No one ever thought of the scale and magnitude of disruptionthat was caused by the Covid-19 pandemic. In the aftermath, the resurgencewould be equally trying especially in a country like ours with a complexeconomic framework. However, we need to applaud the government for paving theway for an impressive recovery, with a judicious mix of spending and structuralreforms. The outcome of the efforts visible in the Q2 numbers which showed asingle-digit economic contraction of 7.5 per cent as compared to 23.9 per centin Q1. The figure beats the global average, where according to an analysis, 49economies declined at an average of 12.4 per cent.
The jubilations and optimism mirrored in the financialmarkets, business houses, and the government. If the current optimism and rallygets carried unabated then as per the official and unofficial forecasts,India's economy is likely to return to the pre-Covid levels by the end of the currentfiscal year which is a much shorter timeframe than expected. The Reserve Bankof India (RBI) prediction of a positive growth in the H2 FY21 is substantiatedby the fact that in the recently published Q2 data, the manufacturing PMI isabove 50 for the fourth straight month which is only 11 percentage points lowerthan pre-Covid-19 levels. It is worth noting that unemployment levels arecurrently on a decline; the 6.7 per cent the unemployment rate for Septemberwas lower than the pre-Covid-19 level of 7.6 per cent in February.
Like always the world has taken notice of the positives andshowed faith in India's story once again as visible in the growth numbers ofsegments such as foreign direct investment (FDI), foreign policy investment,and corporate bond market inflows. It all points to strong investor faith inIndia's economic resilience. Besides, upwards revisions by rating agencies inIndia's GDP forecast are all repeating the same story that we have kicked inthe rebound phase.
The Ripple Effect
The unleashing of structural reforms and the stimuluspackages announced by the government did take effect in various sectors as thefiscal response has been calibrated to reap maximum benefit. The one thatstands out is the extension of the 100 percent credit guarantee scheme to 27stressed sectors. Besides, fiscal stimulus and tax rebates for growth-criticalsectors, such as housing, would have spillover effects, thus indirectlyboosting demand-led growth. Reforms and timely fiscal interventions in othercritical sectors are already showing positive results: the Gross Value Added(GVA) for three sectors-- agriculture, manufacturing, and utilities-- has beenpositive in Q2, as compared to just one, the agriculture sector, in Q1 thisyear. Similarly, the expansion of production linked incentive (PLI) schemes--that give incentives to firms-- worth?1.46 lakh crore for 10 new sectors willgive a boost to the manufacturing sector, and result in long-term benefits forthe economy.
The liberalization of the notoriously rigid formal labourmarket would expedite India's upward movement in the ease of doing businessrankings, and attract further investments., India has moved up 79 positions inthe World Bank's Ease of Doing Business' rankings since 2014.
Fears of Fiscal deficit
The stimulus packages and therefore, additional non-budgetedspending --along with falling tax revenue,-- by the government to wean off theCOVID crisis has led to pushing India's budget gap wider to 8 percent of GDP inthe current financial year, more than double the targeted 3.5percent. Theexpanded support package-- to rescue companies and save jobs amid thepandemic--given by the government amounts to 15 per cent of the economy, addingto the global stimulus that has touched $12trillion. The fear that the fiscaldeficit will loom large on the government in the future to manage fiscalprudence is not unfounded. However, the finance minister has assured time andagain that fiscal deficit fears won't derail government spending as governmentspending is important to bring the economy on track. The forthcoming unionbudget will focus on public spending on Infrastructure to ensure sustainableeconomic revival. There is a dire need to reinstitute InfrastructureDevelopment Bank for long term funding of infrastructure projects.
Globally countries that have committed to stimulus spendingas high as 20 per cent of their GDP is now resorting to additional taxation,helping fuel a recovery in the economy. In India, the government is findingother routes to keep fuelling the economic engine as the FM said that thegovernment will push PSUs to accelerate spending as the government can't affordto curb spending at this juncture of economic crisis.
Authorities to the Rescue
A multipronged policy response -- the efforts andintelligent balancing act done-- by the apex bank in India, the RBI, during theCovid crisis is praised by the government and the people of India, equally. Thereduction of key interest rates along with the restructuring of outstanding loans,moratorium of given to the borrowers and extension of on-Tap TLTRO to 26stressed sectors under the Emergency Credit Linked Guarantee Scheme(ECLGS 2.0)are some of the strategies that has helped the businesses tide over the crisis.
The way RBI is trying to resolve the shadow banking crisisthat has plagued the country since 2018 has found many takers including thegovernment. The government on the other hand is rooting the idea of privatisinga couple of state-run banks that have received cabinet approvals.
Conclusion
The year 2020 may not have belonged to India, but the futurecertainly belongs to this nation for its resilience, faith, and sheer optimism.
(Source: IANS)