Macroeconomics - ll Assignment

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NAME – Shllok Porwal
CLASS – SYBA(2020-21)
DIVISION – B
ROLL NO. – 2352
SUBJECT – MACROECONOMICS - ll
SEMESTER – IV
TITLE – ECONOMIC EFFECTS OF COVID 19 PANDEMIC- DID
IT CAUSE INFLATION IN INDIA- A STUDY
DEPT. – DEPARTMENT OF ECONOMICS
EMAIL ID – [e-mail]
CONTACT – 8779660391

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INDEX
SR. NO. TOPIC PAGE NO.
1 INTRODUCTION 3
2 THE STATE OF THE INDIAN ECONOMY ON THE EVE OF
COVID-19 OUTBREAK
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3 INFLATION IN INDIA AND COVID 19 8
4 MACROECONOMIC EFFECTS
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5 ECONOMIC EFFECTS OF THE PANDEMIC IN THE LONG RUN
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6 CONCLUSION 13
7 REFERNECES 14

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INTRODUCTION
We are in the middle of a global Covid-19 pandemic, which is inflicting two kinds of shocks on
countries: a health shock and an economic shock. Given the nature of the disease which is
highly contagious, the ways to contain the spread include policy actions such as imposition of
social distancing, self-isolation at home, closure of institutions, and public facilities, restrictions
on mobility and even lock-down of an entire country. These actions can potentially lead to dire
consequences for economies around the world. In other words, effective containment of the
disease requires the economy of a country to stop its normal functioning. This has triggered
fears of a deep and prolonged global recession. On April 9, the chief of International Monetary
Fund, Kristalina Georgieva said that the year 2020 could see the worst global economic fallout
since the Great Depression in the 1930s, with over 170 countries likely to experience negative
per capita GDP growth due to the raging coronavirus pandemic.34
The world has witnessed several epidemics such as the Spanish Flu of 1918, outbreak of
HIV/AIDS, SARS (Severe Acute Respiratory Syndrome), MERS (Middle East Respiratory
Syndrome) and Ebola. In the past, India has had to deal with diseases such as the small pox,
plague and polio. All of these individually have been pretty severe episodes. However the
Covid-19 which originated in China in December 2019 and over the next few months rapidly
spread to almost all countries of the world can potentially turn out to be the biggest health crisis
in our history. Many experts have already called this a Black Swan event for the global economy
The overall magnitude of the impact of the pandemic will depend upon the duration and severity
of the health crisis, the extent to which intermittent lock-downs are required in different regions
of the country and the manner in which the situation unfolds as and when the nationwide lock-
down is finally lifted and normal economic activity is permitted. The loss to the economy has
already been substantial.
This crisis comes at a time when India's GDP growth was slowing down, and unemployment
was on the rise owing to poor economic performance over the last several years. The
precarious situation that the economy was in before getting hit by this shock will potentially
worsen the effect of the shock. This is especially because the financial sector which is the brain
of the economy has not been functioning properly and the macroeconomic policy space to
respond to such a crisis is severely limited.

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Earlier, Indian economy was primarily experiencing a demand slowdown whereas now both
demand and supply have been disrupted. There are four channels through which the impact is
getting transmitted to output growth. These are: external supply and demand constraints due to
global recession and disruption of global supply chains, domestic supply disruptions, and
decline in domestic demand. The economic shock is impacting both formal and informal sectors.
It may take a long time for the economy to recover from this shock even if the lock-down is fully
lifted by August or September, 2020. To a large extent the recovery will depend on the policy
responses of the 5 government and the Reserve Bank of India (RBI) during the crisis period.
The policymakers have already announced an initial round of actions. Much more needs to be
done to minimize the impact of the shock on the economy.