How Will Coronavirus Impact Indian Economy And India’s Monetary Policy?

Let me begin by saying, I am not an trained economist. But then you hear that a lot from people who cannot stop to express their opinion. And economists have worse record in predicting future than most astrologers.

Anyway, without going into those complicated issues and debates, lets talk facts. I work in IT services industry. Our job situation is not pleasant. We got an email saying, pay raise, promotion and bonus are on hold. Some saw a pay cut by 10 15% and many got unpaid furlough. For 2 months to begin with. Furlough is like temporary unemployment, you do not get paid. The hope is, these benched furloughed employees will be called back after 2 months period.

The migrant labors are impacted from many directions. And middle class employees and businessmen are in a better situation. We have money to eat food and a home in most cases. But, many have purchased home and they are paying monthly home loan payments. If this situation continues, paying off home loan might be difficult for many who have lost income.

Another middle class specific problem is expensive education for kids.Without the income how long can they pay for expensive school fees?

As all economists are complaining, I would say it too, we need job and money on hand of people, so they start consuming again. As the news showed today this month car sales have plunged by 87%. It is not just lockdown, people are uncertain about their future. And as things are opening up, if car sales jumps back to previous years level, that will be a good news, in the sense that, many people would anticipate a better future.

RBI is steadily reducing rate, so that banks would disburse more in loans. But after so much NPA, how many banks would be ready to distribute loans knowing that those would turn in to NPA? I think regardless where inflation goes, RBI is not in mood to increase rate. That means, the liquidity will inflate stock market. People might see inflation in mid to long term. A depreciating rupee and increased oil price would make matters worse. Elderly people who live on fixed deposits are bound to suffer due to lack of income with low fixed deposit rate and uncertainty.

What Will Happen To The Indian Economy Because of CoronaVirus?

Real Estate Sector – While the interest rate is coming down for home and auto loans. We see the Indian middle class is already leveraged. And the property price or stock market is not giving much return. So, the middle class is not experiencing any wealth effect, in other words, they do not feel richer.

Apartment prices are actually coming down and if builders listen to Piyush Goyal, then reducing the price will be the only way to get rid of existing inventory. But, with reduced income, how many people will be able to afford these homes?

And in India, buying a home was a Ponzi scheme. A person who can afford was buying 2 – 3 investment properties and then flipping them for profit. As middle-class creation growth was slow, newcomers did not enter the market. And a lot of investors just speculated and inflated the price. And now music has stopped and investors and builders are sitting on inventory with no use.

And the IT industry has played a major role in buying investment properties. And now it is impossible for a normal middle class with a regular job to buy a decent apartment. Anyway, I believe, with increasing work from home, as internet speed increases. more and more IT employees would be able to move away from expensive cities like Bangalore and Hyderabad. And reduced demand will not help the price of an apartment in those cities. On the other hand, the government is subsidizing home for others. I do not see a bright future for the real estate sector either way. On the other hand, suburbs can be developed and people move away from cities. Reduced traffic jams, reasonable rent, and other benefits might show up in cities.

Agriculture sector –The government has opened up the agriculture sector. I have always thought, that contract farming was the future, where big companies will employ farmers or buy directly from farmers. This means more disposable income for farmers, more FMCG consumption, white goods consumption and sales of cars, and how can I forget, India will need more electricity. I see a huge demand for infrastructure, more jobs, but these will be low paying jobs.

I honestly, do not know future of manufacturing in India, although PM is pushing for local manufacturing, but India cannot replicate what China did. But may be India will be able to produce whatever we consume internally. I do not mind that, as that will mean cleaner environment to say the least.

I see a huge change in urban population, I will say, people who work in back office, will work for home more, that means, cities will have less traffic jam, and people will experience better quality of life.

India cannot export it’s way out of this economic downturn. Because we are not ready to export that much. IT services might take a hot too, as big economies are going into recession and India is not ready to be a manufacturing hub. We do not have efficient roads or systems. we need to improve those basic things, like infrastructure or single window clearance and ETC before we can imagine to become self-reliant. Good news is infrastructure development will need a lot of work. and we need lot of manual labour in existing plants too. And as electric cars are coming, that is something we can do well in. We have lot of opportunities actually, before we can become “atmanirvar” we can work on things we can nirvar/ rely on.