Siddhartha Rastogi explores the impact of COVID-19 on the Indian economy. He is Managing Director at Ambit Asset Management with over 2 decades of financial services experience. Siddhartha was the founding member of IIFL Wealth. Siddhartha has also worked with HSBC, Citibank & UTI bank in wealth management & merchant banking roles. He writes about finance & life and has authored a book – 8 Minute Decision.

Things will never be the same again. Let’s be clear about it.

Covid-19 will change the way the world works; just like the Great Depression, dot-com bubble, and the 2008 financial crash did in the past. The question on everyone’s mind is, ‘Will things go back to normal?’

I’ve been pondering, like many have, what fundamental changes will take place in how people, businesses, and economies function. The next 12 months will be difficult. Many businesses will struggle, some may even die. But as with economic adversities of the past, new industries will emerge bringing with it renewed hope of recovery. Eventually, things will go back to normal. Just that we’ll have to change the definition of normal.

Welcome to the New Normal.

In this article, I will explore the impact of COVID-19 on the Indian economy. If you’d like to understand what this means for investors, read my article about investing during COVID.

A Brief History of Pandemics

This infographic on the history of pandemics is insightful and hence I won’t touch upon it.

While Covid-19 may not have the scale of pandemics of the past (as of date), the economic damage has and will continue to affect more people than the disease itself.

Where is the emergency exit?

Studying past trends of similar infections can help in drawing inferences as to what might help us going forward. What would it take to see this pandemic through?

  • Mass Vaccination
  • Herd Immunity
  • Social Distancing

There’s a high likelihood we’re 12 months away from a semblance of normalcy. The biggest worry is a mutating virus that brings wave upon wave of attacks, each deadlier than the other. During the course of time that Covid-19 lasts, businesses and the global economy will continue to be significantly impacted.

Life in the time of COVID

It might be a mouthful but here’s a look at what’s to come in the immediate future. Liquidity is expected to remain tight as the cost of borrowing in real terms will jump upwards. This is despite central banks’ efforts to reduce interest rates. Banks and financial institutions will be under immense pressure as the fear of NPAs, insolvency and bankruptcies increase multifold. The government will focus on meeting hyper demand for essential goods while non-essential businesses will focus on recovering their receivables/outstanding money due from debtors. New strategic alliances or business partnerships will not emerge during this period.

If these were lyrics to a song, the specific genre would be doom metal.

I don’t want to sound like a pessimist – the road forward looks rough. While there are sectors and businesses that will benefit, the prognosis is rather grim. In my best guess, here are some of the sectors that will be adversely affected and others that will see an uptick.

Adversely affected Sectors

  • Apparel & Textilewill get hit adversely due to disruption in labour supply, raw material unavailability, working capital constraints and restricted demand due to limited movement of people and purchasing ability.
  • Auto sector(which includes automobiles and auto parts) will continue to face challenges on account of lack of demand, global recession and falling income levels.
  • Aviation & Tourismis one sector which has the highest probability of going under without direct government intervention. In the next 12 months, it’s highly unlikely people will travel for leisure apart from very essential travel.
  • Shipping and Non-Food Retail – Non-food retail chains and global shipping businesses will find this 12 month period very challenging.
  • Building & Constructionbusinesses are generally leveraged and hence will face the dual challenges of high-interest payments and lack of sales.

Sectors with a possible uptick

  • Digital & Internet Economy: Online based products & services companies will find new takers
  • Ed-tech and Online Education along with firms involved with online-skill development
  • Online groceries
  • There will be a sudden spike in the demand for Content, with digital content being in demand more than ever.
  • FMCG & Retailwill benefit immensely. With continued fear, food-based retail chains, and companies catering to low-ticket consumption demand will emerge as winners.
  • Speciality Chemicals: Firms dealing in Chemicals will see a jump due to increased demand for disinfectants, drugs and medicines.
  • Pharma: Pharmaceutical firms are set to see growth in the near term.

Covid-19 Impact on India’s Economy: Challenges & Solutions

There is no doubt that COVID-19 will have a large impact on the Indian economy. With respect to India, the discussion can be bifurcated into 2 parts – India’s economy, and its stock markets.

The recovery of the underlying economy will be slow, and it will take around 2 years for normalcy to come back across sectors. While the overall economy might take a hit because of the government lockdown, some sectors are set to see immense growth in the post-COVID era – FMCG, B2C specialised lenders, gold-dependent companies, food retail and pharmaceutical companies to name a few.

Stock markets have a mind of their own, formed by the collective emotions + intelligence of millions. They are often skewed and aren’t the best indicators of the underlying economy. Stock markets will have a strong recovery, not due to the fundamentals strength, but due to global liquidity which is available for almost free (as interest rates tend to near zero). Availability of debt capital will be scarce in India, whilst equity capital will be available in plenty over a period of time.

What can the Government do?

Like its counterparts across the globe, the Indian government has announced a slew of measures to prevent total collapse. However, it isn’t enough. This works to alleviate some of the pain, not counter it. My 2 cents (or one barrel of oil) on what the government ought to do:

  • Loosen its purse and spend money on infrastructure development –  ‘Rebuild India, Rejuvenate India’
  • Public sector financial institutions need to be further capitalized and nudged by the RBI to lend out low-ticket loans below INR 1 Crore in the form of working capital to ensure that liquidity comes back into the system
  • Banking sector needs to be nudged to pass on rate cuts induced by RBI to the borrowers
  • Personal tax cuts & tax holidays for 6 – 12 months can be adopted to revive consumption, which will help spur economic growth

These are not an exhaustive list of measures but could help alleviate the impact of COVID-19 on the Indian economy while stimulating growth.

Covid-19’s impact on society

Before we end, let’s look at some of the behavioural/societal impacts that Covid-19 might have.

During the course of the pandemic, people will be using digital medium for content and entertainment. Events that require massive gathering of people – sports, music festivals, theatre, etc. will take a hit for the next 12 months.

As the world overcomes this pandemic, discretionary demand will pick up as people become imprudent. Retail leverage in the world will hit new highs. The use of addictive material – tobacco, narcotics and alcoholic beverages will jump multifold.

The next 5 years are going to be the golden period for media and entertainment. 3D/4D chatrooms and conference rooms will emerge rapidly. The largest chunk of media spending will shift from television to digital. Print media will cease to exist.

Businesses will experience an increase in productivity due to reduced staff. Remote work will see an uptick. The burden on local transportation infra will ease. Fewer roads, less traffic & pollution.


This may be the time to reset. Never before has the world come to a standstill where one can pick apart the many moving pieces – like Tom Cruise in Minority Report. We have the opportunity to rethink everything. If we do things right, we may be able to fix challenges that face humankind – environmental damage, inequality etc.

More importantly, we must ensure something like this never happens again. History says that humankind has never learnt from history. Let’s hope that it’s a thing of the past.

Leave a Reply

Your email address will not be published. Required fields are marked *

Post Navigation