This Could Yet be India’s Worst Economic Crisis

Livemint     31st August 2020     Save    
QEP Pocket Notes

Context:  India is heading towards the worst economic crisis amid COVID 19 Pandemic 

Declining State of Economy:

  • This fiscal year could see the economy contract by  3% to 10%, as current estimates range. 
    • The first quarter might have lost about a fifth comparing to the previous  year.
  • GDP setback worse than the 5.2% lost in 1979-80 due to:
  • The blow dealt by COVID-19 to demand is likely to last long
  • Both annual and quarterly growth had been low.

Measure Taken:

  • Credit Provisioning: India's central bank has eased credit vastly, while the Centre has rolled out a big package aimed at addressing multiple pain points. These have had some effect, clearly, though not nearly enough.
  • Extricating Businesses from curbs: through opening up of the economy from lockdowns, restoring supply chains and restoration of production.
  • However, no real normalcy can be attained without squashing corona risks which will be a long process.

Way Forward: Growth of more than 5% for recovering a GDP loss of 5%, as the base would have shrunk, thus a stimulus shot that would empower people with money and jump-start demand is required.

  • Explore novel ways to fund a big direct dose of stimulus: Pledge shares with the central bank for a mega loan.
  • Reverse a multiple-year downtrend in capital formation: This was the main reason for our pre-COVID growth slump.
  • Enthuse private investment: By decentralizing authority, grant market forces greater leeway, and let the economy allot resources more efficiently.
  • Boost the purchasing power of people.

Conclusion: We need well-focused interventions to avert from the worst fall of the economy since 1947.

QEP Pocket Notes