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The Dire Straits of Indian Economy Due to COVID Situation

When Covid-19 started to spread across countries, most governments announced Lockdowns to tackle the situation. After the initial euphoria about getting a deserved break from work settled down, the ugly side of the Lockdown was glaring across nations.

From empty streets during the Lockdown to getting back to normal life, post the gradually phased reopening of the economy, a lot has happened in between, especially in a country like India.

Recession, financial crisis, scarcity of funds in the corporate sector, firing employees, and cost-cutting are some of the things that Indians have come to terms with during this period.

The phased re-openings have rolled out with the government announcing recently that now hotels can also start to take guest bookings; the fact is that the Indian economy, which was anyways in a beleaguered condition before the lockdown, has been hit badly due to the pandemic crisis.

Some facts and figures

Let us face the truth – the economic misery of the country has just begun. As per data available from a study conducted by the University of Pennsylvania and the Centre for Monitoring the Indian Economy, Mumbai, almost 84% of households in India have reported a decrease in income since the end of March 2020. The fall in income was a result of rising unemployment that touched about 25.5% on 5th May 2020. The reason was also attributed to a reduction in labor participation that dropped to almost 6.6%, from end march to first week May.

The report was published on 11th May 2020. It was further reported that at least 66% of households had the potential or the resources to cope with the situation for another week; but not beyond.

Another point mentioned in the report was about households in rural and urban India. Almost 88% of rural households have reported in decreasing resources due to the lockdown; while about 75% of urban households were affected on this pretext. The middle-class and the higher-income families residing in rural parts of the country have been comparatively been affected more than any other economic strata.

On the count of states that have reported to be less affected with this economic crisis are states of Telangana, Puducherry, Karnataka, Punjab, and Delhi. On the other hand, the worst affected are the smaller states of Tripura, Chhattisgarh, Bihar, Jharkhand, and Delhi.


Which are the industries that are direly affected by the pandemic?

Airline Industry

The aviation industry is in bad shape with more than five months of planes being grounded. The International Air Transport Association has estimated that the losses to the industry amount to almost $113 billion globally.

From domestic traffic to international flights, every aspect of the Indian aviation industry has been affected. The crisis has lead to job cuts and pays cuts too. For example, Air Deccan suspended operations and asked most of their employees to go on unpaid leaves.

With airlines unable to refund passengers’ money and offering them a credit-shell for a year on, India’s aviation sector is almost grounded and close to bankruptcy.

Hotel and travel industries

After the aviation industry, the entire tourism and travel industry has almost come to a halt in the country for more than four months now. Taxis and cabs, restaurants, hotels, banquets, travel agencies have all announced pay cuts and layoffs.

States of Kerala and Goa that are heavily reliant on the tourism industry have a sad story to say. International tourism, as per the UN, has caused about a 22% fall in the first quarter of 2020. Things like social distancing, the uncertainty of the future, and most of all, most international and national tourists are now no more interested in travelling for some time- all these things make the future look bleak too.

The Allied industries that encompass segments like monuments, temples, tourist guides, taxi operators, and local markets that all thrived on tourism, have been hit badly too.

In Tamil Nadu, the lockdown has caused the loss of jobs for lakhs in this industry. While the lockdown has caused so much financial distress, the prospect of the opening up of the industry is also not doing much, to bring in a positive outlook. Figures state that almost 40,000 unregistered tour operators have been forced to close shop as they do not have the funds to pay rents or salaries of staff. Almost 750 registered tour operators in the state too have also closed down. Over 5, 00,000 families were affected by job loss. And, this is just about one state!

The Indian travel and tourism industry employs about 12.75% and the latest figures state that about 38 million people are going to be affected due to the pandemic.


A report published in June points that retail sale in the country is growing only at 2.3% this year as compared to the original forecast of 12.4%.

The most badly affected is the non-essential retail industry. The Confederation of All India Traders (CAIT) has reported that Retail trade has suffered a loss of about INR 15.5 lakh crore in the last 100 days. The closure of markets and malls is the main reason behind the financial crunch.

CAIT has expressed the concern that if immediate steps are not taken to address this crunch, the country might be witnessing its worst domestic trade period, fearing that about 20% of shops across the country might be forced to close their shutters down.


With the lockdown, all manufacturing units closed. As a result, there has been a sharp decline in production, and thereof sales.

Real Estate

Though construction activities have been permitted in most parts of the country, some major projects have been on hold causing unemployment amongst migrant labourers. The sale of residential properties has fallen by 25-35% while the commercial segment has seen about 13-30% drop year-on-year basis.

The ground reality is that things are quite sombre in the financial sector. It calls for immediate action on the part of the government, both at the centre and the state. While the Central Finance Ministry has announced relief packages, they are mostly aimed at the poor and the lower economic strata. What about the middle-class that forms the major chunk of the section of people who are affected direly by the pandemic and the lockdown?

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About the Author: Praveen Unnikrishnan

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