The economy of over 140 countries is facing an extreme crisis due to the outbreak of COVID-19. But a formally organized economic system will be able to tackle the situation more positively with the help of salary supplements, credit, tax rebates or rental discounts. India is a highly informal country. So all these can be quite challenging in our country. The 21 days complete country lockdown can disturb the livelihood of many. The government will find it extremely challenging to tackle the situation. Pubs, shopping malls, multiplexes, zoos have been closed. Educational institutions like colleges and schools have also been shut down completely. The limited number of places that are still open are being avoided by people due to extreme fear. There has been a drastic fall in the price of chicken all over the country because people avoid eating non-veg during such situations. Restaurants are closed for takeaways and home deliveries. The tourism and hospitality sector has come to a complete standstill.
The poor strata of Indian society will be badly affected by the consequences of the complete lockdown. There are about 100 million-plus microfinance accounts in India. These accounts get cash every week because of the gig economy workers. They hawk vegetables in nooks and corners of the streets, or sell embroidered saris in malls.
Out of 4 workers, 3 earn money by indulging in casual works or farms or even family firms. Because of the prolonged shutdown, there will be difficulty in repaying loans of about 2.1 trillion rupees. This puts the world's largest microfinance industry at risk. Several countries in continents of Africa, Asia, and Latin America are using microcredit to grease the consumption at the bottom of the period. But Indian banks are already facing an extreme crisis of confidence. Some of the accounts of the savers have been frozen at a significant institution. This led to panic and anxiety. Microlenders have still not been able to overcome the non-performing loan crisis because of Modi's overnight ban on 86% of the cash. Now this lockdown is hitting them hard.
India has three times more population than China. So there is an extreme risk of the pandemic creating havoc in our country. At present, the cases of virus-infected patients are coming slowly in India. But with time, there can be curbing activities on the economy of the country. This is the need of the hour to protect the country, having a population of 1.3 billion. There are chances that prolonged shutdowns can take place similar to East Asia.
Social distancing can have hard-hitting impacts on metropolises like Mumbai, New Delhi, Chennai, Bangalore, Kolkata, and Hyderabad as well as tourism centers like Goa. The bad news is that this social distancing is coming at a moment when India’s rural economy shrank for the 7th time in eight months. It accounts for almost 45% of the country’s GDP. If city jobs come to a standstill, laborers will move back to villages. This will put extreme strain on already weak rural wages. There has been a constant battle between an anemic corporate credit and lackluster economic growth. Because of a freeze in unsecured lending to the urban poor, the situation can get a lot worse.
Tiny loans can be associated with pitfalls. Financiers sometimes lose their heads and thereby loosen the lending standards. This can lead to excessive borrowing and financial distress. In the long run, this may lead to a political issue. At the end of 2019, the same issue arose in Assam. The state had witnessed an annual growth of 43% for the past seven years. But soon cash collections from small borrowers started experiencing a downfall.
Interest rates are being slashed all across the globe. Cash transfer from the government to needy people will be quite helpful. It will be helpful to incentivize the small borrowers as well as women self-help groups. This will sustain timely repayments and in the long run, will keep credit channels open to the poor and needy. This will be beneficial in reviving the financial system of India.
Even before the outbreak of the coronavirus, the budgetary condition of our country was dreadful. However, the amalgamation of reducing the price of imported crude oil and interest rate cuts will help keep a lid on the long term bond yields. It is also necessary to step up borrowings for the protection of livelihoods. Because of the informal nature of our economy, the relief has to reach to the households. It cannot be targeted just at firms.