The pandemic prevailing in the world has severely impacted the global economy putting stock markets in deep trouble. Small businesses are facing a liquidity crunch, and even large enterprises are losing out business. The world economy has been hit drastically, and India is no exception. The lockdown announced in the view of containing the spread of the virus has shut the businesses completely and with no further announcements on the relaxation. Business owners are scared to run out of liquidity and can result in completely shutting the business.
Even though the country might not move into recession like the US and the UK, but the gross domestic product will be impacted at large. The International Monetary Fund has announced that the GDP growth of India will be 2.5% in 2020, which is down by several percent from the past decade’s performance. At the time when the economy was under the pressure of global trade wars and dwindling production of auto and manufacturing sectors, it moved into greater risk of business loss.
Impact on the Indian Stock Market
The Indian stock market index, Sensex, plunged from 40,000 to 26,000 in a matter of a few days and got into a bearish trend. All sectors, including banking, automobiles, steel, Information technology, and commodities, saw a sharp selling trend in the market. Foreign investors have started to pull out money from the market in the event of the country going into lockdown. Domestic and international credit rating agencies have suggested a big money crunch in the market, which can lead to a business loss worse than it was in the 2008 recession.
Example Stocks that have been the worst are mention below in the table.
|Stock name||Down by (% from lockdown)|
Impact on MSME segments
Micro, Small, and Medium Enterprises form a large segment of our economy and are known to be the biggest employers in the country. The contribution of the sector in the GDP is 40%, and the estimated size of the business is quite large than expected. As per the official figures, there are about 63.05 million micro industries, 0.33 million small industries, and about 5,000 medium enterprises in the country.
The largest number of MSMEs’ with a share of 14.20% of the total segment is in Uttar Pradesh. The second-highest number of industries is in West Bengal, which is followed by Tamil Nadu and Maharashtra. As these states are facing business losses, about 63 million industries are on the verge of shutting down the business.
The lockdown has badly impacted the sector, and the cash flow is receding. The stimulus announced by the finance minister might help to an extent with loans provided and the moratorium period of non-payment. Still, without adequate liquidity, the business might close down. As most of the transactions done by these businesses are in cash, and the payment to the workers and laborers are also made in cash, as there is a business in the market, millions of the workers might face layoff and unemployment for a long period.
Impact in auto sectors
The auto part makers and manufacturers are also facing the problem of steep close on the demand side. In comparison to February, the sales of automobiles have dipped about 40% to 60% causing automobile makers to halt the production completely. This has impacted workers as they are completely dependent on the demand on the market. Laborers employed in this market are rendered jobless, and there are no chances of the sector to improve in the coming months. As the money circle has been disturbed, and there are salary cuts and un-employability in the market, it is difficult for the sector to come out of the demand plunge.
Financial Sector Worries
The domestic consumption in the country is facing a slowdown, triggered by the collapse of the business of large financial institutions such as IL&FS and DHFL. Yes, bank, which saw a downtime at the start of January and a revival pack from RBI for short-term help, is now again in worries as the investors and customers are losing confidence in the bank.
Financial help announced by the government
The near-collapse of the market has worried both domestic and foreign investors, and the economy will need a money infusion from the government for revival. The central government announced a billion-dollar corpus for supporting the businesses and instilling confidence in the customers.
Some of the measure announced by the government are:
- The 1.7 lac crore relief package has been announced by the government. The corpus available in the form of short-term loans to the business owners will give them a few months of liquidity and can help them sustain the market.
- The moratorium of 3 months has been announced by the government comes as a big relief to the employees, business owners, and salaried people. For three months, there is no such requirement to pay dues to the bank in the form of EMI and credit line interest payment. Read More – RBI 3 Months Moratorium on Loan EMI – Do I Need to Take Advantage?
- State governments are ensuring that the migrant laborers’ woes are heard, and they don’t have to leave the state because of the cash crunch.
- Health insurance of 50 lacs has been announced by the central government for the medical workers, doctors, nurses, paramedic who are directly dealing with infectious cases. This step is of utmost importance as the medical staff is putting their life at risk to save the country people.