The ‘Second Wave will Extract a Large Economic Cost’
STORIES, ANALYSES, EXPERT VIEWS
As some parts of India are under lockdowns or similar restrictions, and more are expected to join them, the Nomura India Business Resumption Index fell to 83.8 in the week ending April 18. This will most probably go below 80 in the week ending April 25 and could fall further in the days to come. This, writes The Hindustan Times “suggests that the second wave will extract a large economic cost. Usual economic indicators, however, will not capture the true magnitude of this cost. The reason is a favourable base effect, on account of the 68-day lockdown, which was imposed on March 25, 2020.”
The Controller General of Accounts will release the provisional revenue and expenditure situation of the central government for the fiscal year 2020-21 soon. Media reports however, suggest that revenue collection has surpassed the revised estimates. “But this does not mean all is well. Petroleum taxes have played a big role in pushing up indirect tax collections. There are genuine doubts on the sustainability of this route without stoking inflation. And the revised estimates themselves were a sharp reduction from the budget estimates. If the GDP growth for 2021-22 is compromised because of the second wave, then revenue numbers for 2021-22 could also disappoint. This will adversely affect spending too….”
GDP to grow at 11% this fiscal - ADB: The Asian Development Band 2021 in its flagship released Wednesday has said the Indian economy is projected to grow at 11 % in the current financial year amid the "strong" vaccine drive, said, while cautioning that the recent surge in COVID cases may put the country's economic recovery at "risk".
COVID-19 heightens downside risks to FY22 GDP: S&P
According to Global rating agency S&P, India’s escalating second wave of Covid-19 infections heightened downside risks to gross domestic product (GDP) and posed a significant contagion risk to other geographies. Terming the resurgence in cases “serious”, the negative credit spillover to its rated portfolio remained limited, the agency said in a note last Wednesday, adding that the situation was fluid. A drawn-out Covid-19 outbreak will impede India's economic recovery, the pace and scale of which had important implications for the country’s sovereign credit rating, it said.
India’s rating currently stood at BBB-, the lowest rung of S&P’s investment grade rating. “This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to reimpose broad containment measures,” S&P said.
India’s economic prospects this decade: uncertain growth outlook
The outlook is therefore, negative. Vidya Mahambare (professor of economics, Great Lakes Institute of Management, Chennai) takes stock of India’s economic prospects this decade - how much of it may be realistically fulfilled over the 2020s.
The “digital revolution in public services and its payments system is one of the fastest in the world…… access to basic amenities such as bank accounts, cooking gas, toilets and electricity has improved. While these improvements are critical because the end goal of a policy is to raise the well-being of people, it is doubtful if they would translate into measurable economic growth soon, as with the early impact of the internet or electricity.”
Importance of basic non-tradable services - healthcare and education: Productivity improvements form the backbone of rising prosperity, says the economist, emphasising the “importance of basic non-tradable services for raising labour productivity. Non-tradable sectors include healthcare and education, where production and consumption largely take place locally…..
“….India’s healthcare capacity remains low, with just 133 beds per 100,000, coupled with a shortage of healthcare staff, but its distribution is also highly uneven across states……The other key service sector, education, has been disrupted enormously by the pandemic. Technology in this sector has leap-frogged in terms of online delivery, which now makes it a tradable sector. However, we have neither an institutional set-up yet, nor household affordability for it, resulting in unequal access to education….”
Development and job creation: Maharashtra, Tamil Nadu, Karnataka and Gujarat account for 38% of India’s output (and 54% of manufacturing), with just over 10% of India’s population. Restrictions on labour mobility would further encourage a pandemic-forced move towards capital-intensive production in prosperous states and make job creation tougher in a young labour surplus country.
India, says Mahambare “needs millions of productive non-farm jobs, and not merely more self-employment and low-skilled services where the potential to raise productivity, and hence real incomes, is minimal. And for that, India needs its unicorn startups to turn into sustainable big businesses since it is the big business that creates jobs, spurs innovation and rewards talent and work….”
Stating that “growth is notoriously hard to predict,’ Mahambare concludes “a pandemic-induced loss of productive capacity and employment, constrained fiscal capacity along with the possibility of higher taxes and inflation, and the anaemic state of the banking sector, a key growth enabler, India is unlikely to improve on its growth performance of the past decade.”