COVID-19, News
4 ways how recent COVID-19 restrictions can disrupt economic recovery
Several states including Maharashtra have imposed partial lockdowns due to a sharp rise in new Covid-19 cases. If these curbs get stricter, India's economic recovery could face serious roadblocks. Here's why.
A sharp rise in Covid-19 cases could severely slow down India’s economic recovery as many states have now started reimposing partial restrictions. India's economic recovery momentum could take a huge hit if states decide to impose stricter restrictions to contain the infection.
While the country had staged a faster-than-expected recovery in the aftermath of the devastation caused by the first wave of the pandemic, recovering from the second wave will be harder- something that economists had highlighted in the past.
Here are four ways in which fresh Covid curbs can hurt the economy:
IMPACT ON ECONOMIC ACTIVITY
A fresh rise in coronavirus cases in the country could dampen key economic activity like manufacturing and construction, which are important indicators of growth and recovery. India’s factory activity hit a seven-month low in March, indicating that the impact of the second Covid-19 wave is already hampering recovery in various sectors.
As Covid-related restrictions get tighter, factory and manufacturing activity could be hit further. This could lead to job losses besides impacting fresh hiring by companies. It will be tougher for smaller firms that are still recovering from the losses triggered by the strict lockdown last year.
SOME BUSINESSES FACE HIGHER RISK
Some key service-focused businesses like restaurants, pubs and cinema halls will face severe disruption in case lockdowns are imposed again. In Maharashtra, the hotel and restaurant association has raised concerns about the impact of lockdown on such businesses.
On Sunday, the Maharashtra government said all hotels and bars will remain closed as part of restrictions that have been imposed in a bid to curb the surging Covid-19 cases, only takeaway facility will be allowed from 7 am to 8 pm.
Hotel and restaurant owners have already warned that the move could lead to job losses if the restrictions get tighter in the future. While the hospitality sector in Maharashtra has agreed to support the government, they want the government to extend some form of help to survive the partial lockdown.
Similarly, business such as tourism, aviation and consumer goods are also likely to take a hit if partial lockdowns are announced.
With more states now reporting a surge in cases, there are high chances that exciting restrictions will be tightened to contain the virus. In such a scenario, many small businesses could take a massive hit.
JOB CRISIS AND DEMAND OUTLOOK
Jobs will be one of the biggest casualties if states tighten Covid restrictions. “Even if a store is kept shut for two days in the week, a sixth of the staff may become redundant,” said Kumar Rajagopalan, CEO, Retailers Association of India.
Giving the example of Maharashtra, Rajagopalan explained that weekend sales account for 45 of the total business in markets and malls and added that the weekend lockdown will severely hurt sales.
In case such weekend lockdowns are imposed in other states, job losses could increase sharply.
Not just jobs, but the demand outlook will also take a massive hit if restrictions get stricter. In the event of job losses, people will again start spending less and therefore demand will be curtailed.
Lack of demand and jobs will ultimately make India’s economic recovery much harder.
LONGER IMPACT OF LOCKDOWN
A recent report by the Centre for Monitoring India Economy suggests that the cost of the initial nationwide lockdown is 11 million jobs, spread among business persons, salaried employees and daily wage earners.
“Employment in February 2021 compared to the average of 2019-20 shows a loss of 3 million jobs among business persons, of 3.8 million jobs among salaried employees and 4.2 million among daily-wage earners. This is the loss of jobs because of the lockdown,” the report said.
Simply put, the loss of so many jobs has had a serious impact on various aspects of the economy including demand, income and household spending. All of these aspects have ultimately affected growth.
In case stricter lockdowns are announced during the second Covid wave, a similar or worse impact could be felt. “It is important that a fresh lockdown does not make this worse. Vaccines and masks are a better bet,” CMIE said.
