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Friday, April 16, 2021

What will be India’s economic recovery? Explained in 5 crucial questions

“Two weeks have passed since Unlock-1, our experience during this time could be beneficial for us in the future. Today, I will get to know ground reality from you, your suggestions will help in chalking out a future strategy,” Prime Minister Narendra Modi told Chief Ministers during a video conference. “In the future, whenever India’s fight against Corona is examined, this time will also be remembered because we worked together, presented a fine example of cooperative federalism,” PM Modi added.

How can the Indian economy get back on track?

The Indian economy had come to a complete halt during the lockdown and getting back to normal will not be very easy or fast. But according to various studies and data collected in the past couple of months, there has been an improvement in the situation. The economy as a whole is showing signs of recovery. Unemployment, CMIE data says, has reduced from 27.1 per cent to 17.5 per cent. This is a good sign and means that not only are people getting back jobs but production has also started. This assures that both the supply and demand side of the economy are on the way back to the normal path. S&P Global, an international rating agency, in a report, recently said that India’s recovery would be key to maintaining its sovereign rating. It also said the country will need fresh reforms to arrest weak consumer sentiment and investment. “The smaller factories we have are in need of guidance, hand-holding. I know that a lot of work is being done on this under your (CMs) supervision. So that trade and industry can catch up to its old pace, we will have to work together on value chains as well,” Modi said in his opening address.

PM Modi said during his meeting with the CMs that it has to be kept in mind that our economy will open as much as we are able to stop Corona, our offices, markets, modes of transport will open that much and new sources of income will open that much. “The recovery rate has gone above 50 per cent in India,” he said, referring to the number of recovered patients exceeding active cases.

What can work for India?

The PM’s clarion call for Atmanirbhar Bharat has found its way into every aspect of our life already. He not only wants us to make in India but make the rest of the world’s requirements in India as well. His vision — Vocal for Local — had also gained massive popularity. “It is important that that identify such products in each block and each district that can be rolled out into the nation’s and the world’s markets with processing or marketing,” he said, explaining that the cluster-based approach adopted by the government will benefit each state. What India can look at is a shift-based employment scheme, both in a rural and urban setup. This will not only help increase production and give employment to people but will help keep more people employed. If there are two shifts that means more number of people can work and at the same time there would be no need to change the labour laws and face criticism.

Agriculture
Indian farm (Photo: Wikimedia Commons)

Will agriculture play a big role?

Agriculture, according to many experts, has been the backbone of our economy even though we have moved on to concentrate more on industries and services. But will agriculture be able to save us from this situation? Well, the PM certainly thinks so and also believes that farmers have benefited a lot from the reforms that have been introduced in the marketing of their produce. “It has provided farmers with new ways to sell their products, their income will increase and we will also be able to decrease the loss faced by them due to lack of storage,” said the PM. But even if we did not consider that, the agricultural sector was doing better then the rest of the economy even in the last financial year. FY 2019-20 had seen a low GDP growth rate of 4.2 per cent. The Gross Value Added (GVA) of the agricultural sector was 4 per cent as opposed to the GVA in general — 3.9 per cent.

Which states are on the forefront?

Kerala, Punjab, Tamil Nadu, Haryana and Karnataka have probably seen a boost in economic activity recently. This can be said based on a thorough analysis of indicators such as power consumption, traffic movement, the arrival of farm products at wholesale markets and Google mobility data — Garima Kapoor, an economist at Elara Securities in Mumbai, wrote recently. But on the other hand, some of the most industry-rich states such as Maharashtra and Gujarat are falling behind because of the strict measures which are still in place to contain the pandemic, she added. “The best stimulus India can have is a resumption of normal economic activity,” Kapoor said. “The country is witnessing an improvement in activity but it remains sporadic.” Punjab and Haryana were among states that saw an improvement in farm operations, a study showed.

Will it be a smooth transition?

The Chief Economic Advisor Krishnamurthy Subramanian recently said that the government is working with the assumption that the economy might contract in 2020-21 and added that actual growth will depend on when the recovery happens. “In the start of the financial year in April, we had estimated the economy to grow at 1.5-2 per cent, conditioned in a V-shaped recovery in the second half. Whether that recovery will happen in Q2 or next year is not certain. Actual growth will depend on when the recovery happens. If recovery does not happen this year, the economy will have a decline in output this year,” Subramanian told the media in a virtual meeting.

But everything will depend, like the PM pointed out, on how India tackles the spread of COVID-19. Just after the lockdown ended, cases spiked up in states like Tamil Nadu, forcing the government to announce a 12-day extensive lockdown across five districts including Chennai. These lockdowns, even though necessary, hamper the economic activities and derail the system from a path of growth. If instances like this happen across the country it will be tough for India to get back on track soon and probably the government already knows that. Thus the assumption that the economy will contract in the next financial year.

Only time will tell whether India bounces back on track or settles for a lower growth path.

Do not have time to read? No problem. Platocast’s State Of Economy is a weekly Indian Economy podcast where we aim to provide context on the economic news of the week. Listen here. 

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