The Covid-19 pandemic has become the single largest health crisis the world has faced since the Spanish Flu of 1918. The novel coronavirus (SARS-CoV-2) is highly contagious, which has shocked the world into an unprecedented state of fear and slowdown, while the efficacy of its vaccine yet remains to be determined. The only way to fight the coronavirus, besides a vaccine, is through isolation, social distancing, restricting of public gatherings and the implementation of lockdowns. India, a country with a population of 1.3 billion people, has been the worst hit in terms of national economy and healthcare infrastructure. The pandemic exposed the absence of a capable global healthcare infrastructure to combat a disease of such proportions.

The Indian economy, like many others, entered the lockdown and it has been the most impacted segment of our nation. The IT and IT enabled services, which represent a small fragment of the organized sector, were the only industries that could adapt to the sudden shift in paradigm of work requirements. Tourism, aviation, manufacturing, restaurants, transportation and retail are only some of the industries in the organized sector that have been drastically affected, whereas the unorganized sector largely remains unregulated and there is no way to determine the exact depth to which the pandemic has affected it. The unorganized sector employs close to 85% of the Indian population and contributes close to 45% of its GDP. It largely includes the self-employed people, laborers, micro industries and daily wageworkers. Unemployment rates have been rising since the start of FY20 and reached a staggering 26% in April (according to CMIE) before falling back to a near 7%, the pre-lockdown situation, which itself is quite high in recent times.

It would not be wrong to say that the banking sector and NBFCs have had a difficult last few years. While the NBFCs were rocked by the IL&FS liquidity crisis of 2018, the banks (especially the public sector banks) are grappling with the sudden increase in non-performing assets that will only continue to grow with the lockdown and loss of jobs during this pandemic. The credit growth of banks have slowed and their asset quality has deteriorated sharply, which have led to a rise in non-performing loans in the retail and MSME segments. The K.V. Kamath Committee reported that nearly 29.4% of total banking debt will be impacted by the pandemic, in addition to the earlier 42.1% that was stressed before the outbreak. Several private banks and urban cooperative banks are also facing capital shortfalls and the entire banking sector will need capital support from the government to ride out the pandemic and reestablish an equilibrium. The RBI, in its Financial Stability Report (July 2020), estimates the NPAs could rise to 14.7% in the banking sector by March 2021 which could result in higher credit costs and impact the loss-absorbing buffers and the profitability of banks. Moody’s Investors Services has estimated that the public sector banks alone will require ₹1.9-2.1 lakh crores in external capital over the next two years to restore their loss absorbing buffers.

The lockdown took a major toll on the railways and aviation industries. The aviation industry has seen a sharp decline in revenue during the first quarter of this financial year and seen severe job cuts since the start of the pandemic. The retail industry also declined at the start of the quarter due to the nationwide lockdown; but the government latter allowed online retail stores and essential markets to reopen. The retail industry will be able to recover its losses quickly given that the suppressed demand has revived quickly but these gains may be visible in subsequent quarters.

The labor sector has been the worst impacted by the lockdown, as evident from the large-scale migrant workers that had to relocate in the absence of work, income and food. Migrant workers form a large part of the workforce in urban areas, and these laborers mostly find work in the construction, mining, textiles, domestic labor and agriculture sectors. Hordes of workers trudged across the nation, some even on foot, hoping to go back to their home state in search of food and survival. Despite the measures adopted by the central and state governments to facilitate easier transportation and enhance the existing public distribution limit, the halt in all economic activities and non-payment of dues left the poor class and low-income families without a stable means to earn and maintain livelihood. Almost 14 crore Indians were left unemployed due to the lockdown, and many more reported sharp cuts in salaries, forced borrowing to run households and increased medical expenses to stock up on medical supplies in case of more adverse conditions. CRISIL termed this lean phase of the economy as India’s fourth phase of recession and official reports show that India’s GDP has already declined by 23.9% in the first quarter of FY21.

The demand and supply chains have been disrupted, and despite the start of unlock in India to form a ‘new normal’, they will continue to struggle in the absence of raw materials, slowing global trade, exodus of migrant workers from urban areas and the numerous travel and shipping restrictions in place. The setting up of Covid-19 safe travel bubbles, growing unrest in South-East Asia and decrease in global consumer demands will continue to deter the return to normal production and pose a problem for India, and the world at large.
In the midst of the slowing economy and rising unemployment rates due to the pandemic, the central government unveiled a host of measures to help the common man. The government unveiled an economic package of ₹20 lakh crores (US$280 billion) in May, which amounted to nearly 10% of India’s GDP. A part of this package included the previously announced liquidity of ₹8 lakh crores by RBI and ₹1.7 lakh crores by the Ministry of Finance in March. The package included a mix of reforms, infrastructure building, direct cash support, aid to stressed businesses and moratoriums. There was also a change in FDI policy, privatization of power sector and the world’s largest food security scheme was announced, wherein 7 kgs of ration would be supplied every month, to almost 800 million people across India in a bid to provide the basic means for survival. In spirit of the upcoming festive season, a second economic package of ₹46,675 crores was announced in October 2020, which included perks for central government employees to spend more on consumer durables and allow a higher capital expenditure by the states and the center.


The recovery for the Indian economy post lockdown has been slow and limited. Indian businesses have had to walk a tightrope in terms of restoring production systems, supply chains and logistics while maintaining the safety of their employees. A survey conducted by the Institute of Competitiveness and Times Network showed that close to 71.31% of the Indian businesses had to deal with reduced cash flows, while the delay and cancellation of many projects raised many concerns in the tertiary sectors such as retail, consultancy, education and financial services. The scenario has improved post lockdown, with renewed optimism among business owners and decreasing cash flow problems and lesser project cancellations. The challenge faced during the lockdown have taught businesses to adapt and alter their long term plans to be in-sync with the government projections and goals for the Indian economy. Many firms have shifted away from the short-term strategies adopted during the lockdown such as deferred payments and salary cuts and started to opt for more long-term measures such as reduced operational costs, decreasing marketing expenses and switching to low cost raw materials. Though the central government has lifted the lockdown in India, most state governments have implemented their own lockdowns with rules and regulations in place to curb the rapid escalation in Covid-19 cases despite the lockdown. The dependence on virtual meetings, tele-conferences and app-based hearings increased during the lockdown, and have sustained at same rates despite the ‘Unlock’, indicating the ‘new normal’, which may persist for a long time to come.

Analysts and economists, during the lockdown, advocated the possibility of a ‘V’ or ‘W’ shaped recovery for India post the lockdown and economic activities would return to normal. The ‘V’ curve, a best-case scenario, would show the economy nose-dive before resurging to earlier levels of activity once the global situation started to normalize. ‘W’ curve would show an improvement from a slowing economy due to government stimulus, and then plunge again before showing a healthy recovery. However, neither of these situations is applicable to the Indian economy. The stock market seems to be growing in an upward trend even though the financial statistics paint a poor picture of the country. This has become a topic of contention amongst many analysts, and a new theory about a ‘K’ shaped recovery is being developed to explain this paradigm shift.

A ‘K’ shaped recovery begin with a decline, as already seen in stock markets and financial numbers of the country. However, the recovery is split into two different components. One section of the economy will show a rapid recovery, even exceeding past figures, and largely relates to the wealthy asset owners and big businesses. This too has been evident on a national and international platform, as marked by growths of Reliance, Blackstone Group and several other multinationals and individuals invested in the real estate, private equity and stock market. The second section of the economy pertains to the wage earners and small businesses that are feeling the brunt of the lockdown and difficulty of finding employment in a post-lockdown nation. The effect is amplified in aviation, tourism and hospitality sectors that employ a large number of this section. The world has already been a witness to this recovery curve, post 2008 financial crisis, and there is no reason to suggest that a similar recovery may be avoided given the scale of unemployment and strapped cash supply. The ‘K’ curve will lead a larger inequality of wealth and the government must take measures to avoid an increasing gap between the rich and poor, especially when there is such a large gap already. The fiscal policy can be expansionist or contractionary. While the government is currently invested in expansionist policies to stimulate the economy, the inflection point will come once the economy starts to improve and it will become difficult to control such policies like low interest cuts, tax cuts and grants. The RBI, in its quarterly review, has decided to continue with the same interest rates and avoid a further reduction in rates to tackle the recent spike in inflation. The government will also have to introduce some contractionary policies in the next few months to ensure the ‘K’ shaped recovery path of India does not adversely affect the middle and low income classes of India, when they are already facing looming loan repayments, increasing medical expenses and the possibilities of unemployment in the times to come.

The financial statistics in the past two months have painted a better picture of the recovery phase in the Indian economy. The month of September has ushered in some growth as far the economic outlook is concerned. The automobile industry showed rising sales figures, which had been in the negative zone after the implementation of the lockdown. The Nikkei Manufacturing Purchasing Managers’ Index, a proxy for factory level activity showed a jump from 52.0 in August to 56.8 in September and 58.6 in October, which is a sign of growth. The sudden rise in consumer demand can be because of the festive season; hence, we will have to tread with caution when interpreting these results. Many economists and analytics firm reports show the sudden surge in early September parameters stagnated towards the end of September and early October. Surveys have shown a shift in consumer demand trend towards essential items only, indicating that the path to recovery and normal rates of consumption and investments will be more gradual than initially assumed during the lockdown. The skepticism amongst the industries, though indicative of the economic uncertainty, can be as an opportunity for the government to bolster confidence among the industries through specific policy solutions. The current scenario will not improve through short terms remedies alone. More long-term solutions will have to be planned to ensure the recovery does not stagnate due to an archaic educational system, health and labor infrastructure. In light of this requirement, the government has also implemented the New Education Policy 2020 and Labor Codes, to help facilitate renewed trust in the business community and initiate the move towards more uniform changes in regulatory structure, increased data access and reorienting the industrial systems to meet global standards and push India in a new era of development.

The pandemic lockdown resulted in a large-scale loss of white collar jobs, labor and semi-skilled workers across the nation. The situation post-lockdown is on the up as a recent survey ‘Workforce Confidence Pulse’ conducted by LinkedIn shows that growing optimism of people towards job security, as the industries are steadily but slowly returning to normal. The lockdown and fiscal policies of the government gave more encouragement to home-based startups, as evident by the sudden surge in food-apps, education and instructional leaning platforms. The education market has been the most benefitted during this period, and will continue to gain post-lockdown as more and more schools and institutions are starting to develop their e-learning platforms. This surge led to an increase in hiring of teaching professionals, and opened up a host of jobs for data analysts, Java stack developers and SDEs (software defined everything) across different markets and industries. MNCs, corporates and numerous firms have been motivated to diversify their service offerings and branch out to other fields. Professionals across many industries have also taken an active role in upskilling themselves to become more suitable for the changing economy through different learning platforms, which will help bring in more innovation and encourage a holistic development among employees.

The lockdown also implemented a mandatory WFH (work from home) policy for most firms, and the lack of an established IT infrastructure across manufacturing, logistics and several other industries has forced companies to work on their IT and enabled services. This has also resulted in a massive surge for experts on Cloud Architecture, cyber security and engineers with background or functional knowledge in coding and machine learning. Other than white collar jobs, the post-lockdown Indian business climate is struggling with the absence of cheap labor surplus from other states. This has given rise to demand for skilled and semi-skilled workers in the markets, within urban as well as rural areas, such as logistics, agriculture, transportation and domestic help. This will give an opportunity to the large numbers of unemployed people below the poverty line, within the home state, to fill in this gap and find a means of income and livelihood. This has already been seen in the cities of Delhi and Mumbai, where scores of local fruits and vegetable vendors have found employment with logistics and delivery apps such as BigBasket, E-Kart, Grofers etc.

Even though the IMF downgraded India’s growth for the fiscal year 2020 to (-10.3%) in its annual World Economic Outlook, they have predicted an optimistic growth rate of 8.8% for fiscal year 2021, the highest for any major economy. Malhar Shyam Nabar, Division Chief (Research Department) at IMF, feels that the government will have to tilt their fiscal support towards more of direct tax spending and tax relief measures and rely less on liquidity support measures and credit guarantees. Tarun Bajaj, Economic Affairs Secretary, recently spoke about the recovery of Indian economy and emphasized it to be on the right track evidenced by the 13% increase in foreign direct investments during the April-August period. He has said that the economy has been on road to recovery since the unlock, and that the improved GST numbers, e-way bills issuances and manufacturing PMI were indicative of better times to come. The ‘Atmanirbhar Bharat’ initiative of the government is a step in the right direction to strengthen and enhance domestic supply systems. Many Indian businesses have welcomed the move and have highlighted a need for the government to focus on import substitution to boost domestic production. The initiative will not only provide an incentive for more startups and diversification in manufacturing businesses, but also boost the existing infrastructure to improve its efficacy and production capabilities to meet the growing demand of India in a post-lockdown scenario. This does not mean that the economic atmosphere of India is shifting towards a more protectionist setup. The government and many industries will continue to maintain a strong international trade policy and adopt steps to ensure the global supply chain is maintained and that India continues to remain a strong market for investments, import-export and trade.