UPSC CSE Mains Syllabus: GS-3- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Indian Economy and COVID – 19
How much did the economy shrink:
- India’s GDP suffered its steepest contraction on record in the April-June quarter.
- India’s output shrank 9% from a year earlier, provisional data show.
- Private consumption spending, which accounts for almost 60% of GDP, contracted 26.7%.
- And exports, which contribute to a fifth of GDP and reflect overseas demand for Indian goods and services, shrank by nearly 20%.
- Investment activity was the worst-hit, collapsing 47% and shrinking in share of GDP to about 22% from 32% a year earlier.
- Across the real economy, every single industry and services sector shrank with the solitary exception of agriculture, which grew 3.4% and outpaced the year earlier quarter’s 3% expansion.
- Construction suffered the most, plunging 50%, followed by the omnibus services category — trade, hotels, communication, transport and broadcasting — which shrank 47%, hit by the pandemic-linked restrictions.
- Manufacturing too took a severe beating, contracting 39%.
- It is evident that the stringent COVID-19 lockdowns in force through the first third of the quarter, and substantially in May, hollowed out demand.
- Consumer demand became sluggish as consumers abjured almost all discretionary spending.
- Larger businesses conserved cash and refrained from any capital spending in the face of uncertainty, and smaller firms prioritised survival.
- Demand for manufacturing products deemed non-essential evaporated, and factories, even after reopening, struggled to run amid shortages of labour and added safety norms.
- The Centre’s pandemic mitigation expenditure helped expand its consumption spending by 16.4% year-on-year and softened the overall blow to GDP.
- However, with the fiscal deficit already having exceeded the full-year’s budgeted target in just the first four months, and revenue receipts impacted by the economic contraction, the government is unlikely to maintain a similar trend in expenditure growth over the next three quarters.
- Unless, it is prepared to forsake its fiscal conservatism and finds innovative ways to mobilise resources.
- The still rising trajectory of new COVID-19 infections and a high level of job losses and income erosion are also sure to retard any recovery in momentum.
- If the latest survey-based data from IHS Markit show manufacturing PMI for August signalling growth for the first time in five months, the same researcher’s findings also stress that “job shedding continues at a strong rate” in the industry.
What is needed:
The central government must immediately provide a large fiscal package including the following:
- Pay the State governments their pending GST compensation dues and provide more resources in addition to deal with the pandemic and its effects
- Universalise the Public Distribution System (PDS) and provide free foodgrain (10 kg per household per month) for at least the next six months to anyone who needs it.
- Provide ₹7,000 per family for three months as compensation for the incomes lost during the draconian lockdown.
- Double the number of days of employment per household under the Mahatma Gandhi National Rural Employment Guarantee Act to 200 per year (for this year at least) and start an urban employment guarantee programme.
- Extend the debt moratorium and convert into a standstill (without requiring interest payments for that period) and make sure that fresh credit reaches MSMEs and farmers who are being deprived of it.
- Provide much more dedicated resources for health: for all the pandemic-required spending, and to deal with other health concerns that have been ignored or postponed for the past five months.
- Not spending now will push the economy into a deeper hole, reducing incomes and, therefore, also taxes, and creating a bigger fiscal deficit even with lower spending.
- For now, these increased expenditures can be paid for by the Centre borrowing from the Reserve Bank of India (monetising the deficit, as governments across the world have been doing).
- This will not be inflationary as long as essential supplies are maintained, because demand is currently so low.
- Eventually, wealth taxes and taxes on multinational corporations must be thought of.
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