92 PECUNIARY VOLATILITY: IMPETUS OF COVID-19
Neeshita Thadani
Daly College of Business Management Dr. Namrata Kapoor Kohli Daly College of Business Management
Abstract: India is at a crucial juncture in its fight against the COVID-19 pandemic, which has caused a massive economic shock across the world due to business interruptions and shutdowns from social-distancing measures. Covid-19 has inflicted to unprecedented health, economic, and financial stability challenges. Overall economy of the country has experienced a massive downturn with a severe health crisis. The paper tries to address the socio-economic impact of this pandemic on individuals in the form of Unemployment and Household income. This research paper is descriptive and conceptual, motivated to explain the possible outcomes of the Indian economy and sought to expedite the discussion of employment scenarios and household income during the pre- and post-lockdown periods.
Keywords: Covid-19, Unemployment, Household Income, Pandemic 1. INTRODUCTION
It now seems obsolete to say that a COVID-19 infectious disease is an unprecedented event.
Markets have declined, unemployment has skyrocketed, incomes have evaporated, relations have become tense and political differences have worsened, and both stress and uncertainty have increased globally. Most importantly, as of April 5, 2021, 2.85 million people worldwide died from this infectious disease. Epidemics direct or indirect effects are mediated primarily through individuals making domestic decisions. The Household Economy Framework is well suited for analyzing how extrinsic factors, such as the COVID- 19 pandemic or its policy response, influence household-related decisions, activities, input choices, and outcomes, from consumption patterns to time-distributed health outcomes.
The unprecedented lockdown has a significant adverse effect on the economy. Millions of jobs and livelihoods were at stake. Moreover, the Covid-19 outbreak came at a time when India's economy was already slowing, due to persistent financial sector weaknesses. As activity around the country has come to a halt, with no job or income, due to which more than 50 million migrant workers have returned to their native villages after losing their daily wages work. Countries have closed national borders bringing international trade and commerce to an abrupt halt. All these are severely disrupting supply mechanisms and distribution chains in almost all sectors. At the same time, there has been a complete collapse of consumption demand as millions of people stay home and postpone their non- essential expenditures.
Covid-19’s (Corona virus) has a deep negative impact world wideon individuals, families, businesses, governments and economies; therefore, it becomes essential to assess its bearing on financial health at individual level and at country level as all our financial decisions and activities influence our financials now and in the future. At present scenario, it is difficult to evaluate all ill-effects of covid-19 that has on individual and households. But to meet basic requirements and to be ready for this upcoming uncertain time, it is very essential to assess the immediate financials to frame various policies and strategies to deal with situation in near future.
2. REVIEW OF LITERATURE
India is a highly populated developing economy that more or less depends on primary, secondary, and tertiary sectors. Some of the Indian population is under the BPL limit and is dependent on daily income. Per capita health expenditure, health awareness, and health infrastructure are not up to the mark. All aspects of the Indian economy have been badly affected due to the health emergency COVID outbreak and various types of lockdowns since
93 March 2020. Though a limited number of studies have been conducted so far to assess the impact of COVID-19 on the Indian economy, various news reports in the electronic and print media, and various economic and financial agencies have also conducted some studies to assess the impact concerning various economic indicators and economic sectors.
J.D. Sonkhaskar (2020), through his article 'Impact of COVID-19 on Indian Economy', attempted to give an overview of the status of COVID-19 in India, the state of the Indian economy before the pandemic, its impact on various sectors. He has also tried to highlight the policy recommendations and strategies prepared by the Government of India to mitigate the financial disaster. He has detailed the region-wise impact of the pandemic situation and suggested various strategies to mitigate the economic losses in the Indian scenario.
K. D. Garg, M. Gupta, and M. Kumar (2020) have tried to evaluate the impact of COVID-19 on India's Economy through their article "Impact of the COVID-19 Pandemic on the Indian Economy by Machine Learning". They have tried to analyze the impact of COVID-19 on the Indian Stock Market vs. COVID-19 patients in India from March 2020 to July 2020. They have used machine learning to predict the opening SENSEX rate by using different regression models. This research concludes that the increasing number of COVID-19 cases directly impacted the stock market.
M. Chowdhary, P.R. Sodani, and S. Das (2020), through his article "Impact of COVID-19 on the Economy in India: Reflections for Policy and Programme," has assessed the impact of the Corona outbreak on the affected sectors. They have highlighted the impact of COVID-19 on aviation, tourism, retail, capital markets, MSMEs and oil sectors. They have suggested that India's policymakers should rethink the growth paradigm more inclusively with the help of some reforms in the labor market sector.
N Arora and V Gupta (2020) have made an effort to analyses sector-wise impact of Covid-19 on Indian Economy through their article "A Study on Impact of COVID-19 on Indian Economy". They have used a descriptive research design in this study. They have used the secondary economic data from March 2020 to June 2020. They have assessed the sectoral impact of COVID on India's Economy.
3. RESEARCH METHODOLOGY
Being descriptive and exploratory in nature this research paper is based on the secondary data collected from various journals, books, articles, government reports and publications from various websites.
4. Objectives of the Study
The objectives of this research paper are:
To study the impact of Covid-19 on Employment in India
To study the impact of Covid-19 on Household Incomes in India 4.1 IMPACT ON UNEMPLOYMENT
The Indian economy has experienced a significant slowdown in the last few quarters. The current accounting third-quarter economy grew at a low growth rate of 4.7% for six years.
With investment and consumer demand dying; some stimulus was taken to get the economy back on track. There was strong hope for a recovery in the last quarter of the prefectural treasurer. However, the new corona virus infection has made recovery very difficult in the short and medium-term. This outbreak is now presenting new challenges for the Indian economy and has serious devastating effects on both supply and demand that could is ruptIndia's growth story. In addition, India is developing its economy with limited financial space, high funding needs and vulnerabilities in external financing, so a sharp decline in economic production and a sharp rise in borrowing costs can damage the economy.
In addition to fighting infectious diseases and economic deterioration, India has experienced difficulties to manage the migration of thousands of settlers from central cities such as
94 Mumbai and Bangalore. Many of them were, daily wage workers working in construction projects, retail stores and restaurants. Lockdown mean they can't work and can't continue to pay city shed royalties and bills, food for children, health care and education costs.
During these difficult times the Government’s flagship employment programme MNREGA has been one of the main pillars of support in providing relief to rural households during times of crisis. The lockdown tested the efficacy and reach of the programme as it attempted to fulfill the additional demand of workers looking for employment and income. However, of the respondents who tried to get MNREGA work in August 2020, only 39% reported receiving at least some days of work. This estimate was higher at 55% in June 2020.
In contrast to the survey, the MNREGA MIS reported meeting approximately 85% of the employment demand till August 2020. The reason for the discrepancy could be that MIS captures data related to demand work in a different way: it does not register everyone who is looking for MNREGA work.
Evidence suggests that transfer and welfare schemes work better with efficient linkages between Government agencies and households. In this regard, Self-Help Groups (SHGs) can play a catalytic role in facilitating Government transfers to beneficiaries given their reach and penetration among households. Approximately, 90% of the respondents reported having an SHG in their village, pointing to the growing coverage under the program, 67 million rural women have been successfully mobilized into credit and savings groups. SHG members reported better access to food rations, MNREGA work and cash transfers between May 2020 and September 2020.
The current COVID-19 pandemic is characterized by supply and demand to a degree that it is incomparable to many previous economic episodes and supply shock. It caused a global deep-rooted socio-economic crisis, which has adversely affected employment, commodities and financial markets globally. On the supply side, it expurgated the production, which entailed further increases in unemployment. Indian economy falls into a severe recession under the influence of a supply-demand shock, eventually lead to stagflation, further characterized by rising price levels and rising unemployment.
Figure: 1.1 COVID-19 IMPACT ON UNEMPLOYMENT RATE IN INDIA 2020-2021
Source: Statista.com
In January 2021, India saw an unemployment rate of over six percent. This was a significant improvement from the previous month. A damaging impact on an economy as large as India’s caused due a total lockdown was imminent. Unemployment went up to nearly 24 percent in April 2020. This was possibly a result of a decrease in demand as well as the disruption of workforce faced by companies.
95 THE TRICKLE-DOWN EFFECT
Between February and April 2020, the share of households that experienced a fall in income shot up to nearly 46 percent. Inflation rates on goods and services including food products and fuel were expected to rise later this year. Social distancing resulted in the job losses, specifically those Indian society’s lower economic strata. Several households terminated domestic help services – essentially an unorganized monthly-paying job. Most Indians spent a large amount of time engaging in household chores themselves, making it the most widely practiced lockdown activity.
Figure 1.2 Employment Rate
Source: CMIE
The unemployment rate that reached 11.9 per cent in May 2021, continued to rise into early June. The 30-day moving average unemployment rate as of June 6, 2021 was 13 per cent. The labour participation rate that had fallen to 40 per cent has fallen further to 39.7 per cent. And the most important labour market indicator, the employment rate which had fallen to 35.3 per cent in May, dropped to 34.6 per cent by June 6, 2021. The Indian labour market is in its worst condition since the nation-wide lockdown months of April and May 2020.
Figure 1.3 Employment Rate Fall
Over 15 million jobs were lost during May 2021. Employment fell from 390.8 million in April 2021 to 375.5 million in May 2021. This translates into a loss of 15.3 million jobs, or a 3.9 per cent fall in employment in the month. This is not as bad as the loss of 114 million in
96 April 2020 but it comes second to only that draconian month of a complete nationwide lockdown. The May 2021 fall in employment is higher than the 12.3 million falls recorded in November 2016, the month of demonetization.
CMIE’s Consumer Pyramids Household Survey shows that the impact during these two months, particularly in May 2021 was severe on daily wage workers. Of the total 22.3 million jobs lost during April-May, 17.2 million were of daily wage earners. Business persons lost 5.7 million jobs during these two months and salaried employees lost 3.2 million.
Figure 1.4: Unemployment and Inflation Dynamics Observed in 1st and second wave of Covid 19
Source: CMIE and MOPSI
Existing projections of inflation and unemployment dynamics are based on trade-offs, but more recent approaches are less relevant in the near term. Despite the controversy surrounding its existence, the Phillips curve has been established in modern empirical studies of developing and developed countries. Interestingly, the nature and strength of negative relationships depend on a number of factors, including inflation on long-term trends, sources of external shocks, and policy support. These studies aim to demonstrate the complexity of the dynamics of inflation and unemployment and focus on understanding the policy factors of the relationship.
4.2 IMPACT ON HOUSEHOLDS INCOME
The economic dilemma caused by the shutdown in India is terrible. According to a recent study by experts at the University of Pennsylvania, the University of Chicago and the Indian Economic Monitoring Center (CMIE) in Mumbai, the income of nearly 84% of Indian household’s has been declining since the shutdown began.
According to the reported data pandemic has weakened their ability and almost one-third of families will not survive for more than a week, without any additional support. CMIE data shows that the unemployment rate exceeded 27% in early May, almost four times the level from January to February. Economic suffering caused by the lockdown to the entire economy is very much evident from the data. In the latest quarter ending April 20, India's GDP growth was 3.1%, the slowest in 11 years, and is expected to contract 6.8% this fiscal year.
Covid-19 bearing was severe among the households as it caused degree of distress among them. Falling income has the most serious impact on the middle and lower-income groups.
Families in the middle-income group are disproportionately affected, probably because they are more likely to rely on sources of income affected by the lockdown. The top quintile of households is more likely to have stable paid jobs and have the ability to work from home and still earn a living. The lowest one-fifth of households may be more focused on
97 occupations that continue despite closure (such as agriculture, food suppliers) or occupations that benefit from specific transfer programs.
Rural households experienced more pain during the closure period than households in urban areas in India. About 88% of rural households experienced a decline in income, compared with 75% of urban households. High-income households in urban areas of India show more "flexibility" than rural households as many urban workers can work outside and are therefore “relatively protected”.
The economic situation is precarious as only 30% of families can survive for a month or more without additional help. Crucially, 14 % of the sample has no funds. Therefore, there is a need for rapid distribution of food grains or cash transfers to avoid a sharp increase in malnutrition and extreme poverty.
Based on the CMIE household survey, the researchers stratified other data (including per capita household income) and categorized them by state and urban/rural state. CMIE surveyed nearly 5,800 households in 27 Indian states in the last two weeks of April, asking them whether the lockdown resulted in a decline in income and how long they could cope without borrowing or receiving aid in cash or kind.
Source: CMIE
The above figure captures the month-on-month change in total wage income in rural and urban India between April 2019 to September 2020. While this also shows that rural wage income declined nearly as sharply (by 41%) as urban wage income (by 44%) in the month of April 2020. Despite improvement since May 2020, individual wage incomes continue to be depressed concerning pre-pandemic levels.
Figure: 1.6 Household Income
98 Source: CMIE and MOPSI
Disposable Personal Income in India decreased to 199689740 INR Million in 2020 from 206752290 INR Million in 2019.
Figure: 1.7 Household Income (April 2019-September2020)
CMIE
The above figure shows the month-on-month change in total household income (Rs/month) in rural and urban India over an 18-month period from April 2019 to September 2020.
Starting November 2019, total household incomes in rural and urban India were on a declining trend even before the pandemic and lockdown hit but the steepest decline came in the month of April 2020 (the first full month of lockdown) with a decline of 19% and 41% in rural and urban India respectively. Despite some improvement in household incomes in the subsequent months till September 2020, they were still lower than March 2020 levels.
Figure: 1.8 Household Incomes
99 Source: CMIE
Household income in India was drastically impacted due to the corona virus (COVID-19) lockdown as of April 12, 2020. There was a significant decrease in the level of income with households reporting a fall in income from about nine percent in late February to a whopping 45.7 percent in mid-April. Rise in income saw a contrasting trend indicating similar results; from 31 percent in late February to 10.6 percent on April 12, 2020.The country went into lockdown on March 25, 2020, the largest in the world, restricting 1.3 billion people, extended until May 3, 2020. For further information about the corona virus (COVID-19) pandemic.
5. CURRENT AND FUTURE CHALLENGES
The victims of the lockdown are beyond the scope of cash and food shortages and urge political action where possible. In the short term, it requires the government to focus on preventing malnutrition and continue to provide vaccines and other maternal and child health services. Government should provide all the necessary financial assistance sothat the health system can respond to the crisis. Second, it provides a lifeline for underprivileged families and businesses. These lifesavers also help prevent permanent damage to the prospects for sustainable and inclusive growth. In the medium term, the main challenge will be to reactivate the economy as India’s growth has slowed, and the lockdown will exacerbate this trend.
Over time, the scars of lockdown will be seen in the deterioration of mental health. Low- income countries like India already have very high levels of undiagnosed depression. This type of shock will undoubtedly increase depression and anxiety. Another salient concern is that the pandemic may exacerbate labor unrest already caused by slowing economic growth.
6. CONCLUSION
In the present paper, an endeavor was made to conduct an in-depth and detailed study to assess the immediate impact of COVID-19 on the Indian economy’s various indicators such as, unemployment rate and household’s income. Certainly, COVID-19 has gravely affected all the indicators of the Indian economy under consideration in the first quarter and second quarter of the financial year 2020-21, but the third and fourth quarters did not show any such peak impact of the pandemic. Instead, it appears that the Indian economy was coming out of the pandemic-induced degrowth during this period. After deteriorating in the first and second quarters of the financial year 2020-21, the GDP growth rate registered an upward trend in the third and fourth quarters. The unemployment rate also declined to a single digit from the second quarter of the financial year 2020-21, growing in double digits in the first quarter and even slight improvement in the trend of Household Income. The main reason for this rapid recovery from the effects of the pandemic was the further
100 relaxation of the lockdown and the various steps taken by the Government to get rid of the devastating effects of the pandemic.
When considering solutions, we must consider the nature and extent of the impact on employment, from temporary challenges to long-term impacts, which will shape new post- COVID realities for businesses and individuals. In turn, solutions and measures need to be customized accordingly. Loan extensions and interest extensions represent a good start, but this situation requires profound structural solutions. As the world prepares for the "new normal" after COVID19, all stakeholders from governments to developers, companies and bankers must take action to adapt to their new reality.
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