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The outbreak of COVID-19 has impacted nations in an enormous way, especially the nationwide lockdowns which have brought social and economic life to a standstill. A world which forever buzzed with activities has fallen silent and all the resources have been diverted to meeting the never-experienced-before crisis. There is a multi-sectoral impact of the virus as the economic activities of nations have slowed down. What is astonishing and worth noting is an alarm bell which was rung in 2019 by the World Health Organization (WHO) about the world’s inability to fight a global pandemic. A 2019 joint report from the WHO and the World Bank estimated the impact of such a pandemic at 2.2 per cent to 4.8 per cent of global GDP. That prediction seems to have come true, as we see the world getting engulfed by this crisis.

In another report entitled‘COVID-19 and the world of work: Impact and policy responses’ by International Labour Organization, it was explained that the crisis has already transformed into an economic and labour market shock, impacting not only supply (production of goods and services) but also demand (consumption and investment). International Monetary Fund’s (IMF) chief said that, ‘World is faced with extraordinary uncertainty about the depth and duration of this crisis, and it was the worst economic fallout since the Great Depression’. The IMF estimated the external financing needs for emerging markets and developing economies in trillions of dollars. India too is groaning under the yoke of the pandemic and as per news reports in Economic Times published on 23 March 2020, the economists are pegging the cost of the COVID-19 lockdown at US$120 billion or 4 per cent of the GDP (The Economist, 2020).

This COVID-19 pandemic affected the manufacturing and the services sector—hospitality, tours and travels, healthcare, retail, banks, hotels, real estate, education, health, IT, recreation, media and others. The economic stress has started and will grow rapidly. While lockdown and social distancing result in productivity loss on the one hand, they cause a sharp decline in demand for goods and services by the consumers in the market on the other, thus leading to a collapse in economic activity. However, lockdown and social distancing are the only cost-effective tools available to prevent the spread of COVID-19.

Material and Methods

Research studies done earlier to assess the economic impact of epidemics have been based on simulation models. A study done by Martin Karlsson (2014) to assess the impact of 1918 Spanish flu epidemic on Swedish economy is based on the neoclassical growth model; an extension of the standard difference-in-differences (DID) estimator was employed to exploit the differing flu mortality rates across Swedish regions. The policy brief issued by the Asian Development Bank to assess the economic impact of Avian Flu pandemic on Asian economies has been done through macroeconomic simulations based on Oxford Economic Forecasting (OEF) global model, which incorporates both the demand and supply sides and adjusts to a new equilibrium after a shock (Bloom et al., 2005). The empirical estimates of the economic effects of the Severe acute respiratory syndrome (SARS) epidemic are based on a global model called the G-Cubed (Asia-Pacific) model which was proposed by Lee and McKibbin (2004). Economic effects of epidemics are measured through economic costs deriving from disease-associated medical costs or forgone incomes as a result of the disease-related morbidity and mortality. In a global economy, the economic consequences of an epidemic in one country are transferred to other countries because of the integrated supply chains and capital markets.

Economic Survey 2019–2020 had provided advance estimates for growth in real GDP during 2019–2020 at 5.0 per cent, as depicted in Table 1, as compared to the growth rate of 6.8 per cent in 2018–2019. The nominal GDP is estimated at 204,400 billion in 2019–2020 with a growth of 7.5 per cent over the provisional estimates of GDP ( 190,100 billion) for 2018–2019. (Economic Survey, 2020, p. 100) On 28 February 2020, the National Statistical Office announced revised estimates of GDP growth, from 8 per cent to 7.1 per cent in the first quarter, from 7 per cent to 6.2 per cent in the second quarter and from 6.6 per cent to 5.6 per cent in the third quarter. Goldman Sachs estimated the growth rate of GDP at 1.6 per cent, declining by 400 basis points because of 21-day lockdown (Goldman Sachs, 2020). In case of a quick retraction of COVID-19 pandemic across the globe by mid-May, KPMG India estimated India’s GDP growth in the range of 5.3 per cent to 5.7 per cent. In second scenario where India controls the virus spread but there is a significant global recession, the growth may be between 4 per cent and 4.5 per cent. KPMG India in its report estimated India’s GDP growth rate falling below 3 per cent if the virus spreads further in India and lockdown sees an extension (KPMG, 2020). Motilal Oswal research suggests that a single day of complete lockdown could shave off 14–19 basis points from annual growth (Oswal, 2020). Barclays reported the cumulative shutdown cost to be around US$120 billion, or 4 per cent of GDP (Barclays, 2020). Mr Yashwant Sinha, former Finance Minister of India, estimated the cost of 21-day countrywide lockdown at 1 percentage point of GDP. The global recession and uncertainties of future might make a 2 percentage point decline in growth rate (for 2020–2021) possible.