Introduction

This paper will examine and evaluate the current condition of the Indian economy the problems encountered in the last 5 years, including the Covid-19 crisis 2020-21, demonetization in 2016 and the introduction of the Good and Service Tax (GST) in 2017. In 2014, the people of India, evidently dissatisfied with ten years of the Indian National Congress in power, elected the BJP to the Lok Sabha (House of Commons). Boasting a landslide victory, Mr. Narendra Modi became the 14th Prime minister of independent India. Although the pandemic opened the floodgates to an economic turmoil that was long in the making, the abysmal mismanagement and incompetence of the government have made this more complicated. 

The paper will give you a detailed account of the policies and problems with the Indian economy since June 2016. The paper will focus on the impact of demonetization, the introduction of the Goods and Service Tax and the devastation caused by the Covid-19 pandemic. The paper shall also give attention to the impact on investment in the country (namely FII, Institutional and Retail) in similar context. 

Looking at the historical developments, after the decline in economic growth in the wake of the global financial crisis in 2008, Indian economy started its recovery in March 2013, more than a year before the Modi government came to power. According to RBI’s annual report for FY21 released on May 27, the recovery cycle lasted until September 2016. After it became a secular decline in growth since the third quarter of 2016-17. While there is no official explanation for the deceleration in growth, many economists believe Modi government’s sudden decision to demonetize 86 per cent of India’s currency on November 8, 2016, was the trigger that set the economy on a downward spiral.

The demonetization was followed by the hurried implementation of a poorly designed GST. As the combined effect of demonetization and GST spread through the economy that was burdened with massive bad loans in the banking system, the GDP growth rate steadily fell from 8 per cent in FY 2017 to 4 per cent in FY 2020, before Covid further damaged growth. The result of the GST was a drop in per capita GDP, rise in unemployment, increase in poverty and a diminution in the size of India’s middle class. India’s per capita GDP has dropped to Rs 99,700; this was the level in 2016-17. On the unemployment front, India has performed even worse: against the norm of an unemployment rate of 2 to 3 per cent, the new norm in the unemployment rate was 6 to 7 per cent in the years leading up to Covid-19. The pandemic has made matters worse.

The pandemic had a further negative effect on economic development, according to the latest CMIE data, the unemployment rate is 14.5 per cent as of the end of May 2021 and the rural unemployment rate has crossed 7 per cent. This comes at a time when the labor force participation rate, which maps the proportion of people who are looking for a job, is falling. As growth has slowed, poverty has increased: according to Azim Premji University’s ‘State of Working India’ report, 2020, almost 230 million people have fallen back into poverty, against 270 million lifted out of poverty between 2000 and 2016. That’s not all. According to a new Pew Research Centre Report published before the second Covid wave surge, the Indian middle class has shrunk by almost 32 million people in 2020.

The consistent policy failures in demonetization and GST tax, exacerbated by the Covid-19 pandemic has meant a loss of jobs, lower wages, loss of savings, low consumer spending, lower business investment and lost capital. But these policies failures also mean slower growth prospects, rising poverty and shrinking middle class. The main indicators of a sound economy are weak and continued policy problems will have a further adverse impact on livelihoods. Surprisingly, while we are in the midst of a pandemic and talking mainly about how soon we will come out of it, there is little anxiety and concern about the economy’s huge underperformance, because of bad policies and mismanagement. [1]

Impact of Demonetization on the Indian Economy

Demonetization was a policy failure which has damaged the Indian economy. Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency in circulation from one unit to another. Normally the current form or forms of money are pulled from circulation and retired, often to be replaced with new notes or coins which are regularly used. Sometimes, a country completely replaces the old currency with new currency. Demonetization is a drastic intervention into the economy that involves removing the legal tender status of a currency. Demonetization has been used as a tool to stabilize the currency and fight inflation, to facilitate trade and access to markets, and to push informal economic activity into more transparency and away from black and gray markets; but that was not necessarily the case in India. 

Demonetization across the globe

Demonetization has traditionally been used as a way to solve confidence problems about the currency. In the USA, the Coinage Act of 1873 demonetized silver as its legal tender, to fully adopt the gold standard. This move was made to ward off any disruptive inflation as significant as new silver deposits that were discovered in Western America. The circulation of various coins, including two-cent piece, three-cent piece, and half-dime was suspended. The removal of silver from being circulated in the economy led to the contraction of the money supply. In turn, it contributed to a downturn throughout the country. The Bland-Allison Act remonetized silver as a legal tender in 1878, to put an end to recession and political stress from farmers and silver miners. More recently, the government of Zimbabwe demonetized its dollar in 2015. It was a measure to fight the hyperinflation recorded at 231,000,000 per cent. It removed the Zimbabwean dollar from the country’s financial system. It fixed the Botswana pula, the U.S. dollar, and the South African rand as the country’s legal tender to stabilize the economy.[3] [4]

Demonetization in India

Demonetization was tried as a tool to modernize a developing economy that is cash-dependent and to fight crime and corruption involving counterfeiting and tax evasion. Accordingly, the Indian government demonetized the Rs 500 and Rs 1000 face-valued currency notes in 2016, the two most prominent denominations in its currency system. These notes accounted for 86% of the country’s circulating cash. With no indications, India’s Prime Minister Narendra Modi announced to the country’s citizens on 8th of November 2016, these notes would have no value with immediate effect. As an alternative arrangement, citizens could deposit or exchange these old notes for newly introduced Rs 2000 and Rs 500 bills by the end of the year.

Theoretically, the Indian demonetization solved a serious problem. India suffers from a large informal (underground) economy, which is estimated at 25% to 40% of the nation’s GDP. Individuals working informally pay little or no taxes because their incomes are unreported. Regardless of whether the underground activities are legal (cleaning, gardening, or selling groceries) or illegal (unlawful drug dealing, gambling, terrorism, arms trafficking, corruption, or money laundering), they enable tax avoidance, evasion, and fraud, which reduces government revenues. As a result, community betterment projects, such as infrastructure repairs and improvements, may go unfunded, and for those projects that are funded, underground tax evaders are able to freeload off the nation’s taxpayer base. This fact helps to explain why initial reactions by India’s taxpayers were often ones of pride because the government seemed to be striking openly at those who flaunted their wealth without paying nearly their share of taxes.

Stopping or slowing the growth of India’s illegal underground activities was a desired goal because they undermine the nation’s moral fabric, but as a matter of social fairness, the government’s intent was broader, aiming to expose both the legal and illegal layers of its informal economy. Currently, fewer than 4% (and perhaps as low as 1%) of India’s population pays taxes. By making the ₹500 and ₹1,000 notes illegal, Modi hoped India’s thriving informal economy would be legitimized. Individuals who exchanged excessive amounts of old notes would be required to explain their sources. Old currency notes that were held beyond the deadline would lose their value, and those who continued to use, transfer, receive, or even hold the old banknotes would be subject to fines of either ₹10,000 or five times the value of the banknotes. By promoting the use of checks, credit cards, and other forms of electronic payments, demonetization might make underground transactions more difficult to hide. And, if demonetization was able to broaden the nation’s tax base and increase government revenues, it held the potential to reduce Indian tax rates, which could increase domestic investments and spur meaningful growth.[2]

Demonetization also tackled an economic distortion that currently favors India’s low-productivity, informal sector. High-productivity sectors, such as those in which multinational firms and export-oriented domestic companies compete, are visible and, therefore, less able to escape taxes. By bringing the informal economy above ground and taxing it at reasonable rates, demonetization could bring symmetry to India’s tax-based incentive structure. As a result, relative underground returns should fall, supplying more capital to relatively high-productivity sectors and, thereby, stimulating the nation’s growth and development.

The rationale behind this herculean task was to crackdown on the black money in the shadow economy of India. The government also hoped demonetization would be an effective measure to combat counterfeit notes, and cash being used to fund illicit activities such as terrorism and drug trafficking. An adjunct motive the government had was to push the economy towards a cashless one. It was thought that the cash crunch caused due to this legislation would encourage individuals to adopt cashless transactions using mechanisms such as credit cards and online banking.

Provisions were made by the government for people to deposit cash they had in their homes into their bank accounts until the end of the year. Banks would only notify tax authorities when deposits above Rs 250,000 ($3,800) were made. This would aid the tax department in tracing individuals guilty of tax evasion due to hoarding of black money. People were also allowed to exchange their old notes for new ones at bank offices in the country. They could continue to withdraw cash of other denominations at ATMs. However, a cap of Rs 10,000 ($150) per day was placed in order to ensure that there was sufficient cash for everybody.

Impact of COVID-19 on the Indian Economy

The Indian Economy was significantly damaged by the Covid-19 pandemic. Losses from organized sectors amounted to an estimated nine trillion rupees in late March, projected to increase with the prolonging of the lockdown. Unsurprisingly, the most affected industries included services and manufacturing, specifically travel & tourism, financial services, mining and construction, with declining rates of up to 23 percent between April and June 2020. Towards the end of 2020, however, India saw some semblance of recovery across certain sectors. This was a result of easing restrictions, controlled infection rates and the festive season between October and November 2020. However, this did not last long. 

Economic activity started to decline again from March 2021, as the country faced its second wave of the pandemic and a harsh lockdown. As a result, GDP forecasts were expected to fall, putting losses at over 38 billion U.S. dollars if local lockdowns continued till June 2021. Unprecedented numbers in terms of infections and deaths recorded across the country led to another set of lockdowns in some parts, burdening the healthcare system in the midst of government controversy. International aid in the form of oxygen cylinders, PPE kits, ventilators along with funding was being sent from various countries to what looked like a dire situation.

Overall, from April to June 2020, India’s GDP dropped by a massive 24.4%. According to the latest national income estimates, in the second quarter of the 2020-’21 financial year (July-September 2020), the economy contracted by a further 7.4%, with the third and fourth quarters (October 2020-March 2021) seeing only a weak recovery, with GDP rising 0.5% and 1.6%, respectively. This means that overall rate of contraction in India was (in real terms, adjusted for inflation) 7.3% for the whole 2020-21 financial year. While economies worldwide have been hit hard, India has suffered one of the largest contractions. During the 2020-’21 financial year, the rate of decline in GDP for the world was 3.3% and 2.2% for emerging market and developing economies. Table 1 summarizes macroeconomic indicators for India, along with a reference group of comparable countries and the world. The fact that India’s growth rate in 2019 was among the highest makes the drop due to Covid-19 even more noticeable.[10]

In the post-Independence period, India’s national income has declined only four times before 2020 – in 1958, 1966, 1973 and 1980 – with the largest drop being in 1980 (5.2%). This means that 2020-’21 is the worst year in terms of economic contraction in the country’s history and much worse than the overall contraction in the world. The contraction is solely responsible for reversing the trend of global inequality, which has now started to rise after three decades (Deaton, 2021; Ferreira, 2021).

Macroeconomic indicators:

Despite India being ahead of most countries in being able to implement work-from-home measures, specifically in white collar work, jobs and earning deficits, along with instability in prices was expected. The months of the lockdown resulted in the free fall of employment, which slowly stabilized after the economy steadied in most parts of the country. Segments including consumer retail expected to see sharp falls ranging between three and 23 percent depending on the market. For the big players across segments, this meant operating at less than full capacity; for small businesses, however, it depended on how long they could ride out the storm. Overall, the pandemic changed daily lifestyles drastically.

If we compare India’s unemployment rate in 2020 with other countries, India has performed relatively poorly – both in terms of the world average and compared with a set of reference group economies* (with similar per capita incomes to India’s). Unemployment rates were more muted within the reference group economies, and were also kept low by generous labor market policies to keep people in work.

Despite the scale of the pandemic, additional budgetary allocation to various social safety measures has been relatively low in India compared with other countries. Although India might look comparable to the reference group in non-health sector measures, the additional health sector fiscal measures are less than half those in the reference group. More worryingly, the Indian government’s announced allocation in the 2021 budget for such measures does not show an increase, once inflation is taken into account.

Income, expenditure, consumption, poverty and unemployment

While the macroeconomic statistics provide a snapshot of India’s economic position, they hide the large and unequal impacts on households and workers within the country. An estimated 230 million people have fallen into poverty during this crisis at the same time both wealth and income inequality has been on the rise in India. Estimates suggest that in 2020, the top 1% of the population held 42.5% of the total wealth, while the bottom 50% had only 2.5% of the total wealth. Post-pandemic, the number of poor in India is projected to have more than doubled and the number of people in the middle class to have fallen by a third.

During India’s first stringent national lockdown between April and May 2020, individual income dropped by approximately 40%. The bottom decile of households lost three months’ worth of income. Microdata from the largest private survey in India, the CMIE’s Consumer Pyramids Household Survey or CPHS, shows that per capita consumption spending dropped by more than GDP. GDP recovery did not follow the bounce back in consumption during periods of reduced social distancing. Mean per capita consumption spending continued to be over 20% lower after the first lockdown (in August 2020 compared to August 2019) and remained 15% lower year-on-year by the end of 2020.

Official poverty data are unavailable and the CPHS data come with a caveat of “top” and “bottom exclusions”. For example, official statistics show a rural headcount ratio of 35% in 2017-’18. But the CPHS data estimate it at 25%, which suggests exclusions at the lower end of the consumption distribution. 

Despite these statistical concerns, CPHS does provide consumption numbers for a large sample of individuals, which can provide insights into changes in consumption levels arising from the pandemic. Table 2 reports the percentage of people who have monthly consumption expenditure below different cut-off values. The different cut-offs encompass the official poverty lines (which, in any case, have been considered too low by some commentators). Based on the latest CPHS

Essentially, expanding the money supply in the economy lowers interest rates enough for crucial investments in the economy to continue; this bypasses the otherwise impairing effects of rising borrowing costs at the time of recession and a cash crunch. 

Globally, the case for deficit financing through private borrowing varies vastly for different countries. In the USA for example, there is plenty of private funding that has now been pushed to savings because of the economic slowdown. This, coupled with the fact that interest rates are slumped to near zero and the real interest rate is negative, provides an opportunity for the government to go on a borrowing spree without care despite the debt to GDP ratio climbing up. Essentially there is almost no cost of borrowing this money and high debt levels may be sustained because there is no inflationary pressure. In countries like India, however, the inherently weak fiscal situation of Indian banks and actual deficit levels aside, the question of inflation remains a big challenge. [7] [8] [9] [10] 

Money Supply

India has been experiencing stubbornly high inflation, meaning that the average price level is structurally increasing. The CPI print for August 2020 came in at 6.7% (YoY), which means that in 2020 (with the exception of April) inflation had hovered above the 6% upper band inflation target range of the Reserve Bank of India (RBI). Core inflation rose despite an unprecedented -23.9% contraction of the economy in Q1. During an economic slowdown, lower demand for goods and services normally leads to lower price pressure, but the opposite is true for some goods in the COVID-19 crisis. This is due in part because money supply in the economy has been increasing at 20% annual rate. Monetary policy tried to bring cash in the hands of people and increase consumption following Covid 19. If inflation is not systematically controlled, we could be looking at much worse inflation numbers and a situation of hyperinflation in the long-term. The current situation also solves the dilemma of euphoria in the Indian equity markets. The bull run in the markets is being fueled by the immense amount cash which is being circulated in the economy, thus pushing the prices up. [28]

Impact of the GST on the Indian Economy

The Goods and Services Tax (GST) is a large project which aims to simplify the complex tax structure and enhance the economic growth of the country. GST is a comprehensive tax levy on manufacturing, sale and consumption of goods and services at a national level. The Goods and Services Tax Bill or GST Bill, also referred to as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, initiates a national Value Added Tax (VAT). GST will be an indirect tax at all the stages of production to bring about uniformity in the system. On bringing GST into practice, there was an amalgamation of many central and state taxes into a single tax. It would also enhance the position of India in both, domestic as well as international market by decomplicating existing systems. At the consumer level, GST reform removed the overall tax burden, which was estimated to be as high as 25-30%. A conclusive evaluation of the estimate is yet to be comprehended. Under this system, the consumer pays the final tax but an efficient input tax credit system ensures there is no cascading of taxes: tax on tax paid on inputs that go into manufacture of goods. In order to avoid the payment of multiple taxes such as excise duty and service tax at central level and VAT at the State level, GST would unify these taxes and create a uniform market throughout the country. Integration of various taxes into a GST system will bring about an effective cross-utilization of credits. GST aims to tax consumption, whereas the previous tax regime aimed to tax production. 

Impact

The introduction of the GST  meant the government forecasted the lowest economic growth rate of 6.5% for the financial year 2018, in the prior four years. Further, the central statistical organization has anticipated the negative growth (-3.3%) for the Indian manufacturing sector in the financial year 2017-18 as compared to FY 2016-17. In addition to above, a reduction was also been reported in the Indian Industrial Production. Moreover, the contribution of agricultural sector to the Indian GDP was reduced about 652.11 INR billion in the third quarter as compared to that of second quarter of the year 2017 . The Central Statistics Office has also predicted the negative impact of GST over the agriculture and farm sector. The GST has also influenced the Real Estate sector due to the enhancement in the cost of land, material and building. Further, the aviation sector had a yearly hit of Rs. 5700 crores. Of course there are some bright spots: with the implementation of GST on medicines, 1% tax has been reduced, resulting in cost reduction for the consumers. However, prices increase is expected over the diagnostics tests because of GST. Due to reduction of new work orders, and low activity, the service sector has been particularly affected by the GST. In July 2017, the output of service sector has been reported at lowest level in comparison to past four years. The Nikkei India Services Purchasing Managers’ Index (PMI), has indicated 45.9 for the service output in the month July 2017 which was lowest since 2013 September; this shows a start level of contraction.

On the other hand, the GST is a significant step in Indian taxation: One Nation, one market and one tax has proven popular. It has transformed the India into a single and unified market of 1.3 billion citizens. As per a survey, 50% enhancement has been reported in the base of indirect taxpayer. Further, automobile and real estate sector has expected the benefit due to the implementation of lower sales tax level in the GST. In line with above, the detailed impact of GST over the various sectors of economy has been as appended below. 

Indian economy is classified in three sectors — Agriculture, Industry and Services. Agriculture sector includes Agriculture (Agriculture proper & Livestock), Forestry & Logging, Fishing and related activities. Industry includes ‘Mining & quarrying’, Manufacturing (Registered & Unregistered), Electricity, Gas, Water supply, and Construction. Services sector includes ‘Trade, hotels, transport, communication and services related to broadcasting’, ‘Financial, real estate & professional services’, ‘Public Administration, defense and other services’. Further, every global, international and nation developments have significantly influenced on the Indian economy. Subsequently, the Indian economy has also been influenced due to the implementation of GST. The impact of GST implementation has also been felt in different segments of Indian economy, as per the below.

Agriculture

Agriculture, the primary sector of Indian economy provides employment to large proportion of Indian workforce and economic activity. However, it was damaged most by the GST. The contribution of agriculture sector to the Indian GDP has reduced to 3245.21 INR Billion in the third quarter of 2017, from 3897.32 INR Billion in the second quarter of 2017. With the implementation of GST, the prices of various agricultural inputs have also increased due to enhancement in GST rates. Further, Central Statistics Office (CSO) has forecast about the negative impact of GST on agriculture and farm sector. 

Manufacturing sector 

According to RBI, the manufacturing sector of India had felt the adverse impact due to implementation of GST. RBI has also forecasted for unfavorable conditions regarding revival of Investment activity in manufacturing section due to implementation of GST. Further, a downfall has also been observed in the industrial production in India.

Real Estate 

One of the most significant sectors of economy which had an adverse impact due to GST. With the implementation of GST, buyers will be paying 12% GST, which will be 3.5% more when compared to earlier taxes (4.5 percent Service Tax and around 4 percent of VAT). Further, the costs of land, material and building have also been increased due to GST. 

Textile industry & handicraft

With the implementation of the GST India’s apparel export was reduced 39% in value terms in October 2017. Further, GST has given a boost to textile import. Additionally, handicrafts industry has been badly hit due to implementation of GST. Earlier, handicraft was exempted from tax in more than 15 Indian states. However, 8 Indian states were imposing 5% VAT on handicraft items. At present, Handicraft has been bought within the GST tax slab of 12% and 18%.

Aviation sector and Banking Sector

Due to implementation of GST, the aviation industry may experience the yearly reduction in revenue of Rs. 5,700 crores (as reported by domestic airlines to Finance Minister). Further, GST has also severely influenced the Indian Banking Sector. 

Pharmaceutical Industry 

The Pharmaceutical industry has benefitted. Previously, medicines were taxed at about 13%, but fortunately only 12% GST has been introduced on medicines including ayurvedic. It may result in cost reduction for consumers. However, prices on diagnostics tests are expected to rise due to GST. 

Service sector

India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. GST has had a mixed impact on service sector. It is beneficial in some areas, but at the same time it is creating hurdle in ease of doing business. It is beneficial in items like seamless flow of credit, avoidance of double taxation but has increased a lot of compliance burden. Due to reduction of new work orders, and low activity, the service sector has felt the downturn particularly harshly, after the implementation of GST. In July 2017, the output of service sector has been reported at lowest level in comparison to past four years, immediately after the implementation of GST. The Nikkei India Services Purchasing Managers’ Index (PMI), has indicated 45.9 for the service output in the month July, 2017 which was lowest since 2013 September. 

Petroleum Industry 

The petroleum industry experienced a boost in its sales, as the GST was reduced on in comparison to the old taxes. Presently, the Petroleum products like peat, ores & concentrates, kerosene, tar, coal & ignite, petroleum coke & petroleum have a GST of 14.5%, 13.5%,12%, 7%, and 9.5% less as compared to the old tax rates, respectively. 

Finally, it is important to note, the implementation of GST has posed a great challenge to the Indian government. The shift from destination based taxed to the origin-based taxed has emerged as a big challenge for business organizations. Further, for proper implementation and administration of GST, adequate Information Technology (IT) infrastructure has also become the need of hour. The IT based skilled manpower having complete knowledge and training of GST has also been needed for achieving the objectives of GST. Further, the training and development of citizens has also been required for registration, filling and payment of GST. Due to the enhancement in tax rates in many items, the Indian economy may experience the inflation. [17] [18] [19] 

Comparison of Three Events

In order to examine the effects of the problems, it is necessary to compare the three events across a number of criteria and note what is most effective. 

GDP

From April to June 2020, India’s GDP dropped by a massive 24.4%. According to the latest national income estimates, in the second quarter of the 2020/21 financial year (July to September 2020), the economy contracted by a further 7.4%. The recovery in the third and fourth quarters (October 2020 to March 2021) was still weak, with GDP rising 0.5% and 1.6%, respectively. This means that the overall rate of contraction in India was (in real terms) 7.3% for the whole 2020/21 financial year. [9] [5]

Demonetization

With the gross domestic product (GDP) for the April-June quarter slipping to 5.7%, the reality of the economic slowdown could not be ignored. The World Bank had reduced the India GDP growth forecast to 7% for 2017-18 owing to demonetization and GST (Goods and Service tax). The slowdown was being cited as a delayed consequence of demonetization by the World Bank and while there were various other reasons at play, the steep decline had been credited to be an effect of demonetization.

Unemployment and poverty levels   

Post-pandemic, the number of poor in India is projected to have more than doubled and the number of people in the middle class to have fallen by a third (Kochhar, 2021). During India’s first stringent national lockdown between April and May 2020, individual income dropped by approximately 40%. The bottom decile of households lost three months’ worth of income (Azim Premji University, 2021; Beyer et al, 2021).

Table 3 shows households in the middle of the pre-Covid-19 CPHS consumption distribution saw large drops in spending after the first wave of the pandemic, helping to create a new set of people entering poverty. The percentage of poor people in the second lowest quintile of pre-Covid-19 consumption jumped from 32% to 60% within a year. This was driven largely by rural areas, where the headcount ratio for the second quintile almost doubled. T

This sharp rise in poverty after the first lockdown is consistent with a variety of surveys that highlighted the depth of the crisis (Azim Premji University, 2021). Year-on-year urban unemployment rate jumped from 8.8% in April to June 2019 to a staggering 20.8% in April to June 2020 (Government of India National Statistical Office, 2020). [10]

Demonetization

According to IAS Score (2019), close to 1.5 million workers were left unemployed after demonetization, but the rates were left largely unchanged. The unemployment rate can be contributed to the lower rates of investments occurring in the market. Ajit Karnik (2016) also agrees that demonetization had a negative impact on employment. The labor force participation rate (LPR) was lower than forecasted in October of 2017. The Centre for Monitoring Indian Economy predicted the LPR to be 49.67%. Once demonetization movement was announced the rate grew to 46.28% (Karnik, 2016). The rate hit a low of 45.8 % in November and December of 2016. For example, the road construction sector had to lay off close to 35% of workers due to demonetization. The manufacturing sector also had to lay off approximately 29% [21]

GST

According to the current weekly status approach or CWS, the unemployment rate stood at 8.9% in 2017-2018. Among women, the rate was 9.1% – higher than in usual status approach at 5.7%. Among men, the rate stood at 8.8%, higher than 6.2% in usual status. Unemployment in urban areas was higher than in rural areas – 9.6% according to the CWS approach, as against 7% in the usual status approach. The rate was at 8.5% in rural areas as per the CWS approach, compared to 5.3% in regular status approach.

A number of sectors were also impacted by these events. 

Tiles & Ply:

The tiles sector has been badly hit post demonetization, and the introduction of GST (rate of 28 percent) has further impacted growth as the price differential between unorganized and organized players increased, leading to tepid revenues. About four-fifths of tile and ply is used as new demand, with the balance being used as replacement demand. With the benign real estate activity post introduction of demonetization and RERA, the growth has been further impacted. Firms impacted include Kajaria Ceramics, Somany Ceramics, Century Ply and Green Ply.

FMCG:

Around 38-40 percent of FMCG sales happen through the wholesale channel which largely deals in cash and is not entirely tax compliant. The lower liquidity situation posts demonetization and prudent tax laws of GST have further reduced consumption. To offset the loss in demand, most FMCG players are increasing their direct reach and bypassing the wholesale channel.Firms affected include Emami, Bajaj Corp, Marico, Hindustan Unilever, Colgate.For FMCG products, the Wholesale channel was impacted due to liquidity crunch which led to increase in the market share for Modern retail. The modern trade which used to be 9 percent of overall FMCG revenue is expected to double in next 5 years. Firms affected include Future Retail, Avenue Super Mart, and V-Mart

Automobile (2 Wheelers):

Post demonetization, cash flows of rural India (majorly a cash economy) were impacted the most due to liquidity crunch. These impacted sales of 2-wheeler companies which have sizable sales in rural parts of the country. Firms affected include Hero Moto, TVS Motor and Bajaj Auto

Consumer Durables:

High ticket purchases, especially in the white goods space, were impacted post demonetization. However, sales did improve over subsequent quarters as the liquidity situation got better. Firms include Whirlpool of India and IFB industries. 

Luggage:

With the luggage industry being levied by a GST rate of 28 percent, it has widened the gap between the organized and unorganized players. This has made it difficult for the large players to completely pass on prices to customers. Firms affected include VIP industries and Safari industries. 

Jewelers:

Demonetization and GST have made it difficult for smaller jewelers to do business as the majority of their transaction were done with cash. As more than 70 percent of the jeweler sales used to happen through unorganized/regional players, there has been a structural shift in demand to organized players leading to strong sales growth. Titan industries, PC Jeweler and TBZ. 

Brokerage houses:

As per estimates, demonetization brought back almost Rs 2-3 trillion of money into the mainstream economy, which was supposedly lying ideal. With real estate in the doldrums and uncertainty in gold prices as well as the low rates of debt instruments, equities have emerged as the only investable asset class leading to huge inflows of money towards the same. This has led to healthy growth in revenues for brokerage houses. Firms who have benefited include Motilal Oswald, Edelweiss, JM Financial

MSME Sector:

The MSME sector in particular faced two major shocks in demonetization and the introduction of GST. MSMEs largely operate in the informal sector and comprise a large number of micro enterprises and daily wage earners,” added the report while mentioning that share of MSMEs in overall GDP is around 30 per cent (GOI, 2018), and the sector accounts for about 45 percent of manufacturing output and around 40 percent of total exports of the country.

MSMEs play a crucial role in the employment generation, and contribute significantly to overall economic activity, despite which the contribution faces several bottlenecks inhibiting them from achieving their full potential. About 97 per cent of MSMEs operate in the informal sector, and their share of informal sector in gross output of MSMEs is about 34 percent. As per National Accounts Statistics 2012, the share of informal (unregistered) sector manufacturing MSMEs in total GDP is estimated at around 5 per cent.

The year-on-year (YoY) growth of bank credit to the MSME sector decelerated gradually during 2015 to 1.6 per cent in April 2016 before exhibiting some recovery till October 2016. The deceleration in credit growth during 2014-16 was partly due to overall slowdown in economic activity, rising non-performing assets (NPAs) and reclassification of food and agro-processing units from MSME category to agriculture sector (as per the revised priority sector lending guidelines, issued to banks in April 2015).

On the exports front, the report added that the MSME sector contributes around 40 per cent to India’s total exports (GOI, 2018).  Among various items of MSMEs exports, gems and jewelry, carpets, textile, leather, handlooms and handicrafts items are highly labor intensive and depend heavily on cash for working capital requirements and payment towards contractual laborer. Hence, export shipments of these sectors were impacted by demonetization. [13] [22-26]

Conclusion

These three devastating events were very similar in the fashion that they disrupted the lives of the people. The magnitude of that disruption in each of the three cases was inversely proportional to the economic status of each individual which is obvious given the socio-economic structure of the Indian society. In theory, the purpose behind the implementation of demonetization and the tax regime of GST cannot be questioned, both these policies were realized with a different set of goals but the purpose, namely the control of black money and the implementation of one umbrella tax could prove to be beneficial. The problem however the fact these policies were not openly debated in the parliament meant they were almost arbitrarily introduced. A similar case could be made for the Covid 19 pandemic. The implementation of untimely lockdowns and then the mishandling of healthcare resources during the pandemic resulted in a hugely devastating second wave. 

This is the reality of an economy that has been severely mismanaged by the government. While many proponents of the current government would argue that business reforms and ease of doing business has improved and the amount of capital that has flooded the nation has created jobs and opportunities, the income gap between the rich and the poor has kept on compounding because of the same reason. Demonetization, GST, Covid 19 have economically worsened the lives of the lower middle class and the lower class and the people who are below the poverty line. On the ground stories and the real impact of covid on rural India can be understood and felt by reading  https://www.firstpost.com/india/how-second-wave-of-covid-19-has-decimated-indias-rural-economy-9689231.html. 

Investment during this time period is a very interesting factor to observe. While GST and demonetization slowed the growth of the Sensex for brief periods, the March 2020 crash was followed by a bull cycle which is continuing despite the worrying economic indicators. This could be because the retail Indian investor got exposed to the markets during the pandemic (include broker stats) and obviously the current fiscal policy of the central bank. Whether there is an alteration in the fiscal policy and the levels of money supply is yet to be seen and thus we cannot conclusively say right now if hyperinflation in the country is bound to occur which will impact the poor even more; or perhaps will there be some moderation and how that affects the market especially with the predictions that a bear market is not that far off. [29]For the lack of a better word, the Indian economy right now is in a confusing state of affairs. On one hand, you can see foreign investment and euphoria in the markets increase quarter-on-quarter and the economic recovery from Covid 19 itself has taken hold. However, there is an immense amount work to be done to pull the MSME sector and the whole informal economy itself, which constitutes nearly 40 percent of Indian GDP, to the levels where it was pre-pandemic, pre-GST and pre-demonetization. Competent government policies are needed to restore economic growth. 

References:

1. Impact of Demonetization, Goods and Service Tax and Covid 19 on the Indian Economy. Article DOI:10.21474/IJAR01/11649   DOI URL: http://dx.doi.org/10.21474/IJAR01/11649
2. https://www.moneycontrol.com/news/business/demonetisation-4-years-on-a-look-at-what-it-achieved-and-didnt-6086571.html
3. https://www.investopedia.com/terms/d/demonetization.asp
4. https://cleartax.in/g/terms/demonetization
5. https://www.babson.edu/academics/executive-education/babson-insight/finance-and-accounting/indias-demonetization-what-were-they-thinking/#
6. The Implementation of Demonetization by Raju Rao https://pmworldlibrary.net/wp-content/uploads/2017/09/pmwj62-Sep2017-Rao-Demonetization-in-India-featured-paper.pdf
7. https://www.freepressjournal.in/analysis/indias-economy-is-ailing-and-its-not-just-because-of-covid-19-writes-a-l-i-chougule
8. Understanding India’s Economic Slowdown by R. Nagaraj https://www.theindiaforum.in/sites/default/files/pdf/2020/02/07/understanding-india-s-economic-slowdown.pdf
9. https://www.statista.com/statistics/1229773/india-estimated-economic-impact-of-coronavirus-on-industry/
10. https://scroll.in/article/999275/the-pandemic-in-data-how-covid-19-has-devasted-indias-economy
11. https://journals.sagepub.com/doi/full/10.1177/0972063420935541
12. https://journals.sagepub.com/doi/full/10.1177/0972262921989126
13. https://rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1315
14. https://journals.sagepub.com/doi/full/10.1177/0019466220983494
15. https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—sro-new_delhi/documents/publication/wcms_798079.pdf
16. https://link.springer.com/article/10.1007/s41027-020-00255-0
17. https://www.phdcci.in/wp-content/uploads/2020/08/Impact-of-GST-on-Economy-and-Businesses.pdf
18. https://madhavuniversity.edu.in/impact-of-gst-on-indian-economy.html
19. https://www.researchgate.net/profile/Mr-A-Dash/publication/318421150_POSITIVE_AND_NEGATIVE_IMPACT_OF_GST_ON_INDIAN_ECONOMY_ A_DASH/links/5968a117aca2728ca67bc406/POSITIVE-AND-NEGATIVE-IMPACT-OF-GST-ON-INDIAN-ECONOMY-A-DASH.pdf
20. http://www.theijbmt.com/archive/0932/2116231109.pdf
21. https://www.civilserviceindia.com/subject/Essay/what-are-the-positive-and-negative-impacts-of-GST.html
22. The Impact of COVID-19 Pandemic on Different Sectors of the Indian Economy: A Descriptive Study http:// www.econjournals.com https://doi.org/10.32479/ijefi.10461
23. https://www.economicsobservatory.com/how-has-covid-19-affected-indias-economy
24. https://www.bloombergquint.com/business/demonetisation-impact-on-indian-economy-what-we-know-three-years-on
25. https://www.moneycontrol.com/news/business/markets/top-five-sector-which-got-impacted-the-most-post-demonetisation-nitasha-shankar-2432495.html
26. https://www.business-standard.com/article/news-ani/msme-worst-hit-by-gst-demonetisation-says-rbi-study-118081800287_1.html
27. https://www.ijiras.com/2018/Vol_5-Issue_3/paper_44.pdf
28. https://tradingeconomics.com/india/money-supply-m3
29. https://economics.rabobank.com/publications/2020/september/indias-worrying-inflation-dynamics/
30. https://www.indiamacroadvisors.com/page/category/economic-indicators/money-and-banking/money-supply/
31. * The ‘Reference group’ refers to the closest peer group statistic under which India falls. The reference group for GDP per capita is the Emerging Market and Developing Economies (EMDEs) classification by the IMF. The reference group for the unemployment rate is the Low- and Middle-Income Countries (LMICs) classification by the World Bank. The reference group for the fiscal measures is the Emerging Market and Developing Economies (EMDEs) classification by the IMF. Source: Data on gross domestic product, constant prices (percentage change) is obtained from the World Economic Outlook Database April 2021, International Monetary Fund. India’s GDP contraction is 8% according to the IMF and 7.3% from recent national estimates. Unemployment rates (for youth, adults: 15+) are ILO modelled estimates as of November 2021 and are obtained from ILOSTAT, International Labor Organization and World Bank. Fiscal measures are obtained from Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic as of April 2021, International Monetary Fund.

About the author

Ishaan Marwaha

Ishaan is a Business Economics, Finance, and Entrepreneurship enthusiast. He currently reads in Grade 12 at Spring Dale Senior School, Amritsar, India. He is a winner of national-level business competitions and debates and takes a great interest in studying equity markets and the behavioral economics behind them. He is an avid investor and occasional swing trader. He wants to study Economics and Management at the University of Oxford at the undergraduate level.

The post Impact of Demonetization, GST, Covid-19 on Indian Economy and Investment appeared first on Exploratio Journal.

Introduction

The Coronavirus pandemic (COVID-19) is a worldwide medical and economic emergency caused by a newly discovered coronavirus. The first human cases of COVID-19, were reported by officials in Wuhan City, China, in December 2019 which then spread to many countries including India. India reported the first confirmed case of the coronavirus infection on 30 January 2020 in the state of Kerala. And now India has a total of 8.27 million cases as of October 2020 making it the second worst hit country after the US.

The economic impact of the pandemic has been largely disruptive. During lockdown, employment has come down by a large number, GDP rates are declining and many businesses are shut down. According to the World Bank, India is likely to record its worst growth performance since the 1991 Liberalisation this fiscal year. 

In May, The Indian Government announced a 20 lakh crore (307.6 US billion dollars) economic package consisting of both fiscal and monetary measures which includes reforms which were previously announced. This package includes policies which affect micro, small and medium businesses (MSMEs), migrant workers, agriculture etc. Mr. Modi said that this package accounts for about 10 per cent of the Indian GDP. However, according to the estimation by Barclays and HSBC India the package is only worth about 1-2 lakh crore (15.38-30.7 US billion dollars) which accounts for about 1 per cent of the Indian GDP.

Since the Indian economy was already slowing down before the pandemic due to the 2016 Indian Banknote demonetisation and Infrastructure Leasing & Financial Services crisis, I feel that more action needs to be taken by the Indian Government in order to improve the Indian economy for the long run. I will be sharing my thoughts and opinions on the current economic situation in India and will also be discussing some potential policies regarding employment, interest rates and corruption. 

Discussion 

Employment and Unemployment Rates

If we compare the unemployment rates before and after Covid-19, we see a huge spike. This is mainly due to the nation-wide lockdown imposed during the months of March, April and May. However, after the 20-lakh crore (307.6 US billion dollars) economic package was announced in mid may there seems to be a decrease in unemployment rates particularly in rural areas. As of 15^th October, the unemployment rate in India is 6.8 per cent while in the urban sector its 7.9 per cent and in the rural sector 6.4 per cent. These rates are significantly low when compared to the rates in April (before the package was announced) where the unemployment rate in India was 23.52 per cent, in the urban sector it was 24.95 per cent and in the rural sector 22.89 per cent.

The unemployment rate in October is almost 3 times less than what it was in April. Also, the unemployment rate as of 15^th October is much lower than pre-covid rates as well. In December 2019 the unemployment rate, as seen in Table 1, is 7.60 per cent in India, 9.02 per cent in the urban sector and 6.93 per cent in the rural sector. Comparing these rates to the current rates, unemployment has come down by approximately 1 per cent in India.

If we look at table 2, we would see that the most hard-hit age group is 18 to 25 years. Even before Covid-19 struck the unemployment rate for younger people was much higher than the older people.

This may be due to the fact young workers are not appropriately qualified and lack the needed skills.

From the table 3, we can see that the majority of workers have less than ten years of formal education which is not nearly enough to work. Only 3.6 per cent of workers have a diploma.

If we compare the unemployment rate by work types, we would see that unemployment during Covid-19 in the informal sector is almost 3 times higher than the formal sector. But, before the pandemic, unemployment in both the formal and informal sector was almost the same. This shows the informal sector has been severely affected by Covid-19 due to the lack of labour laws, job security, insurance schemes, pension etc.

The average labour participation rate in the first three weeks of September was 40.7 per cent. These compare poorly with the 40.96 per cent recorded in August. The average LPR from June through mid-August was almost 40.9 per cent. This average has dropped to 40.45 per cent for the period mid-August through mid-September.

A falling labour participation rate indicates a smaller proportion of the working age population is employed or, is unemployed and is looking for employment. It can also mean people who are still studying or people who are retired are more in number in India. 

The employment rates in India stood at 37.6 per cent, 37.5 per cent and 37.9 per cent in the first three weeks of October, lower than 38 per cent recorded in September. The employment rate stood at 39.4 per cent in 2019-20. The average rural employment rate stood at 39.1 per cent in the first three weeks of October is lower than 39.8 per cent in September, which was its highest level since the lockdown, and was closer to 40.7 per cent in 2019-20. The average employment rate in urban India in the first three weeks of October was 34.8 per cent in September but still over 200 basis points lower than the 2019-20 level.

From my point of view, even though unemployment rates are coming down, there has been a decline in employment rates as well. The Indian Government needs to take action to improve employment as high employment would reduce inequality and prevents relative poverty from those who are unemployed. It would improve business and consumer confidence which will encourage higher growth in the long term. 

Indian GDP Rates

After the announcement of the economic package, India’s GDP estimates were downgraded even more to negative figures signalling a deep recession. Estimates from the World Bank says GDP in India will contract by 9.6 per cent in FY21. On 22^nd May 2020 the RBI governor Shaktikanta Das also said India’s GDP growth will remain negative in FY21.

State Bank of India research predicts a contraction of over 40 per cent in the GDP in Q1 FY21. On a quarterly basis, India’s growth rate fell from around 8 per cent in Q4 FY18 to a new low of 4.5 per cent in Q2 FY20.

India’s real GDP declined y-o-y by 23.9 per cent in the quarter ended June 2020, reversing the economy back to its quarterly level of less than rupees 27 trillion.

The reason why the Indian GDP is declining rapidly may be due to the decline in consumption demand from private individuals, demand by private sector businesses, demand for goods and services generated by the government etc.

Looking at the percentage changes (year on year) in Table 4 we can see private consumption has fallen by 27 per cent. Business investments is half of what it was last year in the same quarter. Net export demand has turned positive in this Q1 because imports have crashed more than its exports.

Although government expenditure went up by 16 per cent, in my opinion, it is nowhere enough to compensate for the loss of demand in others sectors of the economy which has in turn led to decline in the Indian GDP.

Business Creation and Business Death

According to the data provided by the Minister of State Finance and corporate affairs Anurag Singh, the number of companies registered from April to August 2020 by all Registrar of Companies (ROCs) is 51,807. However, the applications for setting up of new companies were received prior to the global pandemic. So, we still are unsure about the rate of creation of businesses during the period of Covid-19 as legitimate sources of data on this subject have not yet been provided.

Before COVID-19, a total of over 6,80,000 companies were closed across India. The number of closed companies account for 36.07 per cent of the total 18,94,146 companies that are registered under Registrar of Companies. Out of the total 6,80,000 companies that have been shut, over 1,42,000 were in Maharashtra, more than 1,25,000 were in Delhi, over 67,000 were in West Bengal while no company was closed in Sikkim.

The obvious reasons why businesses are shutting down so quickly is due to the rapid decline in demand for goods. Businesses related to online grocery, healthcare and essential goods are booming as they are in popular demand.

To improve business creation and lower business deaths the government should try and lessen the burden on businesses in order to function during the pandemic.  The Indian government should allow businesses to continue to exist by giving business employees a paid holiday instead of just laying them off.  The government could also reduce paperwork, lower taxes or provide tax refunds as well.

Agricultural Sector

The agricultural sector is an important part of India’s economy. It is among the top two farm producers in the world with China being the first. This sector provides approximately 52 percent of the total number of jobs available in India and contributes about 18.1 percent to the Indian GDP. This is perhaps the reason why the government has devoted a whole tranche of the economic package to this sector.

GDP from Agriculture in India decreased to 4546.58 INR Billion in the second quarter of 2020 from 5306.26 INR Billion in the first quarter of 2020.

However, according to the quarterly estimates of GDP released by the National Statistical Office the gross value added (GVA) from agriculture, forestry and fishing grew by 3.4 per cent at constant prices in April-June 2020 over April-June 2019. This is against a 22.8 per cent YoY decline in overall real GVA for the quarter.

The Indian Government has introduced a lot of policies in the agricultural sector to assist farmers and also to strengthen the overall farm sector. This has led to a declining rate in unemployment especially in the rural areas as mentioned above. Seeing this, we would expect food prices to come down as well.

But the cost of food in India increased 10.68 percent in September of 2020 over the same month in the previous year. It is the highest food inflation since February and ahead of the festival season. Prices of vegetables jumped 20.73 percent, meat and fish 17.6 percent and pulses 14.67 percent.

Although, the Indian government has done well in introducing policies to improve the farm sector, I feel they need to focus on lowering food prices because if this trend continues a lot of people would not be able to afford food at such high prices.

Transactions

Unified Payment Interface (UPI) saw an increase of 8.3% in the total transaction volumes between May and June 2020, according to data published by the National Payments Corporation of India (NPCI). For the same period, the amount transacted went up by 20%.

The total number of transactions in June 2020 was around 1.8 times higher than in the same month last year.  The total amount transacted during the month stood at Rs 2,61,835 crore (approximately 35 billion US dollars), up 1.79 times year-on-year as seen in Chart 5. There is a steep descent following the increase in the month of April, which was likely due to a nationwide lockdown that was imposed to prevent the spread of Covid-19.

The average amount per transaction increased to Rs 1,958 for June 2020 as seen in Chart 6. The average had been trending up since November 2019, but saw a dip in April, and a minor dip in March.

If we look at Chart 7, the number of transactions increased by 102.4 million in June, whereas the total amount transacted went up by Rs 43,443.4 crores (nearly 6 billion US dollars). In the previous month (May 2020), volume had increased by 234.9 million and the amount transacted grew by Rs 67,250.9 crores (approximately 9 billion US dollars).

With an increase in transactions and amount per transaction, cash is moving faster, which means there is an increase in economic activity, this may in turn lead to an increase in economic growth which is much needed for the Indian economy.

Policy Recommendations

Even though unemployment rates in India have come down significantly during the past few months, these rates are still not ideal for a developing economy. The Indian Government should be trying to furlough workers for a certain period of time. This is exactly what the German Government is doing. The furlough programme in Germany also known as kurzarbeit is a social insurance programme whereby employers reduce their employees’ working hours instead of taking away their jobs. Under kurzarbeit, the government normally provides an income replacement rate of 60 percent (more for workers with children).

Which means that a worker receives 60 per cent of his or her pay for the hours not worked, while receiving full pay for the hours worked. So, a worker would only experience a 10 per cent salary loss for a 30 percent reduction in hours. This scheme was very helpful in keeping the employment stable during the global financial crisis.

This policy without a doubt reduces unemployment, since workers do not lose their jobs and also protects workers’ income as well. As COVID-19 will have a much larger impact on the German economy than the global financial crisis did, workers will now have greater income protection as the replacement rate will increase. The replacement rate, starting at 60 per cent for the first three months, will increase to 70 per cent during the 4^th to 6^th months, and further to 80 per cent from the 7^th month. The maximum duration of the program has been extended to 21 months. Moreover, the coverage will be expanded to temporary workers as well. In my opinion, this is an excellent policy to be used during times of economic crisis. The Indian Government should be looking at policies similar to Kurzarbeit to reduce unemployment and increase income protection.

The real interest rate in India was reported at 6.93 per cent in 2019, according to the World Bank collection of development indicators, compiled from officially recognized sources.

The Reserve Bank of India should be looking at lowering real interest rates to zero or negative figures. This would encourage low-cost borrowing and greater access to cheap credit by firms and individuals. The benefit of low interest rates is their ability to stimulate economic activity. 

Lowering interest rates would also increase business investment which would in turn benefit the Indian GDP. The RBI can help spur business spending on capital goods, which also helps the economy’s long-term performance. Businesses’ increased capital spending can then create jobs and consumption opportunities as well.

Another benefit of low interest rate is that asset prices can be raised. When money supply increases, people find themselves with more money balances than it wants to hold. In response, people use these excess balances to increase their purchase of goods and services, as well of assets like houses. Increase demand for these assets, raises their price.

The zero interest policy has been implemented in the wake of several economic recessions over the last two decades. First used by Japan in the 1990s, the U.S., the U.K. and EU nations have turned to lowering real interest rates to zero to stimulate economic activity during economic recessions.

Another policy known as Quantitative Easing should be implemented by the Indian Government. QuantitativeEasing involves a central bank (The Reserve Bank of India) printing money and using that money to buy government bonds (long term debt) in order to inject money into the economy to expand economic activity.

Large-scale purchases of government bonds lower the interest rates on those bonds. This pushes down on the interest rates offered on loans (e.g. mortgages or business loans) because rates on government bonds tend to affect other interest rates in the economy.

So, it works by making it cheaper for households and businesses to borrow money which would encouraging spending. 

Lower long-term interest rates will keep business confidence high as well as giving commercial banks extra deposits to use for lending.

Quantitative Easing can also make India competitive overseas. Particularly it leads to a depreciation of the exchange rate which then makes export industries more price competitive.

It would also ensure that inflation does not fall below the central bank’s inflation target. By implementing this policy, the government would be able to stimulate demand and long-term growth. It would also help keep the economy out of recession. 

Corruption in India is an issue which affects the economy in many ways. Not only has it held the economy back from reaching new heights, but rampant corruption has stunted the country’s development. Especially during COVID-19, people are being exploited and funds are being misused. 

If we look at Map 1, bribery persists in almost all the states at high levels. The government should be looking at introducing a National E-Government programme wherein, Indian citizens instead of going to centres to pay taxes, or to pay their electricity bill, do this online on an electronic device. Especially for those in rural areas, the government should provide electronic devices in centres for those people who don’t have access to computers or the internet. This would eliminate bribery. When people come to government counters or centres, they are bribed by government officials but, by introducing online websites this would avoid people coming in contact with government officials or members of a political party. By introducing this programme, the government should also educate people on how to use their online platform to pay their taxes or collect rations through the internet.

The government should also strengthen laws against corruption and there should be good enforcement of the Act or the law. Despite the Prevention of Corruption Act 1988, corruption is still flourishing. This is because of weak actions and proceedings towards corrupt people. People don’t have any fear of this act and the court. The act must be revised for better implementation.

Indian citizens should be educated on this issue as those who are uneducated do not know about the process, provisions and procedures through which they can get justice. Corrupt public servants often demand bribes. It is due to unawareness in the field of law, public rights and procedures thereof that a common and an uneducated suffer out of the corrupt society. This suggests that if we are educated, we can understand our rights well. The government should create awareness on how corruption is polluting the Indian Economy and how people are contributing to it without even realising. 

We could also reduce corruption levels by bringing in reforms to improve productivity, to increase the salaries of the civil servants matching the bribes demanded by them. This way, civil servants would stop the act of bribery and thus reduce corruption. Doing this would also generate tax revenue which is good for the state. Reducing corruption would also benefit the society as people would have more trust towards the government. It would also increase investment as corruption levels are low and businesses would have much more faith in the government.

Conclusion

Overall, the Indian economy has been badly hit. With high unemployment rates, high food prices, negative GDP figures and many businesses shut, the Indian economy may take years to recover from this crisis especially with high levels of corruption present.

By implementing a policy similar to the German furlough scheme, employment would increase in India as people would know that their income is protected. By lowering interest rates, business spending and investment would increase which would create more job opportunities benefitting the unemployment crisis. And last and most importantly, reducing levels of corruption would automatically improve the Indian economy as corruption persists at all levels and plays a major role in the declining trend of the Indian economy.

Ending on a positive note, Duvvuri Subbarao, a former RBI governor, said that India could look forward to a V-shaped recovery. A V-shaped recovery might be the best outcome during the pandemic

References

Mentor: Dr. Eric Golson, University of Surrey

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About the author

Bhumika Appaswamy

Bhumika is an 11th grader at the NPS International School. She is very interested in the field of economics and hopes to pursue it at at a higher level.

The post The Impact of COVID-19 on the Indian Economy appeared first on Exploratio Journal.

Abstract

The Covid-19 Pandemic has led to a decrease in carbon emissions, especially by the transportation industry. In order to sustain these reduced emissions, an increased usage of public transport is necessary. By reducing the amount of passenger vehicle emissions, there can be a steady decline in air pollution levels. However, criteria pollutants emitted by the tailpipe of many modes of public transport negatively impacts many public transport users’ health. Since a majority of public transport users are low income workers, such an issue leads to a disproportionate impact of respiratory illnesses. In order to avoid such emissions, most modes of transportation should be electrified. Moreover, electrification of vehicles eliminates any tailpipe emissions, but GHG emissions are not completely avoided. Charging electrified vehicles leads to more emissions of GHG. Therefore, decoupling from the central grid and using renewable sources of energy for electricity and fuel can lead to eliminating a significant portion of the GHG emissions from the transportation industry. 

Introduction

The unexpected pandemic due to the Sars-Cov-2 virus, popularly known as the ‘COVID-19 pandemic,’ has had a major impact on both the environment and society. At an economic level, it has led to an unprecedented economic crash, mass unemployment and the collapse of entire industries. At an environmental level, however, it has led to many positive changes in the aftereffects of climate change, and global warming. As found by the climate group Carbon Brief, because the COVID-19 pandemic effectively seized hold of China’s economy and heavy industries and caused complete shutdowns, Greenhouse Gas (GHG) emissions from the country plummeted by a record-breaking 25 percent. 

The pandemic has led to a drastic decline in many industries which would have led to the decrease in GHG emissions, however, the most notable GHG emitter and one of the areas most hit by the pandemic and the enforcement of lockdown legislation was the usage of transportation. The transportation sector generates the largest share of GHG emissions, emitting about  28.2 percent of all GHG in the atmosphere, as of 2018. In another analysis by Carbon Brief in early April, it was estimated that globally, in 2020, emissions could fall by 5.5 percent, beating the 3 percent decrease that followed the 2008 financial crash, when economies also slowed and people traveled less. The GHG emissions will inevitably increase as the economy revives itself and lockdowns are lifted, however, there may be specific precautions which could be taken to sustain these low GHG emissions. One such method could be through controlling and electrifying the transportation sector. 

As COVID cases reach their peak and cities start to open up, cars and motor vehicles are bound to enter the streets again, however, if GHG emissions coming from these vehicles can be controlled, this positive change in carbon emissions can be sustained. Another method through which a more sustainable level of GHG can be sustained is by promoting the use of public transport. This, however, may be challenging due to social distancing and the fear of shared space. Below, I will discuss the public transportation industry, the method of tackling the public’s mindset in certain places to introduce an increase in usage of public transport, the link between transportation and GHG emissions in relation to the pandemic and decoupling carbon in transportation. 

The Effect of COVID-19 on Transportation and its Repercussions on the Industry

Around the world, the transportation industry has been devastated by the introduction of lockdowns and social distancing laws related to the Coronavirus. Within the transportation industry, the COVID-19 pandemic has arguably hit the public transportation industry the hardest. According to most estimates, ridership levels are at least 70% below pre-crisis levels, with some areas losing even more, especially on longer-distance and commute-oriented services, as demonstrated by San Francisco’s BART system losing 93% of its riders. Transit agencies are struggling to maintain service levels, with many of them making cuts or planning to make cuts in the next few months, which will further have an impact on ridership. Moreover, due to the mandatory social distancing and city-wide lockdowns, the public transport industry has not been able to operate for months now. However, with businesses now opening again, it is significant for the public transportation industry to open up again, albeit, it will be challenging to do it safely. For many low income employees, public transport is the only way for workers to commute to their workplaces, however, falling sick with the virus is not an option. The question then remains whether the public transport systems will be able to return to full capacity or will suffer major consequences. This is an important consideration because the public transport industry is vital in reducing the quantity of GHG emissions globally, and should it suffer, it could impact the sustainability in the industry moving forward. 

Moreover, as people are incentivised to move away from public transport, due to legislation for social distancing and increasing fears of hygiene in a shared environment, they may move towards personalised motorised vehicles, such as cars and motorcycles. This may be devastating to the GHG levels as supporting public transportation can reduce harmful CO₂ emissions by 37 million metric tons annually. Moreover, the increased consumption of ars could, in turn, increase congestion in the streets, thereby, increasing the average time spent on the roads, and therefore, increasing the average GHG emissions per car. This raises the question of how the car, and motor vehicles, industry could be shaped to offer a more sustainable and cheaper option which could both be economically feasible, yet able to help the decrease GHG emissions.

Along with the public transportation sector, another aspect of the transportation industry that has been drastically impacted is the aviation industry. Airline capacity in Europe reduced by almost 88 percent in 2020 as compared to 2019, a direct response to the travel restrictions placed by countries due to the COVID-19 pandemic. In the first half of 2020, Chinese passenger travel declined by approximately 87 million passengers, and by the end of May most airlines were bankrupt. However, as this is dreadful news on the economic front, environmentally, the airline industry is a large emitter of  GHG, emitting worldwide about 915 million tonnes of CO₂ in 2019.

The Transportation Industry and Trends in Criteria Pollutants 

The transportation industry has been a key contributor to pollution, but specifically in the section of air pollution. There are multiple sources which contribute to the emissions of harmful gasses, but the transportation industry is one which causes a significant amount of daily emissions. Within the broad subject of air pollutants, there are six criteria pollutants, which include carbon monoxide (CO), ground-level ozone, lead, nitrogen dioxide (NO_x), particulate matter, and sulfur dioxide (SO₂). A typical passenger vehicle emits about 4.6 metric tons of carbon dioxide per year, but this number can vary based on a vehicle’s fuel, fuel economy, and the number of miles driven per year. Most car exhausts are known to emit sulfur dioxide, carbon dioxide and oxides of nitrogen. Moreover, the transportation sector alone is responsible for over 55% of NO_x total emissions inventory in the U.S.  These gases are harmful as pollutants. Carbon monoxide is a harmful gas, as breathing in low levels of the gas can cause fatigue and increase chest pain in people with chronic heart disease, while breathing in higher levels can cause flu-like symptoms such as headache and dizziness. Sulfur dioxide can, too, be extremely harmful to human health when it is breathed in, causing irritation in the nose, throat, and airways leading to coughing, wheezing, and shortness of breath. Moreover, sulfur dioxide inhalation can directly contribute to the development and progression of ischemic stroke in the brain, although there is no definite relationship has been established between the gas and symptom. 

Furthermore, increased concentrations of greenhouse gases, especially carbon dioxide, in the earth’s atmosphere have already substantially warmed the planet, causing more severe and prolonged heat waves, temperature variability, increased length and severity of the pollen season, air pollution, forest fires, droughts, and heavy precipitation events and floods, all of which put respiratory health at risk. Diesel exhaust particles (DEPs), composed of 80% ultrafine particles, and associated polycyclic aromatic hydrocarbons impact on airborne allergens, increasing exposure effects, concentration and allergenic biological activity. Several studies have demonstrated effects of ozone over respiratory symptoms, including shortness of breath, wheezing and coughing, lower respiratory tract infections, acute and transient decreases in lung function, increased airway responsiveness, airway injury and inflammation, and systemic oxidative stress.

As seen in figure 1, there is a direct correlation between the gigagrams, direct CO₂, equivalent from energy and use. As there has been an increase in the usage of  cars and other forms of vehicles, there has been a steady increase in CO₂ emissions consequently. Over 30 gigagrams of the 55 gigagrams emitted in 1990 were due to passenger cars. This shows how the increase in public transport can affect emission levels as a bus of 65 passengers, is equal to 50 cars. Figure 1 also demonstrates that emissions have increased but marginals emissions have had steady improvement

However, the issue does not come from metrics. Rather, it is a result of a larger amount of  and a larger amount of miles. These increases are functions of increased number of vehicles and miles. A statistic reports that passenger vehicles sales in India were at a record high in 2017-18 touching almost 3.3 million units, growing at 7.89 per cent driven by demand from smaller towns coupled with increasing popularity of utility vehicles. Public transport, therefore, decreases the amount of metric emissions per person. One local bus would emit about 82 grams of CO2 per kilometer whereas an average car running on petroleum would emit 180 grams.  

The Forms of Public Transport and Their Impact

Within the public transportation sector, there are many different forms of public transport ranging from motorised vehicles such as buses and pooled vans to vehicles such as trains and aeroplanes, which operate on high efficiency engines. When compared to aviated vehicles, motorised vehicles emit a comparatively lower amount of greenhouse gas emissions. Motorised forms of public transport also contribute to the reduction of greenhouse gas emissions, as it can encourage a reduction in the usage of individual vehicles. Moreover, if a commuter shifts from a personalised vehicle such as a car to public transport, they can deliver a 65% reduction in emissions during peak times and a 95% reduction in emissions during off peak times. This shift can also be demonstrated through the comparison that one typical passenger car, carrying one person, gets 25 passenger miles per gallon, while a conventional bus, at its capacity of 70 (seated and standing), gets 163 passenger miles per gallon. Therefore, public transit substantially reduces fuel use and greenhouse gas emissions, further making it a wise public investment in a new, carbon-constrained economy. Moreover, the fuel savings yield commensurate cuts in CO₂ emissions. Furthermore, a passenger car carrying one person emits 89 pounds of CO₂ per 100 passenger miles, while a full bus emits only 14 pounds per person. 

Railway systems are also an efficient way of introducing public transport to reduce emissions. Some may argue that rail systems are a more sustainable option, as, generally, these systems have lower levels of emissions per passenger kilometer than other means of transport. Calculations for high speed rail using the average European electricity mix, a load factor of 75%, and the consumption of an Alstom train show emissions of around 17 gCO₂/PKM, much lesser than compared to 30 gCO₂/PKM for a bus. Rail systems are also often large consumers of electricity themself. At present, the railways consume 18.5 billion units of electricity every year. The emissions avoided by passengers using rail systems are higher than the emissions caused by rail systems themself, therefore resulting in a positive outcome. Moreover, for railways, transport turnover mix accelerated the decoupling process and the increasingly active role of the transport turnover mix effect raised the likelihood of decoupling. Rail systems are not only integrated throughout cities like New York and Mumbai, which enables people to avoid using single passenger vehicles on a daily basis, but also are an efficient way of long distance traveling which may be tedious in a bus. Therefore, rail systems allow the various different sorts of travel, which can replace the use of a short-term bus or a long-term aeroplane. Rails also allow for intra city travel which proves to be more efficient than buses as they often get stuck in traffic and at stop signs whereas subway systems are built underground, allowing them to avoid all congestion. Trains scale better than buses. Each traincar can hold more people than a bus, and trains can be run at long lengths and at higher frequencies than buses. The number of buses required to fully replace the capacity of a full subway line at rush hour frequencies exceeds one per minute. It’s ungridded cities where the ability of trains to cut under the street network becomes critical to providing service to major destinations, which may not be anywhere near the wide streets.  Creating an underground railway system requires a certain amount of infrastructure and funds which may not be available in rural areas. Moreover, it is challenging to build such a facility without the presence of underground tunnels already. However, Mumbai is a populated city which is dependent on its light rail system as well. Consequently, its metro system is completely operational and overground. The rail system was built as late as 2006, and was introduced in full scale to the city in 2013.

Vehicles such as aeroplanes also use jet fuel, which is a refined version of petroleum classified as kerosene, which emits more carbon dioxide than regular fuels. However, it is important to note that the GHG emissions rely heavily on the fuel use and emissions are dependent on the fuel, aircraft, and engine type, and other factors such as the engine load and flying altitude, which vary from aircraft to aircraft. 

The Realities of the COVID-19 Pandemic

Due to the current state of the pandemic, an increase in the use of public transport cannot be implemented in most places. With regards to the direction in which the pandemic is going, COVID-19 cannot completely disappear until a vaccine is found. Many scientists predict that the pandemic will last until February 2021. Others think it may even extend till longer. It is clear now that summer does not uniformly stop the virus, but warm weather might make it easier to contain in temperate regions. In areas that will get colder in the second half of 2020, experts think there is likely to be an increase in transmission. With many countries having a decline in COVID-19 cases like New Zealand and others, like India, which have not possibly hit their peak yet, the pandemic is not playing out in the same way from place to place. If the virus induces short-term immunity — similar to two other human coronaviruses, OC43 and HKU1, for which immunity lasts about 40 weeks — then people can become reinfected and there could be annual outbreaks. New York, a city which is popularly known for its widespread use of public transport and walking population, has recently reported the fact that many New Yorkers have bought their first car, due to coronavirus.  Although most major cities in the UK have opened up, a poll that surveyed a mix of 482 business leaders and employees, conducted by Breathe, Posture People and HR Centra, reported nearly nine in ten employees (about 88 per cent) said they would not be comfortable commuting to work on public transport at all during the rest of 2020. 

Low income workers are heavily dependent on public transport to commute to work and now that businesses have started to open up again, a failure to arrive at work could directly lead to employment termination. Almost all businesses have suffered due to the coronavirus, and the crash of the economy has laid off millions of workers. In March 2020, total nonfarm payroll employment fell by 701,000, and the unemployment rate rose to 4.4 percent, as reported by the U.S. Bureau of Labor Statistics. Job security is at an all time low and the issue with using public transport may affect it further. With these restrictions on public transportation, low income workers can only commute to work through motorised vehicles such as cars. However, as mentioned before, the steady decline in the economy has affected the financial status of many low income workers. Consequently, they cannot afford to purchase a personal vehicle even if they had the savings for it prior to the pandemic. A third of New Orleans residents who commute via public transportation live in poverty, compared to only 9 percent of those who drive cars. In the United States, commuters driving alone to work report median earnings $4,314 higher than those taking public transportation. This also leads to another issue, air pollution has twice the impact on lung function for members of lower-income households, research has suggested, and it increases their risk of developing chronic obstructive pulmonary disease (COPD) by three times. The mainstream cigarette smoke contains approximately 500 μg of NO generated per cigarette. Second hand smoking is known to have adverse effects on people who live with or spend time around smokers. The average CO2 emission for the buses is 822 g / km. This shows how much harm can be implemented upon low income workers by just being around public transport which does not have safe sources of sustainable energy. As seen though figure 2, middle income and low income workers are at a higher risk for the majority of respiratory illnesses and other diseases in comparison to the high income population.  This is inherently flawed as this portion of the population has less access to health care and treatments.

The disproportionate impacts of ground source emissions is a growing issue which worsens with the increase of greenhouse gas emissions in the transportation industry. Especially in the current state of  a global medical emergency due to COVID-19, the effects of such respiratory illnesses are more relevant than ever as the Sars-Cov-2 virus attacks the walls and linings of the air sacs in the lungs. People with respiratory illnesses are at high risk of mortality from the Sars-Cov-2 virus. 

Electrification of vehicles 

Conventional vehicles with an internal combustion engine produce direct emissions through the tailpipe, as well as through evaporation from the vehicle’s fuel system and during the fueling process. Conversely, EVs produce zero direct emissions. Electrified cars eliminate tailpipe emissions completely, however are still not completely emission-free.  Overall, despite the mode differences, a weak decoupling state appeared between 1990–1995 and 2000–2010, offering empirical evidence for the decoupling of transport carbon emission from transport output. The decoupling index indicated the transport energy efficiency factor stimulated the decoupling in the observed period. Transportation has not successfully moved to decoupling miles from petroleum. Due to the electrification of transportation, the electric power industry has reduced carbon dioxide emissions 27 percent below 2005 levels as of 2018, nearly the lowest level in three decades, while the transportation sector is now the leading source of emissions. More than one-third of the United State’s electricity comes from carbon-free sources (nuclear energy and hydropower and other renewables).  In the Base GHG scenario, the study estimates that, by 2050, the electricity sector could reduce annual greenhouse gas emissions by 1030 million metric tons relative to 2015 levels, a 45% reduction. Electric buses are essential to minimising all emissions coming from transport. As well as, it will improve the public transport industry and make it even more sustainable. Electric buses sales have increased over the years, however, roughly 98 per cent of the electric buses in the world are deployed in Chinese cities. Introducing electric buses to countries like the United States can lead to a more efficient transportation sector and decrease the pollution. India (70,000 buses sold in 2017) is a market with big potential, when even a small part of the orders will be electric. By 2025, the research company Interact Analysis forecasts that India will account for more than 10% of the total annual demand for electric buses globally, which is more than Europe and North America combined. One of the most popular types of electric buses nowadays are batteryelectric buses. Battery electric buses have the electricity stored on board the vehicle in a battery. As of 2018 such buses can have a range of over 280 km with just one charge, however extreme temperatures and hills may reduce range. Electric buses require charging systems in multiple locations for regular charging. However, such infrastructure does not exist in developing countries like India. Ironically, these countries are the ones with larger populations which are heavily dependent on public transport such as buses. Battery-electric vehicles’ biggest problem has always been range. At the dawn of the automobile age, electric cars competed with gasoline and steam-engined vehicles: In 1900, 38 percent of U.S. cars were battery-powered, and only 22 percent boasted internal combustion engines.

Renewable energy and its limitations 

If we look at centralised and non-renewable systems, namely, large-scale plants using fossil fuels as oil and coke, they are environmentally unsustainable because they are based on exhausting resources, so forth fastening resources depletion. Furthermore, these exhausting resources result in high greenhouse gases emission (CO2 emissions), through several processes along their life cycle, which determine global warming. Without a doubt, these operations require very costly and large-scale centralised structures, which limit the conceivable outcomes of direct and democratized access to energy production and utilization. Throughout time, people have had low control over their own fate which prompted a widened gap (as far as disparity) among rich and poor, which has been pursued in time perpetuating a centralised energy production. Renewable energy is without doubt a better option for energy consumption as it avoids greenhouse gas emissions unlike the use of petroleum fuels. However, renewable energy comes with its own challenges. One of the biggest concerns in the field of renewable energy is power generation depending on natural resources that are uncontrollable by humans.The uncertainty in energy production in renewable energy technologies is making integration more complex. High power quality is expected to guarantee security and high productivity of the system. The nature of the force gracefully permits the framework to function ably with high unwavering quality and lower costs. On the other hand, poor power quality can have major damaging consequences for the power grid and industrial processes. Furthermore, Most sustainable power source plants that share their vitality with the network require large zones of space. By and large, sustainable power sources are directed by areas which can be off-putting to clients. Of course, some sustainable power sources are just not accessible in various locations Additionally, the distance between the renewable energy source and the grid is a major aspect in term of cost and efficiency.

Looking at trends between India and the United states by the table below (Figure 3), the energy consumption of the two  countries can be compared.

As it can be seen, the energy consumption in the United States is comparatively higher than India on a daily basis. This is due to the fact that the United states is a developed country and has a larger population using transportation as compared to India. The implementation of renewable energy in areas such as India will be substantially different in comparison to an area such as the United states due to their varying levels of energy consumption. However, even though the United States has a larger amount of electric consumption, it would possibly be easier to introduce renewable energy to transportation there as the country is more developed and more likely to be able to fund such a project whereas India is a developing country with possibly not enough resources to sustain a renewable power line.

Decoupling from the central grid

The grid relied primarily on large fossil-fuel facilities to generate electricity, and an inefficient collection of cables, poles, and wires that transports this electricity over large distances. To avoid the emissions of dangerous greenhouse gases, renewable energy must become the primary source of energy for all industries, including electric transportation.  The energy grid structure that most commonly still exists in urban areas, even the areas transitioning to renewable energy, relies on large centralized power generation facilities that transmit and distribute generated energy across long transmission lines. The integrated green urban grid has four key segments: energy efficiency, demand response, distributed generation, and distributed energy storage. By adequately incorporating these four segments, the new urban green grid can decrease the amount of air pollution, including GHG emissions, while keeping up unwavering quality of the electrical framework. The kinds of renewable energy that could be utilized as distributed generation assets are advanced technologies which can be downsized and sited close to stack necessities, for example, wind, sun powered, and geothermal. A large portion of the circulated generation is solar as it can be readily sited on roofs and other available urban areas. Distributed fuel cells are likewise picking up prominence, however because the vast majority of them depend on petroleum derivatives, their advantages identified with environmental change and contamination are more restricted than different assets, for example, wind and sun oriented. Distributed energy storage resources are an essential component of a green urban grid. Consequently, the new green urban grid will rely on distributed renewable generation resources such as solar photovoltaic systems on residences. Wind and solar renewable resources are considered variable or intermittent because the sun does not always shine and the wind does not always blow.

The ultimate goal  or the transportation industry would be to become less tied to the central grid and achieve renewable charging for electric vehicles. The only viable method of decoupling transportation from fossil fuels would be through the urban green grid as it eliminates the need for depending on the centralised grid as well as allows the consumption of renewable sources of energy, therefore providing vehicles with an alternative for fossil fuels. If electric cars and buses were able to decouple from fossil fuels, there would be an extreme reduction in GHG emissions from the transportation industry and, coming out of the pandemic, the inevitable rise of air pollution can be avoided. 

Further analysis and research recommendations

Personally, I began writing this paper with the perspective that encouraging public transport will be the solution to sustaining low carbon emissions post the COVID-19 pandemic. However, through research I soon discovered the true complexities of the issue with transportation and GHG emissions. Although public transport is the first step towards a more sustainable society and currently is the easiest as it is already a functional system, the real issue can only be resolved once all modes of transport can be successfully electrified and decoupled from fossil fuels.  Public transport decreases per-person carbon emissions. However, the primary users of public transport are low income workers and due to the pollutants which buses and rail systems emit, they are impacted on a disproportionate scale by respiratory illnesses. Public transport reduces the number of vehicles on the road, and therefore, reduces the amount of emissions, however public transport vehicles themselves do produce harmful pollutants. To achieve a ‘0 emission’ vehicle, decoupling from the central grid and moving towards the idea of an ‘urban green grid’ is necessary. Moreover, public transport is currently not a viable solution as the recent pandemic has urged for social distancing and most people may not find utilising buses and subways as ‘safe’. Although there are many disadvantages to using passenger vehicles, if electric cars and motorcycles can operate by the use of renewable energy, cities can come out of this pandemic with a colossal decrease in GHG emissions from the transportation industry and a safe environment where people can continue practising social distancing until necessary. 

Further research recommendations would include going more in depth on the different constraints of renewable energy and the actual process of implementation of it in transportation. Moreover, linking such research with the decoupling of transportation from the central grid will provide appropriate answers to the challenges of such a project and how to go about imposing it on our society. Another field of research would surround the COVID-19 pandemic itself. Although there has been a visible decrease in the amount of GHG emissions, there have also been many factors contributing to environmental issues such as the newfound abundance of medical waste (surgical masks, gloves, etc). From an environmental perspective, do the pros of this pandemic outweigh the cons? Now with businesses and the economy reopening, is the situation becoming worse than before due to the fact that more people are inclined to using personal vehicles rather than a form of public transportation? This pandemic could have possibly crushed the entire public transport industry, as the aviation industry has arguably been hit the hardest. 

There are many possible discussions regarding public transport as well. Public transport has been around for a long time, and although there has been an increase in the usage of public transport over the years, many countries have failed in implementing this system into their cities. What may be the cause of this? What are the restrictions with public transport? How long would it take to completely reinvent public transport and make it completely electrified and renewable? With a concentration on electrification, further research on the electrification of transportation can be done. This may include researching the quantitative values, physical process or environmental impacts. 

Conclusion

The COVID-19 pandemic unintentionally caused a significant decline in carbon emissions from the transportation industry. However, sustaining this change has proved to be very challenging. Utilising modes of public transportation can contribute significantly to reducing emissions, however, it cannot completely eliminate this issue as most modes of public transport do emit criteria pollutants which leads to low income workers being affected by respiratory illness in a disproportionate manner. Moreover, public transportation is not a viable option due to the nature of the COVID-19 pandemic which restricts any sort of public contact. Moreover, this issue can be solved from the root of the problem — the tailpipe emissions of GHG from vehicles. In order to tackle such an issue, all modes of transport ought to be electrified. As well as, energy sources must be renewable. All these ideas are highly interdependent. The idea of having electrified public transport essentially tackles the issues with having too many single passenger vehicles, as well as having criteria pollutants emitted through the tail pipes of vehicles. Although electrification of vehicles is beneficial itself, decoupling from the central grid is necessary for electrified vehicles to be ‘all clean’. By promoting the urban green grid, electrified vehicles can be successfully introduced without adding to emissions from non renewable charging methods. 

Ideally, the priority of policy makers should be to find a safe way to promote public transport post the pandemic. If many passenger vehicle users can be persuaded to use public transport, there will be a significant decline in air pollution and congestion on roads. Although decoupling from the central grid will inherently minimise all emissions, it is still a long process which cannot be done in the midst of a medical emergency. Therefore, increased usage of public transport is the best way to tackle this issue. Since most people have lost savings during this economic crisis, many low income workers may not be able to afford new cars, and with job security at an all time low, public transportation is their only option. If the government can successfully optimise the experience of using public transport by taking safety precautions at every step, there will be a potential transition for many car users and will successfully lead to a more public transport dependent economy. Thus, potentially sustaining this decrease in GHG emissions post the COVID-19 pandemic. 

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Mentor: Mr. Kurt Teichert, Brown University

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About the author

Manya Mehta

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