This article is written by Anaya Jain, from NMIMS School of Law, Bangalore. It explains the present situation of different countries during the pandemic, its effect on their economies and comparative study of the measures taken by them to combat the same.
COVID-19 will surely reshape our world. We don’t yet know when the crisis will end. But we can be sure that, by the time it does, our world will look very different. I think it is the best way to look at this global pandemic.
The COVID-19 pandemic, otherwise called the coronavirus pandemic, is a progressing pandemic of coronavirus disease 2019 (COVID‑19), brought about by serious intense respiratory disorder coronavirus 2 (SARS‑CoV‑2). Its outbreak was first identified in Wuhan, China, in December 2019. The World Health Organization proclaimed the outbreak a Public Health Emergency of International Concern on 30 January, and a pandemic on 11 March. As of 8 June 2020, more than 7.06 million cases of COVID-19 were accounted for in more than 188 nations and territories, bringing about in excess of 403,000 deaths; more than 3.16 million individuals recovered. The world faces a major challenge as the novel coronavirus has escalated into a global pandemic. Countries have taken measures in many areas such as healthcare services, work arrangements, economy, educational institutions and so on to combat this pandemic.
Background of COVID-19
Before throwing light on the background of COVID-19, I would like to mention that it’s the life of everyone that is influenced by any change significantly so and nearly at a hereditary level. Furthermore, this implies an expanded degree of human experience. Emotional and psychological, in any case, and, from that point, to what we do in our day to day lives- earning our bread, trying to survive or flourish.
The human dimensions of the COVID-19 pandemic reach a long way past the critical wellbeing reaction. All aspects of our future will be influenced, be it financial, social or developmental. Our response must be critical, coordinated and on a worldwide scale, and ought to promptly convey help to those most in need.
From workplaces to ventures, to national and worldwide economies, getting this privilege is predicated on social dialogue between governments and those on the front edge– the employers and labourers, with the goal that the 2020s don’t turn into a rerun of the 1930s.
By March 11, 2020, when the WHO pronounced COVID-19 as a pandemic, its effect was being felt over the globe, by the 7.8 billion people living on the planet, with a greater part of them in no situation to support themselves. India has not developed herself to the stage, where the torment felt by mankind can be mitigated by the State in any apparent way. In an evolving crisis, when nobody can say, without a doubt, about its containment and drawn-out effects, there will be immense and inconsistent pressure on the individual and society, and on the administration which assumes the liability for foreseeing danger and placing in the auxiliary cushions. Furthermore, the basic hazard, which influences everybody, is as economic as it is biological.
Impact of COVID -19 on Indian economy
- India has been broadly influenced by this pandemic. As on 09.06.2020, 2,56,611 cases of Coronavirus have been confirmed in India with in excess of 7200 deaths.
- India, having the highest rate of the density of population on the planet, was severely affected. The Governments, both at Union and State levels, started fundamental activities on war footing to forestall the spread of this pandemic. It was extended to a larger scale when it was known that this deadly disease has no therapeutic fix.
- India will, undoubtedly, be influenced in light of its domestic slowdown as well as in view of the worldwide recession. Taking in the lessons from the developed nations like Spain and Italy, India put the entirety of its machinery and material to halt in order to curb the illness.
- What began as a one day Janta Curfew on 22.03.2020 by the Prime Minister of India and lockdowns by some of the state governments, the whole nation was proclaimed to be under lockdown from the 12 PM of 24.03.2020, and it was extended to further dates.
- The COVID-19 pandemic and the imposition of multi-staged lockdown to control its spread have brought about a devastating hit to the Indian Economy.
- India is the 6th most exceedingly awful hit country by COVID-19 pandemic after the U.S, Brazil, Russia, and the UK, as per John Hopkins University information.
- India’s economic growth was declining because of low consumption and investment levels. The interruption in economic activity is likely to decrease India’s GDP development rate to 2% or lower.
- The financial effect of coronavirus pandemic in India has been, to a great extent, troublesome. India’s development in the final quarter of the financial year 2020 went down to 3.1% as indicated by the Ministry of Statistics.
- The Reserve Bank of India (RBI), not many days back, said India’s Gross domestic product (GDP) growth will be in negative territory in 2020-21 as the outbreak of coronavirus has disturbed financial exercises.
- In its most recent edition of the Global Economic Prospect, the World Bank minimized its projection of India by a massive negative nine per cent.
Measures taken by the Indian government to boost Indian economy
- In India, Finance Minister Nirmala Sitharaman has reported a few details of the Atmanirbhar Bharat Abhiyan package, to give alleviation to Medium, Small and Micro Enterprises (MSMEs) in the form of an expansion in credit guarantees.
- In the fourth phase of lockdown, the Government of India chose to open Liquor shops to cover their losses. In the 135 crore population of India, half of the population has a drinking addiction, so the government took advantage by opening alcohol shops. Excise duty on alcohol is the third-biggest source of income for various states, about 10-15% of total tax collection for certain states. The boycott during the lockdown influenced liquor sales, indirectly affecting majorly to the state revenue.
- From June 8, the legislature declared an adjusted exit strategy under which more economic activities were permitted over the nation. It is the first of the three-phase plans for reviving the prohibited activities in non-containment zones with a tough arrangement of standard working systems that will be set up till June 30.
- In this circumstance, India focuses on utilizing new digital technologies to process applications for income support and deliver direct exchanges to recognized people or family units.
- Bearing immense misfortune because of lockdown, the administration of India is currently intending to offer reputed organizations to begin their businesses in India.
- India is, likewise, adjusting the financial circumstance considering China– United States trade war. Exploiting this circumstance, the legislature of India is pulling in those organizations that desire to move out of China or are searching for an option in contrast to China. The PM’s office is conveying to the government centre and state machinery to be prepared with pro-investment strategies.
- In mid-May, the German footwear brand, Von Wellx, chose to move its whole tasks out of China to India. This is an extraordinary move for the Indian economy.
- India has been trading many pharmaceutical items to different countries resulting from loosening up some export laws. This leads to more foreign currency entering the nation.
- The Reserve Bank of India (RBI) has additionally stepped in to give satisfactory liquidity to counter an abrupt stop in economic activity, which would negatively influence firms’ revenues and cash flows.
Fiscal measures taken by RBI
- A disentangled individual pay system with diminished rates- a move in accordance with the smoothing of tax code.
- Extension of the PM-KISAN scheme, which straightforwardly transfers cash to farmers in a focused way.
- Higher spending on long term initiatives such as rural roads, water systems, warehousing and transportation to improve the efficiency of the economy.
- India’s overall economic package is reported to be ₹20 lakh crore (US$280 billion), 10% of India’s GDP. The package declared on 12 May by the Prime Minister, however, included past government activities, including the RBI announcements. The past RBI declarations included around ₹8 lakh crore (US$110 billion) liquidity.
- The economic package consisted of a blend of changes, infrastructure building, the backing of organizations, and a specific measure of direct monetary support. The “collateral-free loans” that the package offers intends to “continue business action and safeguard employment”. Land reforms at the state level, not referenced in the economic package, are additionally part of the overall changes.
- In spite of the fact that India is confronting genuine difficulties in the economic front, but still, the Indian economy might show improvement over some other developing economies, which are vigorously dependent on world trade.
In what manner will India bounce back
The Government of India has a one of a kind chance to rejuvenate and support the monetary development through the 3R chain. Every one of these promises will be produced just in the event that they are met. The 3R procedure is:
- Reuse – Funding government spending needs through the privatization of state-possessed undertaking assets.
- Remake – Aggregating investment funds by giving tax reductions to the private sector and families.
- Reinvest – Providing incentives to manufacturing firms in order to reinvest such savings to substitute imports and increase the nation’s worldwide market share of exports.
We accept that 3Rs would help address India’s recurrent development challenges through higher government spending, expanded reserve funds for the private area and family units, and more job opportunities by empowering new investment.
India’s development is likely to recover sharply to 7.4% in the following financial year. The IMF sees India’s FY20 development at 4.2%, down from 4.8% estimated in January.
“Anyway the Indian Economy is expected to bounce back in 2021”, the World Bank said.
Impact of COVID-19 on global economy
- Initially, the supposition was that the COVID-19 pandemic will just be concentrated in China. Subsequently, it extended across the world because of human migration. The financial hardship was extreme in light of the fact that individuals were advised to sit at home and the effect was felt in various zones of the economy. With movement bans influencing the aircraft business, cancellation of athletic events affecting the athletic business and different ventures as well.
- There are certain similarities between the COVID-19 emergency and the events of 2007-2008 as the people predicted in early 2020, that the effects of the pandemic would be confined to a great extent. Similarly, all things considered, it was expected that the subprime mortgage crisis would be a minor issue influencing just the US, but ultimately influenced the worldwide financial system.
- The sudden financial insecurity activated by COVID-19 isn’t just problematic but has overflow outcomes since it has activated demand and supply interruptions in virtually every area of human activity.
- In the midst of the coronavirus pandemic, a few nations over the world turned to lockdowns to “smooth the bend” of the contamination. These lockdowns implied restricting a large number of residents to their homes, closing down organizations and stopping almost every economic activity. As indicated by the International Monetary Fund (IMF), the worldwide economy is required to contract by more than 3 per cent in 2020 – the steepest slowdown since the Great Depression of the 1930s.
The financial consequences of the pandemic are circulated through three trading channels:
- Directly across production chains as diminished economic output stretches out from intermediate goods’ to finished products’ providers;
- As a consequence of a decrease in the monetary activity altogether, there is a diminishing demand for products in general, including imports; and
- A decrease in trade with product exporters, who supply goods to producers, results in a fall in imports and an unfavourable influence on the trade and economic activity of exporters.
Dreadful impact on GDP of different Nations
- The pandemic has driven the worldwide economy into a recession, which implies a fall in a nation’s economy and its development. The recent report released by the World Bank estimated that the global economy is expected to face the deepest recession since the Second World War.
- It is expected to contract by 5.2% due to the pandemic. It further cautioned that the forecasts would be revised downward if vulnerability over the pandemic and business lockdowns persevered for longer periods. On the premise of per capita GDP, the worldwide contraction will be the most profound since 1945-46.
- Further, an early investigation by the IMF revealed that the manufacturing output in numerous nations has gone done, which reflects a fall in external demand and growing expectations for a fall in domestic demand.
- The IMF’s estimate of the worldwide economy developing at – 3 per cent in 2020 is a “far more regrettable” result than the 2009 worldwide financial crisis. Economies like the US, Japan, the UK, Germany, France, Italy and Spain are expected to contract this year by 5.9, 5.2, 6.5, 7, 7.2, 9.1 and 8 per cent respectively.
- Advanced economies have been hit harder and together are expected to develop by -6 per cent in 2020. Developing markets and growing economies are expected to shrink by -1 per cent. If China is avoided by this pool of nations, then the development rate for its economy in 2020 is required to be -2.2 per cent.
- China’s GDP dropped by 36.6 per cent in the primary quarter of 2020, while South Korea’s output fell by 5.5 per cent since the nation didn’t enforce a lockdown but followed a procedure of forceful testing, contact following and isolating citizens.
- In Europe, the GDP of countries like France, Spain and Italy fell by 21.3, 19.2 and 17.5 per cent respectively.
Measures taken by different countries to combat their economies
- In the week to 25 April, 3.8 million Americans made an unemployment claim– giving a six-week aggregate of around 30 million. It was, in any case, the fourth back to back week stretch of falls in a number of new cases.
- Finance processor ADP says the US private sector shed in excess of 20 million jobs in April. The central issue is to what extent those jobs will take to come back.
- The US Congressional Budget Office predicts 15% of individuals could be jobless by the third quarter of this current year – up from less than 4% in the primary quarter.
Between March 27 and April 24, the US assigned about USD $5 trillion in federal relief packages and different measures to battle COVID-19 and bolster the US economy. The bipartisan US Coronavirus Aid, Relief, and Economic Security (CARES) Act, was the biggest to date at USD $2.2 trillion.
The Main Street Lending Program and a Municipal Liquidity Facility infused up to an extra USD toward the beginning of April. In late April, a bipartisan relief package, the Paycheck Protection Program and Health Care Enhancement Act, infused another USD $484 billion into the American economy.
The CARES Act’s key provisions –
- allocate USD $350 billion in partially forgivable loans for independent companies and nonprofits with 500 or fewer workers as a component of another Paycheck Protection Program (PPP);
- extend the emergency disaster loan program by financing USD $10 billion in advances on credit applications to enable private ventures to pay for sick leave, payroll, and lease;
- Provide for tax credits of USD $5,000 for wages paid to every worker for organizations adversely affected by the coronavirus; and
- build up a Coronavirus Relief Fund, giving a sum of USD $150 billion in bureaucratic monetary help for state and nearby governments.
The USD $600 billion Main Street Lending Program finances programs that help the roughly 40,000 medium-sized businesses in the US by making four-year loans accessible to organizations employing up to 15,000 employees or to those with not exactly USD $5 billion every year in revenue.
The Paycheck Protection Program and Health Care Enactment Act allotted USD $60 billion for private ventures, an extra USD $321 billion to the original PPP, USD $75 billion for emergency clinics and the remaining USD $25 billion for COVID-19 testing, of which USD $11 billion went straightforwardly to states.
The Federal Reserve Bank has taken a few measures to help the economy –
- brought interest rates down to zero and declared it would purchase at least USD $700 billion in government and insecurities related to mortgage;
- built-up credit streams for employers, purchasers, and organizations totalling USD $300 billion;
- Temporarily changed loaning procedures to make credits progressively open; and
- reported that it has chosen to keep up the target range for the federal funds rate at 0 to 1/4 per cent, and will keep on surveying financial conditions.
The Municipal Liquidity Facility program will buy up to USD $500 billion of short-term notes within certain city boundaries and notes must develop no later than three years from the date of issuance.
To help the airline industry, eleven aircraft consented to take part in a USD $25-billion grant program and keep their workers on payroll until September 30th. The primary Payroll Support Program payments, totalling USD $2.9 billion, went to passenger air carriers, and instalments will proceed on a rolling basis.
Another new Congressional Select Subcommittee on the Coronavirus Crisis met for the first time in order to talk about necessities for reopening the US economy.
- The joblessness rate in Canada in April was 13%, up 5.2% rate focused on March, as per information from the nation’s official statistics bureau.
- So far in the COVID-19 emergency, more than 7.2 million individuals have applied for emergency unemployment help.
The Government of Canada discharged its COVID-19 Economic Response (Plan) on March 18, with additional estimates reported on March 25 and 27. Royal Assent was granted on March 25 for reported spending under the Plan, as well as to give extra powers to the administration for future spending under the COVID-19 Emergency Response Act. The Plan incorporates a scope of endeavours to help people, organizations, and businesses. At the commonplace and regional level, COVID-19 fiscal packages have been declared in each jurisdiction.
The Plan incorporates measures to help affected organizations, for example –
- Providing a 75 per cent wage subsidy, the Canada Emergency Wage Subsidy, to empower businesses to re-recruit labourers previously laid off because of COVID-19, help forestall further occupation misfortunes, and be better situated to continue ordinary operations following the crisis;
- Increasing the credit accessible to small, medium, and big organizations, including making another Business Credit Availability Program to give direct loaning and different kinds of money related help;
- making another Canada Emergency Business Account which gives interest-free loans of up to CAD $40,000 to independent ventures and not-for-profits;
- building up a Large Employer Emergency Financing Facility to provide short term bridge financing to Canada’s biggest employers in circumstances where they can’t make sure about loans, with the aim of ensuring occupations and forestalling corporate bankruptcies.
Access to credit will be given to rural organizations and communities, innovative, early-stage organizations and small and medium-sized organizations.
The Plan contains various sectoral supports in explicit ventures:
- agriculture, agri-food, aquacultures, fisheries;
- social, heritage and sports;
- air transportation;
- the travel industry;
- nonprofit and charitable.
A new Industry Strategy Council will be made to serve as an advisory board to survey the scope and profundity of COVID-19’s effect on ventures and advise government’s understanding regarding explicit sectoral pressures.
A COVID-19 Supply Council will unite pioneers to give the administration counsel on the acquisition of basic products and services required as a major aspect of Canada’s COVID-19 response and recovery.
The Bank of Canada has brought down interest rates, most recently bringing down its objective short-term rate to 0.25 per cent on March 27, 2020. It, likewise, propelled numerous programs, including:
- a program to buy Government of Canada securities in the auxiliary market;
- extra measures for financing for small and medium-sized corporate borrowers;
- supporting a well-working business sector for short-term provincial borrowing;
- lightening strains in Canada’s commercial paper markets.
The Office of the Superintendent of Financial Institutions declared that it intends to bring down the Domestic Stability Buffer by 1.25% of risk-weighted assets. This activity will permit Canada’s enormous banks to infuse CAD $300 billion of extra lending into the economy.
Certain organizations are opening up across the nation and bureaucratic, provincial, and regional governments have consented to a lot of basic standards for restarting the Canadian economy, in light of shared comprehension and valuation for science and specialists’ perspectives.
At the provincial and regional level, COVID-19 fiscal packages have been implemented to stimulate the economy in each locale.
- There is, to a greater extent, a delay in the UK’s authentic unemployment data than some different countries. Its primary statistics office shows employment at a record high and unemployment at around 4%. However, KPMG predicts that this will rise to just under 9% during the lockdown period.
- Almost 2 million individuals have applied for the main benefit– Universal Credit– since the nation’s lockdown started. A quarter of the UK’s employed workforce has enlisted for the government’s job retention scheme, which pays 80% of a worker’s wages.
- Expectations of job losses are gloomy, especially in the aviation sector, following the declaration of huge redundancies via carriers including British Airways.
Government of UK took various measures like –
- Diminishing Bank Rate by 65 basis point to 0.1 per cent.
- Growing the national bank’s holding of UK government bonds and non-monetary corporate bonds by £200 billion.
- Introducing another Term Funding Scheme to strengthen the transmission of the rate cut, with extra incentives for lending to the real economy, and particularly SMEs.
- £330bn of loans and guarantees access to organizations (15 percent of GDP); (v) enacting a Contingent Term Repo Facility to supplement the Bank’s current sterling liquidity facilities.
- Tie up with national banks of Canada, Japan, Euro Area, U.S., and Switzerland to further improve the provision of liquidity through the standing US dollar liquidity trade line arrangements.
- Decreasing the UK countercyclical buffer rate to 0 per cent from a pre-existing path toward 2 per cent by December 2020.
- The Prudential Regulatory Authority (PRA) sets out an administrative desire that the banks ought not to expand their dividends or other distributions, like rewards or bonuses, in light of policy actions. (IMF)
- Additional funding for the NHS and other public services (£5 billion)
- New legislation (Coronavirus Act 2020) covering a wide scope of angles related to COVID-19.
- Germany’s unemployment rate has increased far less quickly than nations, for example, the US.
- To a limited extent, this is a result of an administration plan to sponsor the wages of struggling employers and employees called the Kurzarbeit or short timeframe work program. By late April, it was helping in excess of 10 million individuals
- However, joblessness is still up, rising in April by 373,000, bringing the proportion of jobless to 5.8%.
German fiscal package – first summary of measures – Chancellor Merkel and Vice-Chancellor Olaf Scholz reported a €130bn fiscal package to strengthen monetary recuperation by strengthening broad consumption and boosting private and public investment, especially in green and digital technologies. The stimulus package incorporates 57 point by point measures.
Strengthening monetary recuperation through incentives for broad consumption
- The VAT tax rate will be sliced from 19% to 16%, with the lower band going from 7% to 5% from 1 July until the year’s end. This measure has an expense of around €20bn.
- The legislature will articulate a “Social Guarantee for 2021” to balance out contributions into the social security frameworks at 40% – this will ensure net gains of workers and improve the competitiveness of organizations. It will likewise decrease vulnerability for the two managers and employees. The cost is approx. € 5,3bn for 2020.
- A “Children’s Bonus” of €300 per youngster will be paid to all families, this has an expense of €4,3bn.
- Electricity costs will be marked down for consumers by reducing the EEG levy on power costs to finance sustainable power sources wind and solar. The federal budget will remunerate the roughly €11bn levy reduction so that there will be no adverse effect on the advancement of solar and wind.
- Single parents will get extra help and tax allowance amounting to €0,75bn.
A further boost to liquidity, investment and employee share proprietorship for corporates
- Companies in financial segments struck especially hard from income misfortunes in the current emergency will benefit by the new €25bn program for the „re-start” months from this point until August. Each organization, which had an April/May income decrease of over 60% comparative with a similar period in 2019 will get a remuneration of up to 80% of their fixed expenses of a business. The benefit will be topped at €150.000 per organization.
- The capacity for corporates to carry losses brought about in 2020 backward will be increased considerably, up to €10 Mio. per organization. It will produce results retroactively for the 2019 tax bill through the making of a “Corona tax provision”. The estimated cost to the public budget is €2bn, this sum will give direct liquidity advantages to the corporate segment.
- Corporate devaluation rates for Capex will increment altogether through the presentation of a 2,5x higher degressive deterioration factor, with a fiscal effect of €6bn.
- There will be a new scheme to promote employee share programs, whereby the particular prerequisites for new businesses will be considered through a targeted program.
- VAT on imports will be levied on a postponed timescale, with a (temporary) cost to public budgets of €5bn.
- There will be a particular plan for the continuation of our short labour scheme beyond 1 January 2021.
The quickly changing multifaceted nature of the COVID-19 crisis represents an assortment of issues that make it difficult to measure the whole cost of the worldwide financial turn of events. Such issues are, however, are not restricted to:
- To what extent is the circumstance going to last?
- What number of occupations will be included on a transitory and perpetual premise?
- What number of countries will be contaminated and what amount of economic activity will be decreased?
- When are the monetary effects going to top?
- What amount of financial products will be interrupted because of the outbreak of the virus?
- What are the most fitting money related and financial methodologies at the national and worldwide level to resolve the emergency?
- What temporary and lasting impacts will the emergency have on workforce association by the organizations?
This Coronavirus pandemic may likewise wreck the Indian economy like that of other nations. The degree of GDP may additionally fall, all the more so when India isn’t invulnerable to the global recession. In fact, it is accepted that India is increasingly powerless, since its economy has already been weak and in a profound halt for a few quarters, much before the COVID-19 flare-up got known. The Prime Minister of India has discussed setting up an Economic Task Force to devise strategy measures to handle the monetary difficulties emerging from COVID 19, as additionally on the steadiness of the Indian economy. In any case, the solid plans would need to be kept set up to help the economy and its recuperation.
As the disturbance from the virus advances all around the world just as inside India, it is for us to overlook, at least until further notice, all discussing just monetary recuperation, and rather hold hands wholeheartedly to handle the outcome of COVID-19.
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