Oxygen cylinders, hospital beds, exhausted crematoriums and medicines weren’t the mere struggles that India faced when the second wave of COVID-19, disguised as the tsunami, struck India. What was ravaged too was the Indian economy, which was already struggling to find a grip after it was derailed in the first wave.
There was no national lockdown imposed this time, keeping in mind the ramifications it could have generated on revenue and livelihood. The government was not in a position to politically afford another labour migration like in 2020.
However, individual states were forced to impose a lockdown which caused India to lose $8 billion per week in May 2021.
Decoding the Slowdown
As per S&P Global Ratings, several companies have revised their growth estimate from 11% at the beginning of 2021 to 8%. It is vital to note that the Indian Economy will experience a loss of ₹6-6.7 trillion by this fall of 3% in growth estimates.
The second wave induced shutdown resulted in an unemployment rate of 17.4% and 13.5% in urban and rural areas respectively. As per the Centre for Monitoring Indian Economy (CMIE), almost nine million salaried jobs were lost between February, 2021- April, 2021.
In addition to the already alarming situation, 97% of Indian households witnessed a tremendous fall in their incomes. Owing to the tremors felt by the Indian economy in 2020, people have started moving back to agricultural activities and are being forced into disguised unemployment.
Lack of demand, the root cause of this economic mire, has continuously missed the eyes of the government. The choked sales of fast-moving consumer goods (FMCG), consumer durable goods, apparel, footwear and car sales that witnessed a dip of 25% have contributed to the degrowth of India’s GDP.
Prescription for Revival
India finds itself in a dual set of challenges. On one hand, it strives to swim its way through the crisis at hand and on the other, it needs to build a stronger exchequer for long term growth.
To begin with, providing the jobless with financial assistance should be the stepping stone. The states are struggling to keep up with the inflation rate while they lend a helping hand. The Central government should come forward and pay the due GST compensations that it owes to the states, amounting to ₹ 63,000 crores, as it shall ease the financial strain of states.
The time calls for a sector-specific approach to be adopted by the policymakers in the Central government. Identification of sectors that are struggling to keep their heads above the water should be the first step in this direction. The stressed sectors like automobile, retail, tourism and Micro Small and Medium Enterprises (MSMEs) should receive targeted stimulus.
Another crucial step for pushing towards equitable growth is restoring employment by kick-starting the infrastructure projects that have been halted due to the pandemic. Additionally, the multi-billion developmental projects shall help companies generate revenue and in turn enable individuals to pay their bills.
The Reserve Bank of India has done its job by managing the liquidity. The ball to support the entrepreneurs is in the Central government’s court now.
Monitoring the price movement of top 10 raw materials being used by MSMEs and reduction of import duties on such materials should be taken into account, to make survival easier for such firms. Furthermore, experts have time and again advised the policymakers to expand the Emergency Credit Linked Guarantee Scheme (ECLGS) from ₹3 trillion to ₹5 trillion.
This might look like a 1991 moment for the Narendra Modi-led government, but the problem at hand is grave and far more complex. In 1991, the Indian economy was already in the growth momentum owing to the aggressive expansionary policy followed in the previous decade.
However, this time, the economy was already experiencing negative growth since 2016, and 2020-21 brought itself not only a GDP contraction of 7-8% but also a humanitarian crisis. Such a scenario cannot possibly be solved by simple policy tools.
In the present scenario, the government must adopt a step-by-step approach to reform, especially because of the limited resources available to it. Speeding-up vaccinations should be on the priority list, as this will result in the revival of contact-based services like hospitality and tourism, which contribute a major chunk to India’s GDP.
This must be followed by increased government spending. The National Infrastructure Pipeline released by the government in 2019, which outlined capital expenditure worth ₹120 trillion over a period of five years, needs to be accelerated. This project can be easily accommodated, despite the government running deficits.
A fantastic sector, to begin with, is healthcare. This has been the talk for many years and the pandemic has exacerbated the importance of a robust healthcare sector. Initiating development in this sector by building well-equipped hospitals across the 700 districts of the country will boost employment and revenue generation by many folds.
The middle-class of the Indian economy is the driver of consumption-demand. The pandemic has resulted in a lack of money in their hands, thus bringing the demand-driven economy to a screeching halt. The first wave resulted in 32 million Indians being pushed out of the middle class.
Why is this a cause of concern?
A middle-class person in India is defined with an income between ₹724 to ₹1,449 per day, and even this meagre income-earning group has shrunk by one-third. The government needs to provide tax relief to this class which will enable them to re-start their consumption-demand expenditure.
There is a dire need of imposing a progressive tax system in the country. Reports suggest that the top 10 rich families of the country were able to expand their wealth during this time, thus widening the already huge gap between the rich and the poor. Many other countries across the globe have begun charging higher taxes from the richest class and have cut down tax rates for the service class.
The continuous boost to exports along with the above-mentioned measures shall help India meet the challenges while it medicates the deep-rooted wounds of the second wave. Well-planned and efficiently executed policies by the government will decide the future of India’s rebound after the second-wave. But the question obviously remains if that will actually happen or not.
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