Impact of Coronavirus on India's Economy:

It is a harsh reality but the economic impact of Coronavirus would claim more lives compared to medical/healthcare reasons of coronavirus.

As an Economist working with the Indian government, my assessment is the following:

Uncertainty is causing immense fear and panic:

• The Indian stock market has lost more than 35% of its value over the last 30 days. There has been a constant outflow of funds outside of India, which does not auger well, both in short and long-term.
• Several departments within the Ministry of Finance (MoF), India- the epicentre of the Indian Economy financial decision making- has been shut down. This impacts policy planning.
• There have been a deluge of reports, which say that we have entered/will enter recession soon.

Based on above facts, we can have three different viewpoints:

#1. Extremely Pessimistic viewpoint:

If India too witnesses several cases of community transmission of Coronavirus, our Economy would have severe repercussions.

In the short-term, there will be extensive lockdown periods and a significant loss of life. In a country like India, where the population density is extremely high, the virus is likely to grow exponentially, if not controlled in the initial stages. Our economy WILL come to a standstill, if we don’t nip this virus in the bud.

One must understand that in India a large part of our Corporate Sector has extensive debts and Banks have NPAs. Short-term economic damage can result in debt crisis, which can have far reaching long-term implications for our economy. Thereafter, a general sense of instability would persist for several years to come.

The good news is that the Indian government has acted swiftly and has initiated the initial lockdown, which would go a long way in terms of arresting the proliferation of the number of cases.

#2. Optimistic viewpoint:

Unlike the 2008 financial crisis, this is not a systemic failure of Governance/Financial Institutes.

If the initial damage is prevented, business would soon go back to functioning normally. They will generate cash flows, which will in-turn service bank debts. This will have limited/no long-term repercussions.

The RECOVERY in this case would be as swift as has been the fall so far.

#3. Balanced scenario:

The most likely scenario is that a lot of businesses (especially the ones with large volumes of debt) + plus startups would go belly up. They would not be able to survive the cash crunch for the next 6- 8 months.

The banks would be provided with some kind of a cushion to absorb bad loans. Therefore, our banking system would still stay robust.

The “easy money” in the form of startup investments would dry up very quickly now. Unfortunately, a lot of people would lose their jobs.

In short: The picture is not rosy, but at the same time, unnecessary fear mongering is not helpful. The problem is grave only if the situation escalates.

Nations are built by the collective conscience of people. Now is the time to stand up and do your part. Please respect the 21 day lockdown period!

Disclaimer: The views reflected are personal and may/may not reflect the views of the Indian Government