Prof M K Bhat
Covid had a tectonic effect on Indian economy, first wave ended,second is slowing down and preparation for the third has started, the minor jerks like black fungus and white fungus too are laying down their impression on people and economy. Every wave has a different dimension. The first wavehad a catastrophic impact on economy but the loss of human lives was much less,contrary to this, the second wave has less impact (than the first one) on economy but the death toll is high, primarily due to large number of patients and low health care facilities. In the first wave, there was no idea of such a disease so national lockdown was promulgated by the Government which gave enough time to the country to face the unknown virus. Lockdown was the only alternative and it worked well in saving people.
Second wave started, when economy had started to come back on the track, workers had started to join their jobs back, vaccines appeared in the market, people, Governments and administration took things lightly until they were out of control. Electronic media added further to the fear factor and there was a mad rush for hospitals leading to the failure of the health care system. In the second wave local lockdowns were resorted, theyslowed economy in the first two months of first quarter of the current financial year but yet it is difficult to assess its full impact at present, primarily it will depend upon how economy responds in the remaining three quarters and the nomenclature of the third wave as being projected by medical experts is still not clear.
The impact of second wave in the first two months (April, May) of the first quarter of the current financial year can be recovered in the remaining three quarters, the growth rate may no doubt slow down yet it can remain in double digits provided Covid is arrested quickly. The apprehension of economic recession seems oblique as per the various economic indicators. It may be worthwhile to mention here that RBI has projected GDP growth rate at 10.5% in financial year 2022 while as IMF puts it at 12.5%, the world bank sees growth at 10.1 %.
The impact of Covid -01 had remained confined to cities only while as Covid-02 has spread in the rural areas, that way it can be more fatal for human lives and economy as well. The poor rural medical setup can no way stop deaths and any decline in agriculture will have a disastrous impact on the industrial sector by declining the domestic demand for goods. The good monsoon declared by Metrological Department will lead to good Khariff crop only if sowing takes place in time. It is a big challenge for administration to control covid in rural areas before the start of monsoon.
With the opening of economy after Covid-01,the job opportunities had a growth of 32% from Jan to March 2021. The GST in April 2021stood at 1.41 lakh crore – highest since the introduction of the indirect tax system. It is likely to fall in the coming months due to the proclamation of localised lockdown in almost whole of India. E- way bills an indicator of domestic trade saw 17.5 contraction (M.O.M) in April 2021 but were higher than the pre pandemic base of Feb. 2020.
The economic slowdown in the first two months of current financial year was quite visible by the decline in petrol and diesel sales. In April 2021, diesel sales declined by 1.7 percent while as petrol sales declined by 6.3%. The sectors which are badly hit are retail, hospitality, aviation and construction. These are major employment – oriented sectors of Indian economy. Since people are confined to their homes, it has led to demand shock,discretionary spending, less purchasing power to low employment. The IT sector has adapted work from home and health care sector is hiring people for diagnostic labs, there is a surge for technical staff in the diagnostic centres, demand for doctors and paramedical staff. In all the domestic demand is on a continuous decline yet a ray of hope has become visible with the growing world trade. The exports showed 80% growth in the first week of May 2021. The exports will further grow as second wave has already vanished in America, Europe and many other countries and their vaccination program is going on at a good speed.
In second wave restrictions were not as stringent as during Covid-01, the movement of goods and permission to industries to function maintained the supply chain. The learnings in first wave helped business and Government to run economy better in the second wave. RBI in ‘state of economy’ report holds that the impact of second wave on real economy seems to be limited in comparison to the first wave.The credit for this goes to localised nature of lockdowns, work from home adaptation, on line delivery models, e-commerce and digital payment system.
The solution to every economic slowdown in India has come from a resilient agriculture sector. It bears the capacity to escalate the domestic demand and may there by help the other sectors of the economy. It is due to this that Government has declared full subsidy on potassium and other fertilisers. The Central Government increasedits share of subsidy on di-ammonia phosphate by 140% from Rs 500 to Rs 1200 per bag there by, it rolled backthe steep 58% hike in prices announced by companies since April. The higher subsidy will help fertiliser companies to sell DAP at old rate of Rs 1200 than Rs 1900 new rate.The sesame seeds will be provided free of cost to the farmers for their kharif season. These steps will increase production on the one side and farmers purchasing power on the other. The marginal propensity to consume being highest in rural areas will escalate demand in market with every rise in their income.In order to escalate demand, the Government must resort to more public expenditure,raise social welfare schemes, subsidy, low interest loans and so on rather than direct cash transfer. The escalation in demand will have a positive impact on output, employment and income, may increase supply and restrict prices rise.
The biggest challenge for the Government at present is to increase employment opportunities in both organised and unorganised sectors of the economy. The employment data published by CMIE holds that the unemployment has reached to 8 percent in the last four months while as it had touched to 23.5 % during the first wave but it is no solace because medium, small and micro enterprises are fast laying off their work force due to the lack of demand.CMIE holds that unemployment has touched its four-month high in April as jobs declined drastically due to localised lockdowns.
It has impacted 70 lakh jobs.the unemployment rate touched nearly 8% in April in contrast to 6.5% in March. The unemployment rate in rural India is even more volatile. The fear of lockdown has made entrepreneurs to apply more labour-saving techniques. Fall in income is the main reason for low consumption. The CMIE holds that the urban employment has declined from 33.56 % on 9th May 2021 to 31.55% on 16th May 2021, the fall in rural employment in the same period was from 39.84 % to 36.26%.
The Governments shall increase tests, vaccination and awareness to contain the disease on one hand and on the other there is a drastic need to increase consumers and producers confidence in the market, which is highly shaken at present.
(The author is Professor (M.A.I.T) Guru Gobind Singh Indraprastha University, Delhi)
Prof M K Bhat