Covid-19 To Affect Business Sentiment, Delay Investments, Says Finance Ministry
High uncertainty due to the Covid-19 pandemic may adversely impact business sentiment and force companies to delay investments.
That's according to the finance ministry, which in a monthly report said coronavirus' impact on Indian economy is rapidly evolving, driving market volatility on a daily basis, as reflected in movements of volatility index of domestic equity market, and economic policy uncertainty index.
Besides investment, “an adverse impact on trade is expected” due to virus-induced supply chain disruptions, weak external demand, and persistent global trade tensions, the report said. India being highly import dependent, the overall effect on net exports may be positive on the back of relatively sharper decline in imports and lower oil prices, it said.
Growth Outlook
The International Monetary Fund expects the Indian economy to contract by 4.5% in 2020—which is a 6.4 percentage point downward revision compared to April 2020 forecast owing to supply-demand shocks due to Covid-19, the report said.
Loss of economic output for more than two months during the lockdown was first triggered from the supply side as labour stayed away from work. The demand side caused further loss of output as consumption of goods and services dependent on customer mobility fell, the report said.
“This twin supply-demand shock on output subsequently led to loss of income, which caused further decline in consumption resulting in further loss of output,” the report said.
The lockdown has caused a ‘massive' supply shock that may possibly drive inflation when demand re-emerges back after the crisis, it said. With phased reopening of the economy, supply and demand are expected to rise gradually, the report said, adding that varying intensity of supply and demand shocks across sectors will cause variations in inflation for different goods.
There's also risk of a second wave of Covid-19 infections as economies unlock, and the uncertainty with flattening of the Covid-19 curve, in the absence of a vaccine, poses a serious challenge, it said.
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