Economy

Consumption, external trade to see impact

Standstill to affect investments: KPMG

India’s private consumption, investment and external trade, the three major contributors to GDP, will get affected, according to KPMG’s report titled “Potential impact of coronavirus (COVID-19) on the Indian economy.”

India’s real GDP decelerated to its lowest in over six years in third quarter of 2019-2020, and the outbreak of the COVID-19 posed fresh challenges.

Steps taken to contain its spread, such as nationwide restrictions for 21 days and a complete lockdown of States, have brought economic activity to a standstill and could impact both consumption and investment, said the report.

While Indian businesses, barring a few sectors, can possibly insulate themselves from the global supply chain disruption caused by the outbreak due to relatively lower reliance on intermediate imports, their exports to COVID-19 infected nations could take a hit.

In sum, the three major GDP contributors — private consumption, investment and external trade — will get affected. On demand side impact, the report said that the lockdown was likely to have a sizeable effect on the economy, most significantly on consumption, which is the biggest component. According to the report, an abrupt stop of urban activity could lead to a steep fall in consumption of non-essential goods. The impact would be even more severe if domestic supply chain disruption caused by the 21-day lockdown was to affect the availability of essential commodities.

On supply side impact, the report said, shut-down of factories and the resultant delay in supply of goods could result in a shortage of raw materials in China for companies largely importing from there.

The severe disruptive impact on demand caused by the pandemic has created large cash-flow gaps for corporates. Tight financial conditions will make it difficult for them to fill this gap through market borrowing, the report added.

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Printable version | Jul 11, 2020 4:41:19 AM | https://www.thehindu.com/business/Economy/consumption-external-trade-to-see-impact/article31259647.ece

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