The corona virus outbreak which started with its spread in certain regions of China, gradually reached out to Europe, the Americas, Asian sub continent and to other parts across the globe by March’20 and the WHO termed it as a “pandemic”. It was by the mid of April that almost the whole world was at standstill, restrictions were imposed on movement, organisations went through a shut down, borders were closed and pandemic related lockdown was in place. In addition to human sufferings involved, such pandemics also have economic effects. The fear of infection led to uncertainty and caused a chaos in economies. The growth rate not only went down significantly but was negative for most of the economies. This crushed the aspirations of individuals as well as those of the industries. Almost all the sectors were badly affected with their revenue going down, loss of assets, depletion in funds and many other adverse effects. Although the spread of Covid-19 had a widespread impact, here we’ll be discussing about its impact on trade and tourism.
There have been many recent developments which has made the capital market and the economy easily accessible and transparent. The prices of the shares in the stock market are displayed on a real-time basis which creates a hurdle for speculation and blocks the way for manipulation. Sensitive Index, popularly known as SENSEX indicates 30 companies for Bombay Stock Exchange and NIFTY for National Stock Exchange, are the two well known market indices. The digital payment system which includes, UPI, NEFT, RTGS, IMPS and mobile wallets has incredibly reduced the transactional time and has enhanced the accessibility by the common mass. Before 2016, the start ups could enter the market but leaving the same was a tedious task. The merchant bankers have also transformed the capital market by rendering advisory services and buying, selling, subscribing of securities. The Insolvency Code, paved the way for the easy exit from the market as well. The SEBI (Issue of Capital and Disclosure Requirement) Regulation, 2009 was enforced for simplification of the language, increase readability and structure the regulation. Before the scam of 1992 insider trading was heavily misused to gain wrongful profit but the SEBI Act of 1992 sternly prohibited the use of insider information to trade.The current unprecedented situation of Covid 19 pandemic has affected the capital market significantly. Even before the pandemic the markets around the world was slow. The virus mushroomed and pushed the country into lockdown which gave a massive setback to the economy as a whole and a remarkable slowdown in capital market.
Impact on Tourism
Tourism is the most entertaining way to explore, learn about new culture and places. This accounted to the massive growth of the industry. The internet through its connectivity and ease of information sharing capability added to the growth significantly. Statistically speaking in 1950, people going on unfamiliar outings and explorations were only as good as 25 million which significantly rose upto 1.5 billions in by 2019 owing to the extensive development in the tourism sector in countries.
The industry of tourism is accorded as one of the fastest growing areas of the economy, amazingly boosting economic advancement. In 2018 there were 1,407 guests showing up around the world, an increment of 6 percent last year The travel industry receipts reached $ 1,480 billion, which is a 4% increase compared to global GDP growth previous 8 years. Traveler transport is a decent elective worth $ 250 billion. The travel industry sends out account for seven percent of the worldwide exchange labor and products, or $ 1.7 trillion. By 2019, the most well known objections were France, Spain, the USA and China.
Impact on Trade
“When investing in India, foreign investors pay attention to factors such as imports and import duties; rules and standards for the safety of commercial goods and services; structuring and tax incentives; investment guarantees, regulatory authorities; investment restrictions; as well as details of international treaties, customs and visa permits. India is one of the leading destinations for foreign investment and The International Monetary Fund (IMF) has recognized that India’s economy continues to be one of the fastest growing economies in the world, despite the global economic slowdown.” According to the IMF’s World Economic Outlook Report in January 2020, India’s growth is estimated to improve to 5.8% in 2020 (as compared to 4.8% in 2019) and was further expected to improve to 6.5% in 2021. “FDI in service sector worth USD6.5 billion was received from April 2019 to December 2019 and FDI worth USD80.67 billion was received from April 2000 to December 2019. The e-commerce sector has emerged as an exciting sector for foreign investors and is projected to be worth about USD200 billion by 2026.” The Indian e-retail market is projected to keep growing strongly, registering a compound annual growth rate (CAGR) of over 35% and reaching an estimated USD25.75 billion by the 2019/20 financial year. These two sectors being the most active sectors in India right now are the most lucrative for foreign investor.
“Responding to the on-going pandemic, the Indian government amended the IBC,2016 with objective of safeguarding businesses, primarily MSMEs during initial stage .Initiation of proceedings under Sections 7, 9, 10 were permanently stopped apart from many other significant alterations.” With the Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 , the government took initiative of supporting companies adversely affected by pandemic however countries which had signed BITs with India were hit.We know for a matter of fact that FDI is one of the crucial source of income instrumental in boosting economy and foreign investors always look into municipal law and insolvency law of the country, if not any other laws then atleast these two, before making investment in order to be sure about the protection of their investment.But it is needless to infer that by suspending proceedings, the amended IBC has done away with the interests of the foreign investors by limiting their right to seek redressal during insolvency matter.
India terminated 58 BITs in 2017 after the dispute in White Industries Australia Ltd v. The Republic of India and only 14 active BITs remained in 2020.In this dispute India had to give a large sum of compensation to White Industries Australia for denying opportunity to ascertain claim using effective means. Under the BITs, Foreign investors enjoy a bunch of protections including expropriation protection,compensation clause, FET clause, national treatment,MFN treatment etc., however the amended insolvency law predominantly limits rights of such investors for which there remains fair chances that they might initiate action against it for violation. A landmark judgement is Tecmed v Mexico, wherein court opined that it is mandatory that both the parties to a BIT always cling the expectations at the time of investment contracting addition to giving a stable and ascertainable business climate.There have been instances where investors have claimed that their rights are being violated under the fair and equal treatment clause in India’s BIT.In a recent arbitration dispute between India and Cairn Energy Pvt. Ltd.,it was proved that India violated FET Clause in the BIT.The company previously shifted the pending arbitration procedure when India changed its tax laws in 2012.. “Subsequently India also lost the case with Netherland due to breach of FET clause.On September 25, 2020, the International Arbitral Tribunal constituted in Vodafone case held that India had violated the ‘fair and equitable treatment’still not curtail there right to claim even after the fact that the deprivation is temporary.
As per Article 25 of the ILC Articles, the prerequisite for invocation of the defence of necessity is that: a) this was the only available measure available against an imminent danger; b) and the measures do not impair the obligations towards foreign States. However, the invocation would not hold good if the State invoking the defence was a contributing factor to the ‘situation of necessity’ or the international obligations outweighs the necessity.There are 2 judgements which gained much popularity during economic crisis of Argentina. The first is National Grid v. Argentina, where it was held that measures taken by Argentina amounted to a breach of the FET clause and altered the legal framework in spirit which was adhered to by National Grid while making its investment.Contrary angle appeared in Salini Impreglio v. Argentina, where it was held that an investor cannot have legitimate expectation that the legal framework of the country will not undergo any change but it is not that the investor will not be protected against unreasonable modifications to the law, relying on the decision in Parkerings-Compagniet AS v. Lithuania.”
As we discussed earlier Covid-19 led to shutdowns and lockdown in most parts of the world, thus giving a halt to all the ongoing economic activities. This led to a rapid decrease in world’s GDP , growth rate for most of the economies turned out to be negative and economies were pushed back to time. All of it accounted to a decline in global trade. Both the supply as well as demand side were badly affected, with exports and imports falling down to an all time low. The damage to COVID-19 reduces trade by increasing international trade costs.
“Taking an example, increased cases / deaths of COVID-19 people reduce the presence of personnel on the site, such as truck drivers and port laborers, in the vehicle and transportation sectors, accordingly creating a scarcity of workforce. Lockdown policies and port cutoff points, restricted air flights, and ocean transport between countries add to the explanation. For instance, Heiland and Ulltveit Moe (2020) revealed that the decline in the delivery business was 29% compared to 2019 in the main seven-day stretch of April 2020. This interruption in the vehicle sector defers transport and increases cargo costs. Furthermore, the spread of infectious illnesses in the country affects both the requirements and the inventory side of the economy. Following this, we sum up the effects of COVID-19 harm on fares and imports independently.
We start with the impact of COVID-19 on exporting countries. The proliferation of COVID-19 has led to social alienation measures and locking mechanisms. These measures reduce the movement of people towards workplaces. School closures are forcing some employees to stay away from their job in order to care for their children. Chronic mortality and morbidity directly reduce staffing. These changes reduce imports and make them more volatile in price, pushing the country’s supply chain up and down. Damage to COVID-19 and subsequent locks and disrupts shipping sectors, increases export costs by increasing port and end management costs. In short, it is natural that the damage of COVID-19 to the exporting country will reduce the level of production, thereby reducing exports to that country. For instance, the shock of supply will be less on enterprises that supply fundamental products, such as food and medical products, than on insignificant products, such as cars and machinery. This is because countries attempt to keep up the accessibility of fundamental products,and closure requests such as factory closures for the most part don’t include manufacturers of these products.
It’s significant for multinationals to improve their game in India: the country’s economy is required to develop in excess of 6 percent yearly for the coming years, which is among the most elevated paces of any major developing business sector. An important test by the world’s major purchasing organization is that sales in India have grown by 7 percent annually for seven years, double the parent’s sales in the same period. However, the pace of development of the organization in India is only a large part of this region. Be that as it may, on the positive side, India could represent the market.This undeniably implies going past the joint endeavor approach so many have picked and figuring out how to do it all alone. The requirements of Indian buyers ought to be given unmistakable significance and they ought to be furnished with the customization that the neighborhood market requests. Worldwide organizations do have taken huge steps in the Indian market, yet many have not arrived at their latent capacity: some have just prevailing in specialties and have not accomplished huge scope initiative, others have not accomplished augmented economies of scale.
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