Economies across the world, including India have been hit hard by the Corona virus crisis.  On 24^th March 2020, Prime Narendra Modi ordered a nationwide lock down for twenty-one days; the entire country comprising 1.3 billion population have been stayed put at home, as a necessary step to minimize the virus spread.

The fear of the virus and the lock down had a tremendous impact on businesses, ranging from commercial establishments to education, travel sector, events and entertainment.   A UN report has stated that India is going to be one of the top 15 worst-affected economies with a trade impact of US$348 million.

When WHO declared the novel corona virus as a pandemic, Indian stock markets suffered the worst crash since June 2017. Stock markets have behaved erratically, while they posted worst losses in history on March 23, 2020, two days later after the announcement of the lock down, they posted their highest gains in 11 years, adding $66 billion to investor wealth. But on April 1, 2020, the markets slumped dramatically again.

India’s lock down also means the world’s largest lock down, which translates into all factories, shops, markets being closed, public transport shut and construction work coming to a grinding halt.  While lock down may be a temporary phase or may need to be imposed later depending on the complexity of the situation, the Indian economy is moving at a snail’s pace due to the COVID 19 impact.

On March 27, Moody’s Investor Service brought down India’s estimate of GDP for the year from 5.3 percent to 2. 5 percent.  Due to social distancing and avoidance of public-related activity, the travel and live events industry have been the worst hit. The live events industry has estimated a loss of Rs. 3000 crore and the tourism industry is staring at a loss of Rs. 15000 crores for the months of March and April, alone.

On March 26, finance minister Nirmala Sitharaman announced a $23 billion package to tackle the slipping financial situation in the country, by providing sector-related incentives, funds for food security, healthcare and extensions for tax deadlines. On March 27, the Reserve Bank of India introduced sharp interest rate cuts and other measures to introduce credit available for affected businesses with an injection of $52 billion (Rs. 374,000 crore) to the economy.

The country’s premier private bank HDFC in its treasury reports a loss of Rs. 10 lakh crores in the first half of 2020. This translates into a slashing of 74 percent of the real GDP within the time frame.   According to the report, the next quarter will be positive but still weak. The report said the service sector was the most hit, especially during the lock down because of lack of delivery of non-essentials.  The impact on manufacturing industry has not been much, especially for essentials like food, beverage, medicine and pharma products.

The RBI has also announced a cut in the Repo-rate by 75 basis points, with a 90-bps cut in the reverse Repo-rate to curtail the effects of the pandemic on the economy.  Due to this move, banks are in a position to pass the rate cut benefits to customers.  Banks also deferred payments of EMIs on various loans including home loans, auto loans, for a period of 3 months, under the term laid by the COVID 19 RBI package.

How should one plan’s one personal finance during COVID 19?

With lock down and various restrictions being imposed time to time to battle the Corona virus, there is a looming fear of late salaries, pay cuts and even worse, job losses.    It is important to have an emergency corpus equivalent to 6 months of expenses, including EMIs. If you do not have an emergency fund right now, start saving proactively for the next two months, so that you have funds to bank upon for dealing with uncertainties like pay cuts and job loss.

In any case due to the pandemic, going out for entertainment, travel and eating out at fancy restaurants have been cut down. This saved money can be used to fund your emergency corpus.  Avoid splurging on smart TVs and cars or going for another EMI during this period and divert the money towards creating an emergency fund.

Park your funds in liquids funds or ultra-short-term funds, where you can get better interest rates than your savings account.  Keep investing in your mutual funds SIP. Only when it is very difficult due to paying off certain loans, can you skip it temporarily. But if you can, continue to invest in mutual funds, because it is smart thinking to invest when the market is on the low, because you can buy more units with the given price. When the market moves up, the value of these units will rise, helping you maximize your wealth creation process.

Ensure that you are well insured individually and as a family.  Imagine the impact if there is a job loss and a health crisis.  If you are a family of four people, invest in a  good family floater cover of at least 5 lakhs to begin with. There are a lot of super-top plans which come to play when the base sum insured is used, which you can take advantage of.  You can also go for a critical illness policy cover, which provides instant emergency cash, when faced with a major illness.

For an individual living in a metro city, a minimum health insurance cover of Rs. 5 lakh is needed.  Just because your office has a health insurance program in place, doesn’t meet you don’t need to have one.  If there is a job loss, the cover provided by the employer is lapsed.

Do not stop paying your EMIs and honor them as much as possible, because stopping your payments an affect your credit score.  You can ask the lending bank for a temporary stoppage on your installments, without late charges or penalties.   Since interest rate on unsecured debt like credit cards are the highest, make sure that you always pay your credit card bills. And as much as possible, limit use of credit cards in tough times, unless necessary.