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.

Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Jul 11, 2020 4:41:19 AM |

Next Story