Impact of second wave on Indian economy
Impact
of Covid Second Wave on Economic Growth
Subhash
Chandra Garg
Economy,
Finance and Fiscal Policy Strategist; Former Finance Secretary, Government of
India
Second wave has caught us
unprepared
Fast spreading reported daily covid-positive
cases, in excess of 3 lakhs a day, made India clock one million cases in last
three days only. Health infrastructure has been stretched to its limits. Oxygen,
beds, drugs, vaccines, faith and confidence all seemed to have broken down in
many parts of the country. India is in a very disturbed state.
Not so long back in
January-February, situation was looking quite comfortable. For a day, Delhi had
recorded only one death with national death count falling to less than 100.
While Covid was still raging in the US and UK, India seemed to have got over the
Covid with much less damage. The self-inflicted damage to economic growth in QI
of 2020-21 had also been put behind by rationale approach adopted in Q3 and Q4.
Indian economy seemed to be convincingly headed for a healthy growth of about 11-12%
in the year 2021-22.
Production and industry friendly
policies of PLI, auction of commercial coal mining, termination of off-budget
borrowings and clearance of FCI subsidy arrears exceeding Rs. 3 lakh crores,
healthy budgeting for health, drinking water and vaccines and bold
privatisation initiatives had brought good confidence in businesses and
markets.
In this euphoria, however, India
became negligent. There was aggressive opening of contact intensive services,
witnessed at its worst in assembly elections and Kumbh and virtual abandoning
of mask and other sanitary measures. The vaccine programme rolled out slowly.
The inability to read dangerous signals emanating from the surge of cases in
Maharashtra, Gujarat, Delhi etc., with the entry of an Indian mutant has
contributed to the unprecedented surge which we are witnessing today. There is
no end in sight at this moment though it would certainly wain in due course.
Our response
The Government has realised the
enormity of what has hit India and has mounted a forceful response. I am sure
soon we would get over the shortages of oxygen and drugs. Vaccine supply would
also improve. What, however, looks ominous is the spread of Covid-19 to poor
and poorly equipped states like UP, Bihar and Madhya Pradesh. Huge deficiency
of good medical infrastructure in these States in terms of hospitals, doctors,
nursing staff, beds etc. might prove overwhelming.
Governance response on lockdown
has been quite calibrated. The central government has declared unambiguously
that national lockdown is no answer and has not ordered closing of any industry
or businesses, despite massive upsurge in caseload. It has proactively prevented
closure of railways, buses or other modes of transportation. The states to whom
decision-making has been delegated this year have also not panicked and have
applied restrictions with much better consideration and discretion.
Sensing probably that there is no
major political advantage from roll out of vaccination programme, the central
government has transferred responsibility of vaccinating those below 45 years
to the States and private sector. The Government made provision of Rs. 35000
crore for meeting the 100% cost of vaccinating 60 crore Indians, which might
remain underutilised in the new arrangement. States’ fiscal woes would worse in
the bargain.
Economic impact
From the economic viewpoint, complete
lockdown approach of last year was disastrous. It wielded a sledge-hammer which
battered the economy in the first quarter when India contracted massively by
24%. It is good that approach has been junked.
The type of restrictions imposed
in parts of country this year will not impact primary sector economic
activities (agriculture, mining etc.) more or less. Secondary sector economic
activities (manufacturing, utilities, construction etc.) will also have only a
minor bruising.
The restrictions imposed are
concentrated on the tertiary sector (retail, hotel, personal services, financial
services, education etc.). Amongst these services, the economic activities
which have got digitalised like IT services, telecom, financial services and
retail and distribution which can be organised and delivered through e-commerce
types of platforms will remain by and large unaffected; some might actually see
healthy growth. The rest of services would certainly witness contraction and might
collapse in some cases for some period.
One can only make a broad brush
assessment of the economic impact of surging covid-19 and the restrictions
imposed. My assessment suggests that production/value added is only marginally
negatively impacted in the primary, secondary, government and digitalised tertiary sectors, which makes
up about 75% of GDP. Remaining 25% of GDP, by and large in the non-digitalised
contact intensive services, will have more serious impact.
My earlier assessment for the Q1 2021-22
growth was for 25-30% growth year on year which would have brought back the
economy to Q1 2019-20 level. My assessment at the current stage is that Q1
growth would get tempered to 15-20%. The labour force is likely to shrink by 2-3%
as well. Unemployment will also rise for many weeks.
A carefully crafted and calibrated
strategy only can make India end three year dollar GDP growth draught
India grew by 7.5% only in nominal
terms in 2019-20 (4% real). However, rupee depreciated against the dollar by
more than 8% that year. Consequently, dollar GDP of India in 2019-20 was lower
than the dollar GDP of 2018-19. India has most likely contracted by 5-6% in
nominal terms (8-10% real) in 2020-21. Though rupee appreciated against dollar
by about 3-4% during this year, India’s dollar GDP for 2020-21 would remain about
2-3% lower than the dollar GDP of 2018-19. For two years, India’s dollar GDP
has been stationary.
India was expected to grow by
about 15% (11-12% real) in nominal terms in 2021-22. As the depreciation of
rupee cannot be by stretch of imagination be anywhere close to this level, the
dollar GDP of India was expected to grow by a good margin over the dollar GDP
of 2018-19.
Covid-19 surge in second wave and
flurry of restrictions imposed have dented the growth impulse for the year. It
is difficult to estimate the intensity and length of surge and virus case load.
How the Government handles its response to this unfolding tragedy, the kind of
restrictions which the governments might put in place and how the people respond will determine the
impact on both demand and supply. The type of lockdowns used in April last year
makes India’s GDP contract by about 4% a month. The nuanced approach used so
far is likely to limit the monthly damage to less than .5%.
At this point of time, 2021-22
growth going down to a little below 10% looks quite real.
New Delhi 26/04/2021
Excellent information provided by you through this post. I follow all the mentioned information about second wave on Indian economy. If you are looking to know about How To Send Coin From Binance To Coinbase? then you don’t need to take stress as we are available here at: www.cryptowalletsupport.com
ReplyDeleteI am here to share with you an incredible trading opportunity that will change your life. Your so-called Bitcoin / Forex trading options. It is a very lucrative that can trading that generate you up to $ 8,070 in a week with an initial investment of as low as $500. I am a living proof of this great opportunity. If anyone is interested in trading bitcoins or any cryptocurrency and wants a successful trade without losing, please contact Mr.Gilbert now. Whatsapp: +353(024)34556 Email: Blocktradefx@outlook.com
ReplyDeletePlease share with others and help someone out there became financially free and stable.
Hello
ReplyDeleteWe are professional traders, earning on forex and binary for investors weekly, will love to tell you all more about our investment platform where you can invest funds as little as $500 and start earning $5,500 weekly, alot of people has benefited from this investment offer before and during this convid-19 virus, if you passing through financial difficulties due to this coronavirus and you need help paying bills simply choose a suitable investment plan for yourself and start making profit weekly $500 to earn $5,000 in 7 days
$1000 to earn $10000 in 7 days
$5000 to earn $50000 in 7 days To Start your investment now contact Via email...(paytondyian699@gmail.com)
Wow I can't still believe this, I have finally received through bitcoin mining. Wow I am so happy, recommend her to you guys and start a trading with her and be a living testimony like l I'm and also don't forget to thank me late chat me on WhatsApp +1 (512) 975 2877
ReplyDeleteGet paid daily for doing just some simple tasks online. Earn a cool $5,500 per day times 5 days $40k. In a month is a cool cash $$50k
ReplyDeleteTake a step that can change your life, DM me if you're interested. Only interested people OK.
I will send you details right away. A business that will change your life. DM me on WhatsApp and comment How?
Only interested people
👇👇👇👇👇+1 (512) 975 2877