The economic situation of Covid-19 after recovery

The economic situation of Covid-19 after recovery

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The United Nations sees the Indian economy recovering by 7.3 per cent this calendar year after a corona virus-driven fall of 9.6 per cent last year.

The UN’s World Economic Situation and Prospects 2021 report released on Monday said that “despite drastic fiscal and monetary stimulus” India’s gross domestic product (GDP) fell because of lockdowns and other containment efforts that “slashed domestic consumption without halting the spread of the disease.”

India’s GDP growth was forecast to dip in the 2022 calendar year to 5.9 percent, according to the report.

China, where the Covid-19 pandemic started and spread bring the rest of the world to its knees, was the only major economy to have grown last year, registering a 2.4 per cent increase last and is forecast to grow by 7.2 per cent this year and by 5.8 per cent next year, according to the report.

The global economy shrank by 4.3 per cent last year and is forecast to grow by 4.7 per cent this year and 5.9 per cent the next.

UN’s Chief Economist Elliot Harris said, “The depth and severity of the unprecedented crisis foreshadows a slow and painful recovery.”

He warned against the temptation to impose excessive fiscal austerity while the world recovers from the pandemic.

“As we step into a long recovery phase with the roll out of the vaccines against Covid-19, we need to start boosting longer-term investments that chart the path toward a more resilient recovery,” he said.

He said that the world now needed “a redefined debt sustainability framework, universal social protection schemes, and an accelerated transition to the green economy.”

Analytical figures regarding economic condition

The World Bank earlier this month forecast India’s economy to fall by 9.6 per cent during the current financial year but recover by 5.4 per cent next financial year if there is wide vaccination against the disease and it is contained.

Compared to this, according to the UN estimates made on a fiscal basis for India, its economy was estimated to fall by only 5.7 per cent in 2020-21 and increase by 7 per cent in 2021-22 and 5.6 per cent in 2022-23.

Reports are coming in from many quarters that India is swiftly recovering from the economic crippling caused by Covid-19-related lockdowns. Factory output in the country has risen steeply and at levels not seen in nearly a decade. While the exact shape of the ‘curve’ of India’s economic recovery is still being analysed, there is a palpable sense that things could have been much worse; indeed, by some estimates, they had been forecast to be much worse.

Present political scenario

If a political economy event could be considered the measure of the emotion on a real street, then it would be the recent elections in Bihar, one of the country’s poorest major states, where the ruling BJP-JD(U) combine won the elections, mostly on the personal appeal of Prime Minister Narendra Modi.  What is going on? First, the stimulus rolled out by the Indian government has come in phases, with a constant feedback loop from the ground along with tweaks and alterations depending on the response.

Second, the focus has consistently been on targeted delivery of cash and benefits to the most vulnerable parts of society where the money was more likely to be immediately spent rather than merely saved for a rainy day as middle-class financial behavior often tends to lean towards, thus creating money flow in the economy. A crisis in countries like India leads to an expanded rate in household savings. 

Govt. Actions regarding The economic situation of Covid-19 after recovery

By targeting the stimulus sharply on rural jobs and cash and benefits to the vulnerable, especially in village communities, the government ensured that support went to the most-needed sector in the country. This is also why agrarian growth has remained resilient in the face of contraction in the wider economy in 2020 and why sales from two- wheelers and tractors to fertiliser off-take have remained strong and steady even in a year of unprecedented crisis.

Special mention must be made here of the PM Kisan Yojana that shifted direct cash transfers to around 10 crore farmers, distributing about Rs 90,000 crore since its inception in December 2018, a significant part of it paid during the Covid-19 lockdown. 

Govt projects boost us economy

Whether it is the rise in wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) or the special ex-gratia payments for around 200 million underprivileged women during the extreme lockdown, a vast portion of government help during Covid-19 has trickled down to the grassroots especially in non-urban areas, leading, unsurprisingly, to a record turnout of women voters in recent state elections around the country. Further reforms of agrarian markets, as rolled out recently, are likely to bring in much-needed private investment in the agricultural economy.

The push for domestic sale and purchase of local products under Atmanirbhar Bharat has further propelled bumper sales at the Khadi and Village Industries Commission (KVIC), including a record of four days of sales of more than Rs 1 crore (per day) in the 40 days following October 2—a special day for khadi as it is the birth anniversary of its strongest proponent, Mahatma Gandhi—from just one KVIC store in New Delhi.

Digitization vs. Pandemic

This after the KVIC already had a record-breaking turnover of nearly Rs 90,000 crore in 2019-20. KVIC sales also go in a large part to producer communities in rural areas like weavers and others. The third pillar of India’s recovery has been the furious spread of digitisation. From mass transfers of cash benefits with little leakage to fuelling all-time-high foreign direct investment in the first quarter of the current fiscal, especially in its tech companies, the spread and depth of digitisation in India is unprecedented today. 

This is set to grow deeper as broadband penetration grows and elements like artificial intelligence are injected into the mix. There is no country in the world that offers the volume and diversity of data in a democratic set-up that India does, and the monetisation of this market and data has only just begun in significant quantum. This will grow exponentially as more granular data and that from the hinterlands are progressively unlocked. 

The final understanding

If this recovery holds, India is likely to emerge from Covid-19 having delivered relief to the much-needed rural and semi-rural sector, still the biggest employer in the economy and without any major crisis in the depletion of state funds due to vast relief measures.

It would also emerge having incentivized both domestic spending and manufacturing (not only for domestic consumption), notably through popular production-linked incentives.  This may yet turn out to be the start of the long-awaited turnaround in Indian manufacturing and the trigger towards a reformed agrarian sector.