Ways to Achieve Economic Boost in Post COVID-19 World

Context

Indian economy is struggling to achieve the pace of development after the COVID-19 pandemic.

Background

The COVID-19 pandemic has made businesses and consumers jittery and unsure. There seems to be neither capacity nor appetite for consumption -- and in the absence of demand, industry has little incentive to ramp up production.

India has never experienced negative economic growth since 1979-80, and before that in 1972-73, 1965-66 and 1957-58. All these were drought years with 1957-58 also registering a significant balance of payments (BOP) deterioration and 1979-80 witnessing the second global oil shock following the Iranian Revolution.

The real GDP decline of 5-10 per cent that various agencies are projecting for 2020-21 would be the country’s first ever not triggered/accompanied by an agricultural or a BOP crisis.

India Vs. China

While our economy struggles to stand back up, some of the economies have already begun on their recovery journey, including China. However, beneath the surface, both countries could not be more different than the other, which makes any comparison between them pointless.

The key difference that makes all the difference is that China is an authoritarian state, whereas India a democratic one. The policy response of different nations to the pandemic has shown that authoritarian states like China were more efficient in implementing their policies. The same goes with economic decisions, because there is lack of opposition or conflict.

In our eagerness to reach up to the success of China, we tend to forget that India’s challenges are different from China’s. We have chosen a political system that believes in equal rights for all, which translates into larger role for the people in governance and spreading the benefits of development more widely. Democracy may slow down processes and economic growth, but India has chosen to hold on to the values that do not begin and end with GDP. Moreover, economic growth has little significance if a section of the population is excluded from reaping its benefits.

IMF Analysis

Recently, the International Monetary Fund (IMF) in its report projected the Indian economy to contract by -4.5 per cent in 2020, which is the slowest Indian growth that it has in its record since 1961.

Other Analysis

The economic impact of COVID-19 has been substantial and broad-based. High frequency indicators point to a sharp decline in economic activity, as reflected in industrial production, business sentiment (eg, in the Purchasing Managers Indices), vehicle sales, and trade. The downward revision to growth in FY20/21 is driven primarily by the continued rise in the number of COVID cases in India.

Observing that the pandemic and the lockdown have a severe impact on industries and services (hotels, restaurants and transportation sectors), the GDP release of 2020 Q1 (January to March), including the beginning of the lockdown period, points to a decline in both manufacturing and construction sectors compared with last year and the previous quarter.

Essential Measures to Revitalize Economy

• Support to the Big businesses as they provide huge contribution in the employment and GDP boost.
• Support to the MSME Sector to stand in this difficult time.
• Support to Startups in continuing their research and innovation.
• NRIs should bring investment in India, to nurture the closed units.

Government Support

Indian authorities so far have provided substantial aggregate policy support in terms of monetary, financial, and fiscal measures. The significant monetary easing and liquidity support helped ease any sharp tightening of aggregate liquidity conditions.

Prime Minister in the month of May has unveiled a stimulus package totalling ₹20 lakh crore, in CORONA time, which works out to about 10% of GDP, making it one of the most substantial relief plans in the world.

Positive Events

This time round, not only have farmers harvested a bumper rabi crop, and look set to repeat it in the ongoing kharif season, public cereal stocks at 94.42 million tonnes as on July 1 were also 2.3 times the required level. The January-March 2020 quarter was the first in 13 years to have recorded a current account BOP surplus. June even saw a surplus on the merchandise trade account for the first time after January 2002. Foreign exchange reserves were at an all-time high of $538.19 billion on August 7, rising by $60.38 billion since end-March amidst the novel coronavirus and the lockdown.

Conclusion

The pandemic has summed up this importance of reconciling democracy and capitalism by demonstrating that capital cannot make money without its people. Hence, this Independence Day, let’s begin to rebuild our economy by keeping in sight the democratic values that served as the foundation for the Indian state and not leave people behind in our growth journey.

The revised stimulus package can help revive businesses, which are finding it difficult to operate without adequate availability of credit. This is especially true for India’s 60,000-odd startups which are facing an acute liquidity crunch. The situation presents an opportunity to take bold action to promote investments, protect existing jobs and create new jobs.

Connecting the Article

Question for Prelims

With reference to the International Monetary Fund, consider the following statements:

1. It was formed after Bretton Woods Conference.
2. It is a specialized agency of UN.

Which of the statements given above is/ are correct ?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Question for Mains

Suggest measures to be taken to rejuvenate the economy after the COVID-19 pandemic.