Just when everything was already going bad, the coronavirus pandemic hit us. Apart from all the fatalities, worsening mental and overall physical health of people, the biggest damage that the pandemic and the subsequent lockdowns have caused is on the economic state of the country.
The Indian economy was on a downward slope even before the pandemic wreaked havoc with very low growth rate and unemployment which was at 45 years high, according to the Periodic Labour Force Survey, 2018-19.
Inexperienced more at disadvantage
The pandemic is a bad news for almost everyone but more so for those who were already more vulnerable- fresh graduates who are in their early 20s. Companies are retrenching trainees and probationers and retaining the more experienced employees.
This is the most worrying aspect and comes with all harms associated with unemployment- income insecurity, negative impact on mental and emotional state of the youth, decrease in investment in higher education due to lower returns, inability to reap demographic dividend, social costs of unemployment like higher crime rates, etc.
Decreasing incomes also mean less savings, less consumption and thus less overall economic growth. And since less savings also mean less investment, long term growth is also going to be negatively impacted. It is evident that the economic slowdown is likely to stay for a long time.
Green shoots
Not everything is so gloomy though and some silver lining is visible. According to the CMIE, which conducts one of the world’s largest continuous surveys to track household incomes, 70 out of the 121 million Indians who had lost their jobs at the peak of the lockdown have been returned their jobs. This is because of some economic activity and a bumper harvest due to a good monsoon season this year.
Employment guarantee schemes have also helped many rural people in avoiding the unemployment trap.
The informal sector is slowly picking up since many of the migrants who had left cities for their hometowns have returned to their jobs and some are even getting paid more by the employers because of more demand of labor than its availability.
Agriculture is the only sector which is showing a good growth rate but since there’s been a huge influx of people in the villages, per capita income is still low there.
Areas of concerns
But this is where the positives end, a lot of areas of concerns have cropped up which need immediate attention.
In the formal sector, lucky are those who are only experiencing salary cuts, the more unfortunate ones have lost their jobs altogether.
The IMF has projected the economy to contract by 4.5%, lowest since 1961.
It has largely been accepted that the fiscal deficit is bound to breach the 3.5% target. Large fiscal deficit limits the ability of the government to increase capital expenditure and provide fiscal stimulus. It also decreases the ratings of sovereign debts which will make future borrowings by the government expensive.
The pervasive sentiment of fear due to the Covid has hampered the overall economy and chances of full economic recovery look bleak. Although India has passed its Covid 19 peak, according to a new government study, it is unlikely to have a major impact on economic revival.
What has the government done so far?
The government is doing well with schemes like Atmanirbhar Bharat with a focus on encouraging entrepreneurship, Atmanirbhar Nidhi for providing capital loans to street vendors, etc.
It is also trying to increase revenue collection with many schemes like Vivad se Vishwas which it can use to provide fiscal stimulus and to increase its capital expenditure to revive economic growth.
The Finance Minister has exhorted large central public sector enterprises (CPSEs) to achieve 75% of their planned capital expenditure (capex) target for FY21 by December. She has said that capital expenditure by PSUs is a critical driver of economic growth and needs to be scaled up in the coming years.
The focus now should be on restoring employment to those who have become unemployed. On the macro level, government expenditure needs to be scaled up but a balance must always be maintained between expenditure and fiscal deficit. The government’s efforts should be doubled or even tripled to be able to adapt the economy to these tough times.
Efforts should be strengthened by multi stakeholder collaboration between companies, governments, professional services and technology firms, labor unions and community organizations
Komal is an English literature student with a keen interest in economic developments and politics amongst others. She is a part of Research & Content team at HrNxt.com