IMPACT OF COVID-19 PANDEMIC ON Indian Economy
By HARSH KUMAR
The covid-19 pandemic is the first and foremost human disaster in 2020. More than 200
countries and territories have confirmed effective medical cases, caused by coronavirus. More
than 10 lakhs people get affected in the world from this virus before 1st Apr, 2020. As we have
already acknowledged that India is a developing economy, it is stated as an economy passing
through demand depression and high unemployment, with 21-day lockdown announced by
Prime Minister Narendra Modi on March 23, 2020, it would slowdown the supply-side,
accelerating the slowdown.
In this scenario, they are predicting that India would go into recession affecting the unorganized
sector and semi-skilled jobholders losing their employment. The labour sector under the
MGNREGA, 2005 are worst impacted as they are not provided jobs due to lockdown, most of
the labour sectors are associated with the construction companies and daily wage earners. If
we refer to the recent measures announced by the government and the RBI to mitigate the
impact of the pandemic, as said by the RBI governor, these are only for short term and may not
deliver the desired results as the problem is severe and has been further aggravated by the
lockdown.
The quarterly GDP growth has consistently fallen since Q4 of FY18. If there is a deviation in Q4
of FY19, as shown in the graph below, it is because the National Statistical Office (NSO) revised
its data on February 28, 2020, drastically cutting down growth rates in the first three-quarters
of FY19 (from 8% to 7.1% for Quater1; from 7% to 6.2% in Quarter 2 and 6.6% to 5.6% in
Quarter 3.
Sectorial Impact
MSME: This sector contributes 30% to 35% of the GDP, showing a bifurcation of micro (99%),
small (0.52%) and medium (0.01%) enterprise. If we see the sectorial distribution of MSMEs, it
shows 49% from rural and 51 % from the semi-urban and urban areas.
Online Business / Internet Business sector: The online business in today's economy plays a
major role in the economy with a market share of USD 950 billion. It contributes 10% to the
Indian GDP and showed a drastic in the employment sector in the FY19 viz 8%. Its major
segments are the household and personal care products (50 %), healthcare segment (31%) and
the food and beverage sector (19%).

As part of our Global banking M&A outlookH2 2020 report, we explore the areas of the overall
banking sector most likely to be impacted, including valuation and profitability.
The areas that are likely to be most impacted by COVID-19 are:
Profitability and credit management/cost of risk:-
The low interest rate scenario, along with the significant impact of the COVID-19, is reducing
the core banking profitability in mature markets. Financial institutions are thus shifting towards
commission-based income from the likes of payments and tech businesses.
One of the immediate effects of the health emergency on the real global economy is the
increased credit risk of corporate and retail clients of the banks. In order to continue financing
the real economy and support its recovery, banks are called to distinguish between purely
temporary phenomena, destined to be reabsorbed in a short time, and longer lasting impacts
which would require actions of management and reclassification.
The primary aspects to be considered are:
1. the forward-looking information update -- in particular, the way in which new
information must be incorporated into risk parameters needs to be carefully analyzed,
given the peculiar nature of COVID-19. This may last for a lesser time than cyclical
downturns induced by economic -financial causes;
2. the update of the 'default rates' which needs to take into account any waivers granted
by the authorities in relation to only temporary phenomena of expiry of the
creditworthiness;
3. the definition of the most appropriate timescales for updating the 'recovery rates' in
order to be able to factor in the positive effects -- albeit inevitably in the medium term --
deriving from the credit recovery policies which could introduce forms of deferred
payments or agreements on longer maturities (restructuring debt, etc.);
The contraction in economic activity is having adverse consequences on credit quality as banks
are increasing loan loss provisions. A few European banks, have already posted significant
losses in Q1'20 (Jan-Mar) to face a potential surge in bad loans.
Securitization landscape
 The corrective actions of governments aims to mitigate the risk profiles through further
incentives for disposals.
 It is likely that the future market of synthetic securitizations may require a revitalization
after recent developments and important economic impacts that could come as a result.
Customer relationship and commercial models

 Although COVID-19 may lead to a crisis in the real economy, the impact on the banking
system and on the bank -customer relationship can also be defined as a 'positive
discontinuity' for the purpose of digitization of the sector and the ability to offer an
excellent customer experience.
 Banks, even the most territorial and branch-centric ones, are forced to encourage the
use of channels that have never been their strategic priority. This phase would be
particularly complex, which banks need to address by demonstrating real proximity with
their customers.
Operational resilience and business continuity management
 The provision of technological innovation can play an important role in guaranteeing the
business continuity of the banks: the activation and enhancement of robotics solutions
or artificial intelligence (e.g., Advanced BOTs that support the processes of adoption of
the technologies displayed on the channels direct) and mobility (e.g., platforms for the
management of promoters and systems authorizations), if applied to critical processes,
would allow for an easier protection in case of absence of staff.
 Given the necessity to have an unpredictable availability of infrastructural resources,
there is a clear opportunity also for the financial sector to evaluate the benefits of
applicable Cloud technologies.
High volatility in stock markets depressed banks' valuation whilst keeping a
strong correlation with profitability.

The key notable points are:
·Daily essentials categories are massive 200% hike in searches driven by hygiene and healthcare
needs.
·Lifestyle categories sales witnessed a drop between 15% to 30% with an increase in consumer
price sensitivity.
·Purchase growth skewed to family vs individual purchases.
·Increase in searches skewed to brand agnostics.
Source:-
Economics times
KPMG A