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Thursday, December 3, 2020

You can still be positive about India’s economy, here’s how

It’s all negative vibes around us in terms of India’s economy at the moment. After the country’s GDP contracted -23.9%, not a single positive equation about the economy is on our minds, right? This is quite obvious given the fact that the pandemic is still raging high and now India stands as the second-most globally affected country.

However, certain things should be looked into in a different way. According to a report, the GDP decline in the April-June quarter (Q1) is mainly because of the pandemic and does not relate to India’s overall economic performance leading into the crisis. Therefore, as per the report, the data unmistakably suggest that the economy is recovering strongly in the unlock phase. So, let’s not speculate all negative things on the basis of the -23.9% GDP contraction.

Here’s how you can still be hopeful about India’s economy, explained in 5 points

1. Get the facts rights, think logically

So let us first correct a commo misunderstanding that one quarter of the GDP as on June 30, 2019, has been wiped out in the past 12 months. Absolutely not, since GDP is a flow variable, the GDP of the April-June quarter shows only the economic activity undertaken in these three months. “Changes in GDP are compared to the GDP during the same quarter last year only to adjust for seasonality in economic activity,” says a report. So it is conceptually wrong to infer that one quarter of the GDP has been wiped out in past 12 months. Rather, we should deduce that economic activity in April-June 2020 was 23.9% lower than what it was in April-June 2019.

2. Blaming the lockdown is of no use

Agree or not, lockdown was an imperative 7 months ago. India had the most intense lockdown starting from March 25. This was definitely required as we all by now know that network effects that drive the pace of a pandemic’s spread are more pronounced in larger populations, and particularly so when the population density is high. If we didn’t have a lockdown, the pandemic would have spread like wildfire from March itself, thereby providing no time to gear up the health or testing infrastructure. Imagine cases going up by 80,000 in April itself with no added hospital beds or rapid antigen testing facilities. We would have lost about 3,000-4,000 more people on a daily basis, thereby grieving at higher orders of magnitude of deaths. Yes, the lockdown hit the economy hard but we hardly had any other option back then.

3. When exactly did the economy start breaking down

A report suggests, the economy was undeniably displaying green shoots till February when the pandemic hit India. If you look at the Google’s index of mobility, it reveals that the pandemic started affecting economic activity in India from March, when mobility dropped by about 20% compared to January and February. The services sector — the dominant engine of growth in India — has been severely hit by the need for social distancing and the lockdown. With people cooped up inside their homes and worried about jobs and spending, Indian middle class resorted to just buying essentials and groceries, therefore the consumer demand and consumption hit the rock bottom.

4. Don’t assume, follow experts’ calculations

Look at what the expert agencies are speculating about India’s economy. Global rating agency Goldman Sachs has cut its estimates for growth in India’s gross domestic product (GDP) for the current fiscal 2020-21, but the firm expects that the economy will see a full-bound recovery by next year. The research firm expects real GDP growth to contract 14.8% in FY21 against its earlier estimate of 11.8% contraction for this period. The agency, however, expects real GDP will bounce back strongly to 27.1% on year-on-year basis in Q2 2021 (April-June 2021) owing to favorable base effects. This is based on assumption that 70% of the lost output in June 2020 will recover by June end of 2021. In a report, “While the economy must now climb out of a deeper trough in 2020, we have upgraded our expectations of a rebound next year” say analyst at Goldman Sachs India.

Similarly, Japanese research company Fitch Ratings, Nomura also believes the recovery will occur in FY22. Fitch Ratings expects India’s economy to contract 10.5% in the current fiscal before bouncing back in the next financial year. The firm said Indian economy will recover to 11% in 2021-22 largely owing to base effect and grow by 6% in the following year.

5. Five expert tips for speedy recovery of the Indian economy

A) Borrow more, don’t scare bond market

Former RBI governor Raghuram Rajan belives that the Centre should borrow more but should remain committed to returning fiscal viability in the medium term.

B) Government should sell more

Another expert tip is that, the Centre should utilize its public firms and make preparations for on-tap sale to boost activities in the money market. Rajan says even if the sales are not materialised, the preparations will offer confidence to the bond market.

C) Prioritising government spending is important

Experts believe that the government should choose wisely which sectors it must and should provide economic relief to. For example, the MGNREGA is one such sector where economists believe the Centre should offer direct cash transfer benefits to lift up the poor’s socio-economic status.

D) Private firms can offer great help

It’s time to rope in the private sectors’ help in this time. Private firms has more capital and experts believe that bigger companies should help the smaller firms get back on track to develop the over-all supply chain. Amazon, Walmart, Reliance, Google, Tata and several other such big brands can play a huge role in this.

E) Constant supply of stimulus or reforms needed

This is another undeniable truth. The construction sector is one such field that needs huge stimulus to face bad time and create demand in the market. This sector can also generate jobs in steel and cement sectors. Similar ideas can be followed for other sectors as well. Also regular reforms are need of the hour to develop infrastructure across the country. In this case, health and education sectors need massive rehaul now in the post-Covid world.

Finally, being hopeful is the key for we will have to wait till next year to understand the overall scene of the economy’s recovery.

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Platocast Teamhttps://www.platocast.com
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