srb

Blog

Indian Economy: COVID-19 triggered avalanche

Sep 15, 2020 3 Comments 375 Views

COVID-19 has wreaked havoc around the world which is unprecedented in terms of magnitude and scale of economic disruption. It is more than nine months and yet the world is grappling to fight the pandemic and its consequences. Some countries have shown resilience to taper the curve and some are still not out of the woods. The point in question is India where the pandemic is raging & the peak is yet to come.

In March GOI took severe measures to contain the spread of disease by imposing complete lockdown. The lockdown was like a paradox where 95% of the population was under total lockdown & 5% was scattered. Unheard in history of India there was reverse migration. Ten of thousand of labourer’s moved from urban to the rural area. It was utter chaos.

Such was the impact of lockdown that almost everything came to standstill. Epidemiologist suggested for a forty-day lockdown to ramp up the infrastructure adequately & to contain the spread of disease. It is more than five months and yet we are seeing sporadic lockdowns.

Lockdowns have adversely affected the economy of India. The fallout of the pandemic is much more than anticipated. The GDP results of the first post-pandemic quarter of 2020 saw the economy contract by 23.9%. In terms of the top twenty economies, India stands at the bottom of the table.

From 2016 onwards India’s GDP is on the decline. In 2016 our GDP was 8.2% which came down to 4.1% in Jan 2020. The policy response to pandemic further triggered an avalanche to our slowing economy.

It is time for policymakers to act and to act decisively. The need of the hour is to arrest the spiral downward trend of demand & production before the damage becomes irreversible and the economy is on its knees. You need to bite the bullet first and reap the benefits later. More actions are needed now before it is too late. One of the options could be a targeted stimulus package which would influence aggregate demand in the economy. This needs to put money in peoples hand through Jan Dhan account which should be substantial to revive personal consumption. And second is to fast track large infrastructure project. But it is imperative first to arrest the spread of disease which is rapidly spreading from urban into India’s vast, and crowded, rural hinterland where infrastructure is not adequate. This will help to reduce uncertainty in peoples mind thereby instilling confidence to spend rather than to hold off making purchases, opting instead, when possible, to build their savings to mitigate future risk.

India needs not only to recover but recover faster than other countries to attract foreign investment & to lure companies leaving China. The silver lining is that the monsoon was good and agriculture-related activity is up by 3.4%. This will bring much-needed liquidity in the rural market which is important for the growth of the economy. India’s pharmaceutical & IT sector are strong and has the potential to nurture the economy.

The pent up demand should not give an illusion of ‘V’ shaped recovery. The green shoots should indeed be a sustained one. With inflation reaching almost 7% which is well out of RBI’s comfort zone and underperformance of GST revenue it’s time to fasten the belt for the policymakers and find innovative ways to use the funds. When things get tough the tough should get going.

It is time to bury the hatchet with state governments & provide enough funds to kick start the economy. During this point in time over stressing on fiscal deficit will be counterproductive. With political capital in favour of Modi government, people expect them to steer the country out of economic distress. If anything is to be done, and something must be done, time is of the essence of the usefulness of the steps that need to be taken now.

Enter your thought here

Your email address will not be published. Required fields are marked *