COVID-19 India: Boom or Bust?

Indian Prime Minister Narendra Modi listens to a speech in China in 2017.

Not all sectors of the economy suffer equally in times of hardship, as one sector’s loss may be another sector’s gain.

This is true of India’s economy in the wake of the COVID-19 pandemic: although the lockdowns initially shocked almost all sectors, some are experiencing a quicker recovery than others. And, still other sectors—as we shall see in the following—may even end up profiting from the fight against COVID-19.

Initially the pandemic was quite indiscriminate in wreaking its havoc. It is estimated that in the darkest days of the pandemic in April, 2020, when lockdowns were in place across the country, three quarters of India’s mighty USD2.8 trillion economy was practically paralyzed, significantly affecting over half of all Indian businesses.

The pandemic and the first three-week nationwide lockdown, which was announced on 25 March, 2020, also exacerbated the problems that the Indian economy was already struggling with long before the novel coronavirus made an appearance.

India’s economic growth had been steadily slowing down since the fourth quarter of the fiscal year 2018, declining from 8% to 4.5% just before the coronavirus outbreak.

Under such a scheme of things, it is not surprising that the pandemic also affected India’s labor market. According to the Centre for Monitoring Indian Economy (CMIE), unemployment jumped to 26% by mid April, though now it is returning to the pre-pandemic levels—just under 7%.

What is more, the Indian economy’s problems were by no means limited to its borders. In recent years, India has famously established itself as a hub for outsourcing, and the temporary dysfunction of its economic engine led to the breaking of many global supply chains.

Industrial giants such as Tata Motors, Larson & Turbo, UltraTech Cement, and Bharat Forge, among countless others whose output is in demand from Asian and international enterprises, shut down or reduced their activities during the lockdowns, bringing many business operations outside India to a standstill.

As a rising industrial powerhouse of the world, India is a massive consumer of energy. The nation is the third biggest importer of crude oil after China and the US, and the country’s economic standstill during the lockdowns affected the energy sector in a big way.

The pandemic disrupted India’s downstream oil sector and the country’s world-famous petrochemical industry. By April, 2020, India’s demand for fuel had dropped roughly by half, which contributed to the oil crash of 2020, dealing a heavy blow to the global oil market.

In a roundabout way, however, India’s challenged downstream oil industry also took advantage of the situation. Sine May, 2020, India has been topping up its strategic crude supplies, storing cheap oil both in on-land facilities and in oil tankers traveling at sea.

Minister of Petroleum, Dharmendra Pradhan noted in May, 2020, that India has already stored 20% of its yearly demand for oil, and is considering the possibility of setting up storage facilities abroad, including in the US.

India’s oil-thirsty manufacturing sector and petrochemical industries may have found a way to cushion the blow and survive, but one vital sector’s survival is still uncertain: Micro, Small, and Medium Enterprises (MSMEs).

MSMEs are the lifeblood of the Indian economy, but despite their massive contribution, they rarely have access to the kind of support that industrial giants enjoy. The government needs to come up with a solution to revitalize the nation’s MSMEs to put the Indian economy back on track, and such a solution may be underway.

By June and July, 2020, there were signs that the Indian economy is on its way to a healthy—if not full—recovery, as the Finance Secretary, Ajay Bhushan Pandey, pointed out on 24 July, adding that the recovery was faster than expected.

The Secretary of Economic Affairs, Tarun Bajaj, went so far as to describe the expected recovery as V-shaped.

A number of relief packages, meanwhile, were introduced during different stages of the pandemic, directly and indirectly stimulating various sectors of the economy. In late March, 2020, for instance, an INR170,000 crore package (USD24 billion) was launched, targeting the poorer citizens.

The package is expected to also stimulate the retail and agrifood sectors, especially the smaller businesses which operate in less privileged areas.

In the same week, a package twice the size of the aforementioned poor relief package was launched by the Reserve Bank of India to save the country’s financial system. It is hoped that the USD52 billion measure will breathe life into the nation’s struggling banking system.

The largest package of all came on 12 May, 2020, when the Prime Minister, Narendra Modi promised an all-inclusive relief package worth some USD280 billion. It was emphasized that the measure will particularly focus on local industries to increase India’s self-reliance.

Softening the blow by devising relief packages is of course a reasonable course of action, but there are also those sectors that may positively thrive in the post-COVID economy, the most obvious of which is India’s pharmaceutical industry.

The populous nation has a sizable local market for pharmaceutical products, valued at over USD18 billion. India also exports huge amounts of generic and brand medications each year, with generic drugs alone accounting for 20% of the nation’s exports by volume.

Known as the largest manufacturer of generic drugs in the world, India’s pharmaceutical sector will definitely play a major role in the mass production of the vaccine for COVID-19, whenever such a product finally becomes a reality.

In an important speech delivered on 15 August, 2020, Prime Minister Modi expressed India’s readiness to mass produce COVID-19 vaccines whenever the scientific community gives the go-ahead signal, according to Reuters.