Economic revival in the times of Coronavirus can be slow, warns government’s chief economic advisor

• Indian economy may experience an “unknown” risk from coronavirus.
  
• Indian central bank also flagged risks to tourist arrivals and global trade which can be impacted by coronavirus.
  

The Finance Minister Nirmala Sitharaman said that Indian economy is showing green shoots of recovery. Just as this long awaited recovery is about to kickstart, it is infected by Coronavirus.

The epidemic can pose an unknown risk to the nascent recovery that is observed in India, said government chief economic advisor, Krishnamurthy Subramanian.

Indian economy is showing signs of revival after missing growth projections for the year. The epidemic threatens the global economy as a whole, which will affect India’s outlook. Citi Research has already cut its China’s GDP growth forecast for Q1 2020 to 3.6%, after the breakout. Coronavirus “creates some uncertainty, especially in China,” said Subramanian.

India however has been looking forward to a start the next financial year with a growth of 6-6.5% growth in GDP - might see road bumps due to the fast spreading epidemic. It will also mar Indian consumer sentiment which is already at a six-year low and is showing signs of further decline, as per the Reserve Bank of India (RBI).

Considering all these factors, the government’s chief economist is not backing government view of economic revival, not just yet.

“I would wait for it to develop in a trend as sometimes these indicators can be volatile,” Subramanian said speaking on the impact of the virus.

Subramanian also said that he will “cautiously optimistic” of the green shoots. “There are known unknowns and unknown unknowns. It’s hard to model unknown unknowns,” told Subramanian during an interview.

Imports and other impact

China has allocated more than $10 billion to control coronavirus. Multiple Chinese provinces have shut businesses for weeks and so have MNCs like Apple, Starbucks and Uniqlo.

India largely sources electronics, electronic parts and engineering goods from China. The shutdown in Chinese market might result in unavailability and alternative sources might shoot up prices.

Indian central bank also flagged risks to tourist arrivals and global trade which can be impacted by coronavirus. With China under lockdown, India is expected to witness an impact on foreign trade across industries like -- automobiles, steel and mobiles.

Citi’s report says that coronavirus impact could be larger than SARS. The economic disruption from the coronavirus according to Capital Economics will cost the global economy a total of $280 billion in the first quarter.

The infection which has no cure as yet has killed over 1,115 people so far, and more than 45,171 have been infected worldwide. After WHO called the reported cases a tip of the iceberg, many countries are on high alert.

Being China’s closest neighbour, India too reported 3 cases and 1,999 quarantined in Kerala. This is but one of the many red flags that might slowdown Indian even further, swaying it off the path to recovery.
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