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Friday, April 16, 2021

Will the economy revive amid micro-lockdowns and virus fear?

The sudden micro-lockdowns imposed by the states in this country might have a concerning impact on the revival of the economy as a whole. Several indicators since June have shown that the growth has deteriorated leading to the Central government’s worries. Factors like the severe cash crunch, interrupted supply chains, migrant labour crisis and more pose a long road for the country to revive its economy completely. People grappling with the fear of the Coronavirus and how long it will stay us, all of that is also adding to the concerns.

Will the economy revive amid micro-lockdowns and virus fear? This is the most important question that needs to be answered.

The Centre worried about the revival

Policymakers and the Centre have been worried sick as COVID-19 and the sudden and selective lockdowns by various states in the country have stunted economic growth. The recovery might have lost momentum, say a lot of experts looking at several growth factors since the gradual opening up of the nationwide lockdown. This is a matter of serious discussion at the parliament currently. The 20 lakh crore Aatmanirbhar economic stimulus package announced by the Prime Minister might not have been sufficient say some, while others have hailed it, saying that is what was needed to uplift the immediate economic condition of the country. PM Modi has taken stock of what the package is dealing with and asked his ministries to look at the ground-level impact on the economic status of the nation. However, it has turned out to be quite difficult for the officials to pinpoint and determine as the Centre’s Unlock 2.0 guidelines are in place along with the state’s health guidelines which are each to their own. “These could derail the recovery,” a government official told the Economic Times. These are “certainly a setback”, said another.

Recent data from surveys have suggested that there are a few factors which specifically show that the revival of the economy has been on a slowdown since July and then in August as well. One of the factors is mobility data acquired by Google and Apple. The data collected by them goes on to show that movement in urban areas has suffered in India over the last few weeks after they had increased in May 2020 and June 2020. “Overall India’s average reveals not much improvement in Workplace Mobility and in fact decline in mobility to grocery and pharmacy [stores] compared to Jun 2020. The Mobility Index reconfirms our fear of the economy losing much of the momentum in July with restricted and self-imposed mobility across states,” a recent report by State Bank of India’s (SBI) research wing stated.

Why so low?

A few other factors or economy-related signals have only made things worse and more complicated. For instance, bank credit is said to have been shrunk in the past month, according to Reserve Bank of India data. Another survey by the Central Bank has determined that consumers are wary about the revival of the Indian economy which has led to a one-of-a-kind low in confidence in the past month. However, the participants of the survey have also stated that they are hopeful for next year when it comes to the future economic prospects of the country. If we talk about the tax and government revenue aspects, GST collections in India have been gradually getting back to normal, with the Central government gaining a gross GST revenue of Rs 87,422 crore in the month of July. However, the above figure has been found out to be less than what was in July last year and even June this year.

Some good news, maybe?

The economy had begun seeing its decline much before the pandemic struck and our woes are more than over. It had already been on a downward spiral because of a decline in household consumption and investment in the private sector before COVID-19. In March itself the growth had slumped to a staggering 3.1 per cent although it was just about one week since the lockdown was placed, according to official government data released on May 30. To provide a spur, the Prime Minister had announced the stimulus package. Finance Minister Nirmala Sitharaman also announced numerous schemes and measures for MSMEs, which would eventually need handholding and accounts for 29 per cent of the country’s GDP by employing more than 120 million workers. The MSME sector has been worried about what will happen after the pandemic is over and they were not quite happy with the measures announced by the Centre. Their major concerns lie in the areas of capital and labour. Capital because we do not how much the government can put in to spur the growth of the sector as the economy was already slumping beforehand and labour because of the migrant workers’ crisis during the pandemic and the subsequent lockdown while sending them back home. “These reforms (announced by the government) are more medium-term in nature, and we, therefore, do not expect these to have an immediate impact on reviving growth,” Goldman Sachs economists Prachi Mishra and Andrew Tilton wrote in a research note on May 17.

As per a few other reports and surveys, there might have been a slight rise in the pace of economic activity in the first week of August, however, it has the chances of being hampered by a possible second wave of the virus leading to more lockdowns across the country or even the world. “However, the second wave of COVID-19 cases, combined with a ‘rolling wave’ in traditionally safer states (in the south and the east), increase risks of protracted quasi-lockdown measures and tempering of sequential improvement in the activity once the post-lockdown momentum ebbs,” wrote Sonal Varma and Aurodeep Nandi in the Nomura India Business Resumption Index.

What is currently a cause of worry for economists and experts is that the huge number of COVID cases in India and that they are still rising. There seems to be no visible decline or even a chance to say that the country has reached its peak. We do not when that will happen and that’s what most concerning. With an ongoing health emergency, it is expected that the government will take care of the revival of health first and then look into the economic revival. But I think, even at the end of this, we are still left with the question whether the economy will revive amid micro lockdowns and virus fear?

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