Indian economy, hit by Covid-19, needs its lost growth

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NEW DELHI – The coronavirus continues to hit India’s damaged economy, putting increasing pressure on Prime Minister Narendra Modi to foster a nascent recovery and get the country back to work.

The coronavirus, which struck in two waves, has killed hundreds of thousands of people and sometimes crippled cities. Infections and deaths have subsided and the country is returning to work. Economists are predicting growth could rebound in the second half of the year on paper.

Yet the damage could take years to repair. Economic output was 9.2% lower for the April to June period of this year than it was for the same period in 2019, according to India Ratings, a credit rating agency.

The coronavirus has essentially robbed India of much of the momentum it needs to provide jobs for its young and rapidly growing workforce. It also exacerbated longer-term problems that were already weighing on growth, such as high debt, a lack of competitiveness with other countries, and policy mistakes.

Economists are particularly worried about the slow pace of vaccinations and the possibility of a third wave of coronavirus, which could prove disastrous for any economic recovery.

“Progress in immunization remains slow,” with only 11% of the population fully vaccinated so far, Priyanka Kishore, head of India and Southeast Asia at Oxford Economics, said during a research briefing last week. The company lowered its growth rate for 2021 to 8.8%, from 9.1%.

Even 8.8% growth would be a big figure in better times. Compared to the previous year, India’s economy grew 20.1 percent from April to June, according to estimates released Tuesday evening by the Department of Statistics and Program Implementation.

But these comparisons benefit from the comparison with India’s dismal performance last year. The economy shrank 7.3% last year, when the government shut down the economy to stop a first wave of coronavirus. This has led to significant job losses, which are now among the main obstacles to growth, according to experts.

Real household incomes have fallen further this year, said Mahesh Vyas, managing director of the Center for Monitoring Indian Economy. “Until this is fixed,” he said, “the Indian economy cannot bounce back”.

At least 3.2 million Indians lost stable, well-paying salaried jobs in July alone, Vyas said. Small traders and day laborers suffered greater job losses than others during the closures, although they were able to return to work after the restrictions were lifted, Vyas said in a statement. report this month.

“Salaried jobs are not that elastic,” he said. “It is difficult to recover a lost salaried job.

About 10 million people have lost such jobs since the start of the pandemic, Vyas said.

The government of Mr. Modi decided this month to revive the economy by sell stakes worth nearly $ 81 billion in state-owned assets like airports, train stations and stadiums. But economists largely see politics as a move to generate short-term liquidity. It remains to be seen whether this will lead to more investment, they say.

“The idea is that the government will borrow this money from the domestic market,” said Devendra Kumar Pant, chief economist at India Ratings. “But what happens if this project comes back to a national actor and he has to borrow on the national market? Your demand for credit at the national level will not change.

Dr Pant added that questions remained about the willingness of private actors to maintain these assets for the long term and how the monetization policy would ultimately affect prices for consumers.

“In India, things will get worse instead of better,” he said, adding that the costs for users of highways and other infrastructure could increase.

During the second wave of May, Mr Modi resisted calls from numerous epidemiologists, including Dr Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, to restore a nationwide lockdown.

The 2021 closures were nowhere near as severe as last year’s national restrictions, which pushed millions of people out of cities and into rural areas, often on foot because rail and other transportation had been suspended.

Throughout the second wave, basic infrastructure projects across the country, which employ millions of migrant domestic workers, have been exempt from restrictions. More than 15,000 miles of Indian highway projects, as well as rail and urban metro improvements, continued.

On Tuesday, Dr Pant said India’s growth estimate of 20.1% for the period April to June was just an “illusion.” Growth contracted so much around the same time last year, from a record 24%, that even double-digit gains this year would leave the economy behind two years ago.

Economists say India must spend, if not splurge, to unleash the full potential of its huge, low-skilled workforce. “There is a need for very simple primary health facilities, primary services to provide nutrition to children,” Vyas said. “These are all labor intensive jobs, and a lot of them are government services. “

One of the reasons Indian governments have generally not spent in these areas, Vyas said, is that it was not seen as “a sexy thing to do.” Another is the “dogmatic fixation” of governments on controlling budget deficits, he said. The government simply cannot rely on the private sector alone to create jobs, Vyas said.

The “only solution,” he said, is for the government to spend and stimulate private investment. “You have a demotivated private sector because there is not enough demand. This is what is holding India back.


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