Impact of Covid 19 on Indian Economy

It has been more than a year and a half and the world is still struggling with a novel coronavirus pandemic. The nation went into strict lockdown for the first time in March 2020, which brought the urban economy to a standstill in the first quarter of FY 2020-21. A slow recovery was seen from the second quarter. The resurgence of demand in festival season and bumper agricultural output provided some support to the Indian economy and GDP in FY21 contracted by 7.3%.

With the development of vaccines and a lower number of cases, it was estimated at the beginning of FY22, that India will grow around 12% this financial year but the second wave of the pandemic, made things take turn for the worse. While there was no nationwide lockdown this year, local restrictions in major states impacted various sectors of the economy.

Sector wise impact

AGRICULTURE – With the second wave, the virus also penetrated rural India and this is a matter of concern as last time, GDP contraction was limited to some extent, due to support from the rural economy. In the second wave, stricter restrictions were placed in rural regions. Mandis stayed closed. Farmers could not sell their output and crops were rotting in the field. This also impacted the vegetable vendors and processing industries.

MANUFACTURING – The manufacturing sector was also impacted in both waves. Factories had to work with reduced workers. Due to fear of lockdown, many casual laborers went to their homes. The supply chain was also disrupted due to varied lockdowns in different states. This pushed the cost of the products and ultimately lead to inflation in the country. 

SERVICE – The service sector also provided relief and helped in recovering the economy. Thanks to the digital revolution, the majority of the businesses in the service sector shifted online. Employees could work from home and this helped the economy going on even during lockdowns. However, those businesses which require physical contact, like spas, salons, cinemas, etc. had to suffer during the pandemic.

AVIATION – This is the sector that is most hit by the pandemic. Flights get banned as soon as several positive cases begin to soar. People are avoiding unnecessary travel and tourism and the number of footfalls in airports is reducing. 

UNEMPLOYMENT – Unemployment in the country also increased during the pandemic. Companies were working at low capacity. To reduce costs, employees were laid off. Casual laborers went home, which put pressure on rural jobs, especially jobs under MGNREGA. In July, the unemployment rate is around 7.68% in India.

INFLATION – Due to increased prices of crude oil abroad, low supply of casual laborers, and restrictions in transportation, lead to an inflation of prices of goods. To boost liquidity, RBI is also increasing the money supply, which is also leading to an increase in the prices of goods and services. CPI Inflation in the country is around 6.2%, which is more than RBI’s commitment to tame inflation under 6% under the monetary policy agreement.


So overall, all macroeconomic variables are showing negative signs during the pandemic. Some online businesses like Zomato, OTT platforms have benefited from people staying home. But most of the businesses have suffered due to pandemics. Both government and the central bank are trying to control the impact of the coronavirus on the economy. Both the health and economy of the nation are important. Let’s hope that due to stricter compliances and widespread vaccination programs, India can avoid the impact of the third wave, as another wave will further weaken the economy.