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Home›Marginal propensity›2nd wave Covid and Indian economy

2nd wave Covid and Indian economy

By Faye Younger
June 2, 2021
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Prof MK Bhat
Covid has had a tectonic effect on the Indian economy, the first wave has ended, the second is slowing down and the preparation for the third has started, minor tremors like black fungus and white fungus are also making their impression on people and the economy. Each wave has a different dimension. The first wave had a catastrophic impact on the economy but the loss of human life was much less, unlike this, the second wave has less impact (than the first) on the economy but the death toll is high, mainly due to the large number of patients and poor healthcare facilities. In the first wave, there was no idea of ​​such a disease, so the national lockdown was enacted by the government, which gave the country enough time to deal with the unknown virus. Lockdown was the only alternative and it worked well to save people.
The second wave started, when the economy started to get back on track, workers started to go back to work, vaccines hit the market, people, governments and administration took things back. lightly until they get out of hand. The electronic media added to the fear factor and there was a mad rush to hospitals leading to the failure of the healthcare system. During the second wave, local blocks were applied, they slowed down the economy in the first two months of the first quarter of the current fiscal year, yet it is difficult to assess its full impact on the Right now, that will mostly depend on how the economy reacts in the remaining three quarters. and the nomenclature of the third wave as projected by medical experts is still unclear.
The impact of the second wave during the first two months (April, May) of the first quarter of the current fiscal year can be recovered in the remaining three quarters, the growth rate can probably slow down but it can remain at two figures provided that Covid is stopped quickly. The apprehension of an economic recession seems oblique with regard to the various economic indicators. It may be interesting to mention here that the RBI has projected a GDP growth rate of 10.5% for fiscal year 2022 while, as the IMF estimates it at 12.5%, the World Bank forecasts growth at 10.1%.
The impact of Covid -01 had remained confined to cities only as Covid-02 has spread to rural areas, in this way it can also be more fatal to human lives and the economy. Poor rural medical setup can in no way stop deaths and any decline in agriculture will have a disastrous impact on the industrial sector by reducing domestic demand for goods. The good monsoon declared by the metrological service will only lead to a good Khariff harvest if the sowing takes place on time. It is a big challenge for the administration to control covid in rural areas before the onset of the monsoon.
With the opening of the economy after Covid-01, employment opportunities grew by 32% from January to March 2021. The GST in April 2021 stood at 1.41 lakh crore – the highest since the introduction of the indirect tax system. It is likely to decline in the coming months due to the proclamation of localized containment in almost all of India. E-way bills, an indicator of domestic trade, contracted 17.5 (MOM) in April 2021, but were above the pre-pandemic base of February 2020.
The economic slowdown in the first two months of the current fiscal year was clearly visible in the decline in gasoline and diesel sales. In April 2021, diesel sales fell 1.7% while gasoline sales fell 6.3%. The sectors most affected are retail, hospitality, aviation and construction. These are the main sectors of the Indian economy focused on employment. Since people are confined to their homes, this has resulted in a demand shock, discretionary spending, declining purchasing power and a low employment rate. The IT sector has adapted homework and the healthcare sector is hiring staff for diagnostic laboratories, there is an increase in technical staff in diagnostic centers, demand for doctors and paramedics. Overall, domestic demand is steadily declining but a silver lining has become visible with the growth in world trade. Exports showed an 80% growth in the first week of May 2021. Exports will continue to grow as the second wave has already disappeared in America, Europe and many other countries and their vaccination program continues at a good rhythm.
In the second wave, the restrictions were not as tight as during Covid-01, the movement of goods and allowing industries to operate maintained the supply chain. The first wave learnings helped businesses and government better manage the economy during the second wave. RBI in the State of the Economy report argues that the impact of Wave 2 on the real economy appears to be limited compared to Wave 1. The credit goes to the localized nature of the blockages, home adaptation work, online delivery models, e-commerce and digital payment system.
The solution to every economic downturn in India has come from a resilient agricultural sector. It has the ability to increase domestic demand and thus can help other sectors of the economy. It is for this reason that the government declared a full subsidy for potassium and other fertilizers. The central government increased its share of subsidy on di-ammonia phosphate by 140% from Rs 500 to Rs 1,200 per bag, it canceled the sharp 58% price hike announced by companies since April. The higher subsidy will help fertilizer companies sell DAP at the old rate of Rs 1,200 compared to the new rate of Rs 1,900. Sesame seeds will be provided to farmers free of charge for their kharif season. These measures will increase production on the one hand and the purchasing power of farmers on the other. Since the marginal propensity to consume is highest in rural areas, market demand will increase with each increase in their income. In order to increase demand, the government must resort to more public spending, increase social protection schemes, subsidies, low-interest loans, etc. rather than a direct money transfer. Escalating demand will have a positive impact on production, employment and income, may increase supply and limit price increases.
The biggest challenge for the government today is to increase employment opportunities in both organized and unorganized sectors of the economy. Employment data released by the CMIE indicates that unemployment has reached 8% in the past four months from 23.5% in the first wave, but this is no comfort as the medium, small and micro-enterprises quickly lay off their jobs. strength due to lack of demand. The CMIE estimates that unemployment reached its highest level of four months in April as jobs fell significantly due to localized lockdowns.
He hit 70 lakh jobs. The unemployment rate reached almost 8% in April against 6.5% in March. The unemployment rate in rural India is even more volatile. Fear of containment has prompted contractors to apply more labor-saving techniques. Lower income is the main reason for low consumption. The CMIE estimates that urban employment fell from 33.56% on May 9, 2021 to 31.55% on May 16, 2021, the decline in rural employment over the same period fell from 39.84% to 36, 26%.
Governments will increase testing, vaccination and awareness to contain the disease on the one hand and on the other hand, there is a drastic need to increase the confidence of consumers and producers in the market, which is currently severely shaken.
(The author is Professor (MAIT) Guru Gobind Singh Indraprastha University, Delhi)
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