Covid-19 pandemic and India’s economic growth!
This editorial is based on the article “Growth matters but income levels matter more” published in ‘The Hindu’ dated 14/07/2021. It discusses the challenges faced by economic development and measures to achieve higher growth rates.
Covid-19 pandemic The country’s economic growth is showing a declining trend after the shock from the pandemic, and private investment and demand have also declined.
In this scenario there is a need for rapid revival of demand for India and for this higher per capita income is necessary.
However, the economy will still have to deal with many challenges to improve demand and increase the rate of economic growth.
Some observations about the economy
- The agriculture sector continued its impressive growth performance, reaffirming that it still remains a vitally important sector of the economy, especially during times of disaster or crisis.
- localized lockdown because of production interruption The manufacturing sector, however, continued to show a declining trend and failed to emerge as a growth driver for the economy.
- Trade (-18.2%), Construction (-8.6%), Mining (-8.5%) And Manufacturing (-7.2%) The decline in the sector is a matter of concern as these sectors account for a large share of low-skilled jobs.
Challenges to economic development
- Rise in unemployment rate: Center for Monitoring Indian Economy According to (Centre for Monitoring Indian Economy- CMIE) India’s labor participation rate in May 2021 was 40% which was the same as the rate of April 2021, but the unemployment rate increased from 8% to 11.9% during this period.
- A stable labor participation rate coupled with a high unemployment rate means job losses and a fall in the employment rate.
- According to CMIE, more than 15 million jobs were lost in May 2021 as compared to 12.3 million during demonetisation in November 2016.
- High Informality: The loss of employment has given opportunity to the high informality and vulnerability of labor in India as daily wage workers or daily wage workers suffered the most during the pandemic. It challenges the country’s goal of inclusive growth and high economic growth potential.
- The following business beliefs: FICCI (Federation of Indian Chambers of Commerce and Industry-According to the survey of FICCI, Trade Confidence Index (Business Confidence Index- BCI) has come down drastically. purchasing manager index (Purchasing Managers Index- PMI) has also slipped to a 10-month low, indicating that the manufacturing sector is showing signs of stress and growth projections are being revised downwards.
- BCI And SMEs The fall in both indicates that the overall optimism towards 2021–22 is low, which could impact investments and lead to further job losses.
- Weak Demand: Demand conditions remain weak with household income being severely impacted and past savings already drawn or spent during the first wave of the COVID-19 pandemic.
Problems of India’s Policy Response:
- Less direct action has been taken by the government to help the vulnerable or vulnerable groups of the population to alleviate their hardships.
- The bulk of the policy measures are concentrated on the supply side and not on the demand side.
- In this time of financial crisis, there is a need for direct state expenditure to give a quick impetus to the demand.
- The bulk of all stimulus packages announced so far will be implemented in the medium term (not immediate). These include policies related to the external sector, infrastructure and manufacturing sectors.
- Using credit backstops as a key policy base has its limitations compared to adopting any direct measures on the demand side as it will lead to poor growth performance if private investment does not increase.
- Furthermore, the credit facilitation approach will take longer to generate income as the indebtedness involves both the discretion of the lender and the obligation of the borrower.
- Rapid revival in aggregate demand: An improvement in the growth rate is dependent on an improvement in demand. An increase in demand will be accompanied by an increase in savings and an improvement in the level of income.
- investment, especially private investment,”key driver”. It drives demand, creates capacity, increases labor productivity, enables entry of new technology, creates opportunities for creative destruction and creates jobs.
- Export Promotion: With India’s exports reaching US$ 32 billion in May 2021, which is up 67% over May 2020, external demand looks strong and indicates a sharp revival in global demand.
- Along with this, export finance can be made available to exporters.
- Increase in funding of MGNREGA and its expansion in urban areas: MANREGA (MGNREGA) program has proved to be a major source of livelihood support for workers in normal times as well as in times of crisis (like COVID-19) and from this point of view it is a good idea to extend the scheme to urban areas. Steps Will happen.
- Transfer of Cash Benefit: A meaningful cash transfer can restore confidence in distressed families. Cash in the hands of people will bring in them a sense of security and confidence which is the cornerstone of restoration of economic normalcy.
- This will increase consumption and demand in the economy and can trigger the ‘virtuous cycle’ of the economy again.
- Technology use: With the increasing penetration of the Internet, governments should create online tutorials in local regional languages to disseminate knowledge and skills to the entire population, taking the support of industry leaders.
- Labor-intensive sectors like gems and jewellery, clothing and apparel and leather goods manufacturing should be promoted.
- Focusing on growth has its benefits in the long run because achieving high-income levels requires sustained or sustainable growth over a long period of time.
- India is slowly but surely on the path of economic revival and investment is the best way to sustain this growth momentum.