Impact of lockdown on the shadow economy

Created on 25 Apr 2020

Wraps up in 4 Min

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Updated on 29 Aug 2020

The prolonged blockade should cost the Indian economy up to 17.78 million rupees and raise the problems of sectors such as travel and tourism, manufacturing, and automobiles, even if the partial opening of selected sectors outside the Coronavirus hotspots as of April 20 has raised hopes.

A Barclays survey estimates that India's loss of economic activity could reach $ 234 billion in the blocking period, resulting in zero percent GDP growth this fiscal year. ICRA, however, expects GDP to shrink 1% in FY21.

The Center's decision to allow manufacturing in Special Economic Zones (ZEE), Export Oriented Units (EOUs) and units operating in rural areas is being seen as part of the strategy for a gradual exit from the blockade. The Ministry of Interior's request also allowed the manufacture of IT hardware and essential goods, among several other activities. While many companies involved in manufacturing are exploring the possibility of opening their factories, they are discussing the plan with other participants in the supply chain. However, the options are limited.

Impact on Manufacturing

The industry's demand for open manufacturing - 80% of which are closed or operating at very low utilization - was unfounded and was rejected. Opening up manufacturing at a time when demand in most sectors fell between 50-90% would have been suicidal. It would only have locked up precious money in the production of goods that could not be sold while stores, showrooms, and malls remained closed.

A Gurugram-based automotive component supplier for Maruti said it may open factories after Maruti restarts.

However, export-oriented plants may restart, as most international markets have not blocked exports, and entry and exit ports continue to operate with some restrictions.

Especially for continuous process manufacturers whose factories have a less human intervention? Steel producer JSW, which exports almost 30% of its demand, moves forward with its plan to reopen manufacturing to serve the US and European markets. The Confederation of Industries of India (IIC) said that presented export orders and opportunities have to be completed to maintain India's export market share in the post-COVID period.

Impact on Aviation

The passenger-free aviation sector has had a lifetime lease carrying cargo for government and private companies in India and abroad. Since the blockade began, Air India, Spicejet, Go Air and Indigo have logged seven kilometers per kilometer on more than 600 flights, lifting more than 4,300 tons of cargo. However, even that is no consolation for the industry that was registering more than 3,000 flights a day.

The airline industry has already been pushed against the wall. The Asia-Pacific Aviation Center (CAPA), based in Sydney, recently said that the combination of COVID-related travel restrictions and an economic slowdown is likely to result in the first quarter of FY21 as a virtual fading of Indian aviation.

Impact on Travel and Tourism

With all modes of transport suspended, the national blockade had a profound impact on the country's travel and tourism sector. Prisoners could have preferred to return to their homes, but the extension thwarted their plans. Allowing public transport after the 21-day block has ended could have helped operators generate some money, but now they will have to wait longer.

Travel experts say the economic loss for the travel and tourism sector in the blocking period remains the biggest concern, but an even greater concern for the sector is how long it would take to recover after removing restrictions, as travelers still would follow the rules of social distance and there may be mandatory restrictions, such as booking alternative seats.

Impact on Agriculture

Although prolonged blockade means more suffering for most industries, the agricultural sector can get a little excited, since almost all activities in the agricultural sector were allowed during this period. With the harvest close to 100% in Gujarat and 70% in Madhya Pradesh and Punjab, en route to the wheat harvest starting on April 15, the agricultural community has customary huge respite from the gap of the sector, including similar sectors, such as giving out of food and cold stores - vital to promise production.

Learning from previous experience, the Center has clearly defined this time in the order in which the agricultural sector would be exempt from the prolonged blockade until 3 May. Consequently, the transport of seeds, fertilizers, and food grains would obtain the green channel.

But experts in the agricultural sector still fear a slight delay in harvesting crops due to the blockade, as policies defined by the central government are not properly implemented at the local level. Although the wheat harvest is almost complete in many states, it is yet to end in the main states of Haryana and Punjab.

Given that agriculture is the basis of two-thirds of the population, any negative impact of the prolonged blockade can multiply the problems. Lower-income means lower income for farmers and, therefore, low consumer demand.

So these are different ways in which our country is getting affected in different sectors and sections. No one can be blamed for the crisis and the government is doing best to control it and took this step. We can pray for a good future and hope again our country and countrymen will rise on top of every sector and increase the growth as it was earlier.

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Ausaf Ahmed

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Ausaf is a 2nd-semester student who is pursuing Accountancy Honours. He has a joyful character and is a very curious boy who always tents to learn new things especially in travel and finance background. 

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