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Covid cases resurgence and Indian economic recovery
Read more on - Polity | Economy | Schemes | S&T | Environment
- The story: The fiscal year FY 2020-21 was a roller coaster ride for India’s economy, witnessing Indiawide partial and complete lockdowns, curfews and increase in unemployment with no projections of the economy returning to the 2019-20 levels of GDP even in FY 2021-22. With the easing of lockdown restrictions, these projections were revised favourably in late 2020.
- Twist in fate: Right when there was growing optimism over India’s economic rebound, when the IMF upgraded India’s GDP forecast for FY 21-22 to 12.5%, the second Covid-19 wave has come as a rude shock to businesses and consumers alike. No one expected the mutant Covid viruses to hit all over India so hard, and take down the entire health infrastructure in many major states of India.
- India’s daily new cases started hitting higher peaks every day starting late March 2021, with India contributing almost 20% to the global tally of fresh daily cases.
- The situation is far worse than 2020's peak situation where the only sigh of relief is India now has access to vaccines. Even that is now riddled with a complex policy regime, leading to friction between centre and states.
- Recovery: The good news was that the gross tax collections (GTR) is estimated to have touched ?20.16 lakh crore (?20.16 Trillion), up ?1.2 lakh crore from the revised estimates (RE) detailed in the Union Budget on 01-02-2021. The Centre’s indirect tax collections have touched ?10.71 lakh crore in 2020-21, even higher than the collections in 2019-20. Indicators like the Purchasing Managers’ Index (PMI), tractor & two-wheeler sales, Goods and Services Tax collection, E-way bills, and rail freight traffic showed sustained growth in 2021. The exports figures saw a jump in March 2021, although full year figures were quite muted, and much lower than even $300 b.
- Impacts of resurging Covid cases:
- Highest Week-on-Week Decline as per NIBRI: The Nomura India Business Resumption Index (NIBRI), is a weekly tracker of the pace of normalisation of economic activity. It reached 99 points in February, 2021 but slipped down to 90.5 in the month of April, registering its biggest week-on-week fall. The reason for this downfall is mainly the second wave of Covid-19.
- City-wise impact: States like Maharashtra, Madhya Pradesh, Punjab, and Chhattisgarh, which are witnessing the highest surge in COVID-19 cases, account for over 30% of India’s GDP. Even partial lockdowns and curbs in these states will impact economic activity majorly and if the lockdowns are extended further due to uncontrolled infections, the damage will be even more extensive.
- Contraction in industrial output: The Index of Industrial Production (IIP) has witnessed the sharpest contraction in the month of February 2021 (since August 2020), at the rate of 3.6%. The imposition of harsher restrictions on activities is creating a fear, but night curfews or weekend lockdowns are economically less painful. However, if the situation worsens, harsher measures will arrive.
- Manufacturing and other sectors: While manufacturing may not be directly hit due to partial lockdowns, the impact on the contact services sectors like hospitality, travel, and tourism will have a multiplier effect, as these sectors have strong backward linkages with other sectors of the economy.
- What to do next: There will be a multi-pronged approach that India needs to adopt.
- Vaccines: The only effective way to safeguard the economy from another massive disruption is to relax both demand and supply for vaccines, and ensure that most Indians get vaccinated. If the poor are left out, it'd be useless (newer mutants will arrive through them, into others, eventually)
- Scale: More than 11 crore shots were administered by April 15, 2021, but only 8% of the country’s population received at least one shot; the US and the UK, in contrast, had vaccinated close to 50% of their total population. A shortage of vaccines could slow the progress of vaccine rollout. The government has to now increase the reach of the vaccines and make the eligibility criteria for vaccination more expansive.
- Reducing tax levies: The RBI, which has been stridently seeking a reduction in the tax levies, foresees inflation averaging 5.2% in the April-June quarter. The price pressures are unlikely to ease significantly in the near term, unless the Centre and the States bite the bullet by agreeing to forego some near-term revenue from petroproducts and reduce fuel taxes.
- Policy: More efforts and better policies are needed on the part of Policymakers, to nurse back demand and this must be done without letting quickening inflation undermine purchasing power and overall economic stability. Do not lose sight of the fact that India is better equipped to fight the virus compared to 2020.
- Expenditures in the Union Budget: The support from the rebound in global growth and implementation of the Union Budget’s proposed capital expenditures will reinforce India’s economic revival. The agricultural growth and rural demand have been quite robust until now, which is also expected to support growth.
- Summary: If the choice between flattening the Covid-19 curve and economic hardship was difficult in 2020, it will be even more difficult in 2021, as businesses and workers are still nursing the wounds of the first lockdown. The second wave has coincided with the beginning of the new fiscal year which means that even the conservative revenue targets in the Budget are now suspect. But, the silver lining is that India has the vaccines and the ongoing Vaccination Drive.
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