Coronavirus can delay India's economic recovery

Coronavirus: India's economic recovery can delay by six months or more due to COVID-19 outbreak

With the worsening of coronavirus spread dealing a body blow to financial markets and marking down global growth forecast with each passing day, India's economic recovery from one of its worst slowdowns too is likely to be delayed by a couple of quarters.

Economists said the impact of the virus would be felt across the sectors except for agriculture, for now. They said oil price decline and a supply glut at a time when India was facing a slowdown in demand, could do no good to the country.

Equity markets suffered their worst single-day losses and stock indices slipped into bear territory on Thursday, which led the rupee moving close hitting a record low. Investors fled to safe-haven and holdings gold-backed exchange-traded funds hitting an all-time high.

To calm the frayed nerves, the Reserve Bank of India decided to sell $2 billion worth of dollars to banks and infuse liquidity in the domestic forex market roiled by concerns over virus pandemic.

The central bank said it stood ready to take all necessary measures to ensure that the effects of the COVID-19 pandemic on the Indian economy are mitigated, and financial markets and institutions in India continue to function normally. Experts saw credit crunch and oil collapse opening the doors for deeper rate cuts by RBI.

The finance ministry held a series of meetings internally and with the officials of Prime Minister's Office, to keep ready a fiscal plan if need be. Bankers were asked keep a vigil that lending activities were not affected.

“Assuming that India could be a major winner from oil price crash is an extremely short term view,” N R Bhanumurthy, senior professor at NIPFP told DH, adding a weaker rupee could wrack a havoc through various channels.

A weaker rupee could affect companies with higher dollar debts, capital-intensive sectors, firms with foreign currency borrowings and those importing raw materials heavily.

Of the 10 economists polled by DH, at least seven were of the view that the economic recovery could not be expected before June quarter. One said it could take at least one year.

Govinda Rao said Corona could hit the GDP growth by 50 basis points in this quarter and saw no meanigful recovery till banking, labour and land reforms were conducted.

The immediate impact of the calamity was seen on travel and tourism sector with the umber of international passengers arriving at the country's airports has come down to around 62,000 per day from 70,000. The count come down to around 40,000 following the travel advisory issued on Wednesday, according to Civil Aviation Minister Hardeep Singh Puri

The second round impact will be felt when the airlines declare their earnings of the current quarter.
Industry players said the halt on travel, tourism and aviation industries could have an immediate economic impact of at least Rs 8,500 crore.

Industry body CII said many small and mid-sized hotels, resorts and car rental companies are shutting down operations and asking staff to go on leave without pay.

Assocham saw job losses across the sectors but could not immediately gave an estimate.

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