Rescuing the economy

Business Standard     22nd September 2020     Save    
QEP Pocket Notes

Context: The national accounts for the first quarter of this financial year suggest that the fall in gross domestic product (GDP) this year will probably be of the order of 10 per cent or even more

Gross value added (GVA) Trends of various sectors of the Indian Economy: in first quarter

  • Service sector: 41.4 % of the decline.
  • Manufacturing and mining: 34.3% of the decline 
  • Construction: 19.5% of the decline.
  • Wage Loss and Unemployment: 
      • About 21.7% of young urban workers were made unemployed or had worked zero hours in the week before they were surveyed by The London School of Economics in 2020
      • Altogether, 52% of urban workers went without work, pay or financial assistance in the three months following the start of the lockdown.
      • Labour incomes fell by 48% between January and February and April and May 2020.
  • Financial, professional, real estate, public administration, defence and other services: 8.5% decline
  • Electricity and utilities: 0.7% decline. 
  • Agricultural sector: 
  • Grew by 4.4% in current prices
  • Area under kharif crops has increased by 7.2 %
  • Increase of 10% in the area under rice, 13% in the area under oilseeds and 4.6% in the area under pulses.
  • Good Monsoons: As of mid- September the number of districts with normal rainfall (49%) is better than at the equivalent time in 2016.

Steps to be taken to rescue the economy

  • Government should run larger fiscal deficit: Since fiscal conservatism will lead to decline and stagnation of growth impacting the foreign investments.
    • Need for High Fiscal Stimulus: amounting to at least 5% of the Gross Domestic Product, as against the current stimulus of mere 1%..
    • Raise Minimum Support Price (MSP): to ensure that bumper crop doesn’t lead to fall in prices.
      • Increase in the rural incomes will increase the demand for local Micro, Small and medium enterprises (MSMEs) and other consumer goods like tractors.
    • Stimulus to urban incomes: in order to provide relief to the severely affected sectors like hotels and trade.
    • Support to construction sector: in the form of an accelerated programme of road construction and other construction-intensive public investments.

Conclusion: Thus the answer for a quicker boost to growth is boosting the demand. The resulting demand boost will lead to a growth and investment revival and rescue the economy.

QEP Pocket Notes