India’s economic recovery may take much longer than predicted earlier as GDP growth forecasts for the year remain in deep contraction zone in the wake of the Covid-induced slowdown.
The deep contraction in June quarter, weak company results and damp recovery in urban employment have dashed hopes of a gradual recovery later this year.
Most economists expect economic sluggishness to continue throughout the year if the Covid situation shows no improvement. Several reports also indicate that the situation could get worse if the trend of rising infections continue.
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The latest report on GDP projection — something that the RBI skipped in its last policy review meeting — by State Bank of India’s research report Ecowrap paints a rather gloomy picture.
According to the report, India’s GDP is expected to contract 16.5 per cent during the June quarter as businesses struggle to cope with the losses incurred during the ongoing pandemic.
As far as the entire year is concerned, the SBI report said FY21 GDP growth has already crossed 6.8 per cent. Ratings agency ICRA had earlier said that FY21 GDP is expected to contract as much as 9.5 per cent.
While there has been an improvement in key rural indicators including rising employment figures, the situation remains gloomy in urban areas, which contribute to a bulk of India’s GDP.
The SBI report says per capita monthly expenditure in urban areas is at least 1.8 times higher than rural belts and added that rural wage growth in real terms may be negative.
Recovery on slow lane
As of now, all the key indicators of the economy, ranging from banking to factory activity, are in negative territory. Demand has seen a marginal rise but is negligible in terms of recovering from the worst economic slowdown India has faced in decades.
A recent observation by Mumbai-based think tank Centre for Monitoring India Economy (CMIE) is that most of the jobs lost due to the nationwide lockdown have been restored — From an estimated 121.5 million jobs lost in April, it comes down to 11 million in July.
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CMIE CEO and MD, Mahesh Vyas, said the recovery in jobs could be a mark of the desperation of Indians to get on board with some form of employment rather than an involuntary break — an indication that many settled for lower salaries.
Also worth noting is the fact that much of the job recovery has happened in the informal or unorganised sector. The situation, however, has worsened in terms of salaried employment in the formal sector.
“This recovery has left out healthier, salaried jobs. In this sense it is an unhealthy recovery,” Vyas opined in a recent article.
While small traders, hawkers and daily wage labourers were hardest hit during the lockdown in April, accounting for over 91 million or 32 per cent of total jobs lost during the lockdown, a majority of them have reopened shops.
But even after reopening their businesses, most of them are struggling to run businesses due to falling demand, which mostly originates from people engaged in formal employment.
Therefore, despite a recovery in jobs and some rural indicators, the Indian economy continues to flutter with uncertainty.
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Rural India under pressure
Most economists have been urging the government to do more in terms of direct benefits in order to negate the effects of the pandemic on the neediest lot, placed at the bottom of the income pyramid.
The government, however, has not taken any call on further income support for the poor after it announced a $21 million economic relief package a few months ago. But hardly a portion of that has directly helped India’s poor
The ambitious free ration distribution scheme, which has been a key theme of the government’s rescue package for the poor during the lockdown, has not lived up to the mark, according to a news report published on livemint.com.
According to the report, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has come under scrutiny as senior officials in the government have informed a panel on labour that only 31 per cent people identified in the program have benefitted from it.
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Meanwhile, another news report published on news agency Reuters shows how the coronavirus pandemic has crushed dreams of millions as the pandemic rages on. Millions have lost jobs and want to get back to work, but are scared to go to urban areas due to the rising number of cases.
Rural India’s problems may worsen if the pandemic continues as experts explain that a holistic recovery can only be expected after the country manages to successfully flatten the infection curve — a difficult task considering India’s daily average increase of nearly Covid 60,000 cases.