank will buy government and company debt across the eurozone (including Greece and Italy) $820 billion Canada • Central bank reduced reserve allowing banks to lend an additional $214 billion • Govt $7.1 billion in loans to businesses by the Government $220 billion
- 9. Country Demand-side measuresSupply-side measures Amount (USD) UAE 5 billion dirhams of water & electricity subsidies for citizens & industries Initiatives to boost SME. Has pledged 100 billion dirham $27.1 billion Hong Kong • $1200 cash subsidy to all adult permanent residents • Paying one month's rent for people living in public housing • Cutting payroll, income, property, and business taxes • Extra month’s pension payments Low-interest, government-guaranteed loans for businesses $30 billion New Zealand • 5 billion New Zealand dollars will be allocated for wage subsidies • 2.8 billion New Zealand dollars for income support • 2.8 billion New Zealand dollars in business tax relief • 600 million New Zealand dollars has been allocated for the airline industry $7.3 billion Indonesia Second stimulus package of 120 trillion rupiah $8.9 billion • 10.3 trillion rupiah rescue package to support consumer spending and tourism • workers with income below 200 million rupiah would be exempted from paying taxes – 6 months • 22.9 trillion rupiah loan disbursement to businesses • 30% corporate tax discount – 6 months South Korea Covering Healthcare costs Support to SMEs $13.7 billion
- 10. Country Demand-side measuresSupply-side measures Amount (USD) Japan • Loans to small businesses ($4.6 billion and $35 billion package) • Central bank measures • Doubling rate of purchase of exchange traded funds • increased purchases of corporate bonds and commercial paper • 0% Interest loans $40 billion Singapore SGD 5.6 billion to help businesses and families through the economic downturn SGD 8.3 billion has been set aside over three years to spur enterprises and the economy to transform and grow $9.59 billion Australia 17.6 billion Australian dollars stimulus package 2.4 billion to boost health services $11.4 billion China People's Bank of China (PBOC), has implemented several policy measures $330 billion • Expanded reverse repo operations by $174 Bn • added another $73 billion • cut the one-year medium-term lending facility rate • cutting its one-year and five-year prime rates • lowered bank reserve requirements $4 billion “Stabilisation and Support Package” to Provide job and cash-flow support to help firms
- 11. Measures by WorldOrganisations International Monetary Fund (IMF) IMF said it, “stands ready to mobilize its $1 trillion lending capacity to help our membership” World Bank • On March 3 World Bank announced a $12 billion response package, o which included $6 billion in financing by the World Bank to strengthen health systems and disease surveillance and o $6 billion by International Finance Corporation (IFC) to help provide a lifeline for micro, small and medium sized enterprises, which are more vulnerable to economic shocks • On March 17, The World Bank and IFC’s Boards of Directors approved an increased $14 billion package o The IFC will increase its financial availability by another $2 billion to support private companies and their employees hurt by the economic downturn caused by the spread of COVID-19
- 12.
- 13. India’s Position BeforeCOVID-19 India was already facing a economic slowdown prior to the outbreak with stagnation of growth which is reflected in various parameters Trade and Taxes [Growth %]GDP Growth rate [%] Source: MOSPI Source: RBI, MoF
- 14. Contd. Consumption and InvestmentIndicators [Growth %] IIP - Index of Industrial Production Electricity Generation [Growth %] Source: Central Electricity Authority Source: MOSPI
- 15. India’s Economic RevivalMeasures in Past 6 months Rs 70,000-crore capital infusion into public sector banks Corporate tax rate cuts Special tax rates for manufacturing companies Removing Angel tax for Start-ups Roll back of high surcharge to retain Foreign Portfolio Investors (FPIs) Government to purchase new vehicles and replace old ones – To boost Auto Sector National Infrastructure Pipeline (NIP) – Rs 102 lakh crore projects to develop infrastructure Indian government introduced several supply side measures during the last 6 months. However, it is high time that the Govt introduces demand-side measures especially considering COVID-19 crisis.
- 16. Reserves and CurrencyStatistics Country Ratios Broad Money / Reserves Reserves / Broad Money Singapore 1.51 0.66 Hong Kong 3.29 0.30 Indonesia 3.31 0.30 United Arab Emirates 3.58 0.28 India 5.04 0.20 South Korea 6.00 0.17 China 8.23 0.12 Japan 9.91 0.10 New Zealand 11.84 0.08 United Kingdom 23.62 0.04 Australia 27.50 0.04 Source: World Bank (Data pertains to 2018) India as on 28 Feb 2020 ₹ in crores Broad Money / Reserves Reserves / Broad MoneyBroad Money Reserves 1,64,64,808.00 34,75,030.00 4.74 0.21 Source: RBI Broad Money is a measure of money, or money supply, in a national economy including both highly liquid “narrow money” and less liquid forms Reserves comprise holdings of monetary gold, special drawing rights, reserves of IMF members held by the IMF, and holdings of foreign exchange under the control of monetary authorities. Broad money to total reserve signifies the extent to which the reserves have been leveraged
- 17. Reserves and CurrencyStatistics Country Broad Money (USD) per Capita Hong Kong 1,86,724.56 Japan 99,529.59 Singapore 78,458.18 United Kingdom 61,383.09 Australia 58,869.15 South Korea 46,857.19 New Zealand 42,403.16 United Arab Emirates 34,158.99 China 18,681.84 Indonesia 1,513.13 India 1,507.36 Source: World Bank (Data pertains to 2018)
- 18. Inference Compared to countriessuch as China and Japan, India has room to leverage and inject more money into the economy Therefore, India can opt for expansionary policies to boost the economy and to ease the impact of COVID-19 pandemic The side effects of Inflation and Fiscal deficit should be ignored in the short and medium run to ensure quick revival
- 19. Impact & Caveats Highertax rates on the super rich in the future to mop up more funds From the international tax perspective, consensus on digital tax and other issues could be delayed Governments of many countries would turn protectionist With an already weakening world trade scenario, trade between countries will slow down further Increase in trade tensions between major economies are likely Higher Rate of defaults in debts of businesses
- 20.
- 21. Marshall Plan Given thegravity of COVID-19 crisis, India also requires a “Marshall Plan” with a 2-3 year horizon for complete economic recovery. The same has been voiced by many experts. The Marshall Plan, also known as the European Recovery Program, was a U.S. program providing aid to Western Europe following the devastation of World War II. It was enacted in 1948 and provided more than $15 billion to help finance rebuilding efforts on the continent. The brainchild of U.S. Secretary of State George C. Marshall, for whom it was named, it was crafted as a four-year plan to reconstruct cities, industries and infrastructure heavily damaged during the war and to remove trade barriers between European neighbors – as well as foster commerce between those countries and the United States.
- 22. Measures by IndianStates Tamil Nadu • ₹1000 payment per ration card • ₹2000 to construction workers and labourers • One month salary as incentive to Healthcare workers Kerala • ₹20,000 crore response package, includes: • Early pension payments • ₹2,000 crores for consumers loans West Bengal • Free Food Rations for 6 months Uttar Pradesh • ₹1000 payment to construction workers, self employed small shop owners • Free one month stock of food grains to families through Public Distribution Systems Delhi 5,000 rupees early pension and larger rations in food subsidies The above steps are in the right direction. However, considering the magnitude of the COVID-19 situation, the quantum of relief measures is to be increased substantially.
- 23. Top Trade Partners ImportExport China United States United Ara Emirates Saudi Arabia Iraq United States United Arab Emirates China Hong Kong Singapore India’s economic recovery will also be dependent on recovery of top trade partners both in terms of imports and exports. The situation in China has improved in terms of the pandemic in the last week. However, the path to economic recovery is not in sight. This poses a serious challenge to the Indian Economy In other countries, the magnitude of the impact of COVID-19 is still uncertain. The lockdown has impacted the economic activity in all these countries
- 24. China’s Crucial Role Numberof New Cases on Each Date China’s economic recovery from the pandemic is crucial to the Global economy as it plays a major role in global trade by nearly contributing 15% of the Global GDP and playing a major part in the global value chain.
- 25. Observations & Learnings •It is evident from the COVID-19 situation that having a Global Value Chain for critical products can adversely impact production and supply in a global crisis situation • Therefore, production process of critical products should be entirely established domestically The case of Indian pharmaceutical industry • The Indian pharmaceutical industry is the 3rd largest in the world by volume. • However, despite this achievement, India is significantly dependent on import of basic raw materials, viz., Bulk Drugs that are used to produce medicines. • In some specific bulk drugs the import dependence is 80 to 100%. • Continuous supply of drugs is necessary to ensure delivery of affordable healthcare to the citizens. Any disruption in supplies can have significant adverse impact on Drug Security, which is also linked to the overall economy of the country. Self-sufficiency in manufacturing of bulk drugs is critical. On 21 March, 2020, following the impact of COVID-19 on pharma industry due to shortage of raw material, the government approved the following schemes to promote the production of bulk drugs in India: Promotion of 3 Mega Bulk Drug Parks Production Linked Incentive Scheme for Bulk drug Manufacturers However, these are Policy measures which will yield results only in the long run.
- 26. Observations & Learnings Consideringthe role Air India has played in the evacuation of citizens, strategic importance is to be affixed to the same and its disinvestment is to be reconsidered US, New Zealand and other countries are keen on capturing the domestic dairy markets through FTAs which should be resisted by the Govt The Govt should ensure that in any future FTAs including RCEP and with US, essential industries are not compromised. Free Trade Agreements (FTAs) covering basic and essential goods are detrimental to the development of domestic players Domestic manufacturing capability in critical industries (essential and strategically important) should be strengthened and protected against external competition
- 27. India’s Leadership Role TheSouth Asian Association for Regional Cooperation (SAARC) COVID-19 Emergency Fund was announced on 15 March when Hounourable Prime Minister Narendra Modi addressed a conference of SAARC Leaders India on its part had announced it would contribute $10 million as an initial contribution The fund has supplied various medical supplies, testing equipment and sanitisers among other items to Maldives, Sri Lanka, Afghanistan, Nepal, Bangladesh and Sri Lanka India has also contributed to Iran and Italy by supplying relief materials, testing kits etc. COVID-19 has provided an opportunity to India to establish itself as global leader. The government has also made the right moves in this direction with the following measures: Post COVID-19, the Government should continue these steps by helping in the economic recovery of developing countries especially in the African and Asian region to control the influence of China
- 28. Conclusion and WayForward The sheer magnitude of the current COVID-19 situation has created an unprecedented uncertainty in the global economy Till date India has managed to control the damage due to COVID-19. However, the path to economic recovery is steep given its already existing lower growth situation Well before the outbreak, the global economy exhibited a number of underlying vulnerabilities, which is now getting exposed further. On the economic front, there has to be a globally coordinated action plan to minimise the economic damage.
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