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Context: For economic recovery, it is vital to give domestic consumption a major push

Impact of pandemic on Indian economy

• On employment:
  • Around 10 million people have lost their jobs in the second wave of the pandemic, with the total number of jobs going down from 403 million last year to 390 million today.
  • The psychological impact of lost jobs has led to a decline in the labour force participation rate (those in the job market) to 40% compared to the pre-pandemic rate of 42.5%.
  • The worst hit by a job loss is the daily wagers; About 90 million daily wagers lost their jobs in April last year, and another 36 million who were in regular formal employment suffered.
• Demand shock: This is the result of several factors — a lack of mobility (people could not move around because of the lockdown), a fall in discretionary spending (e.g. ‘I will delay replacing my old car’) and joblessness.
• Low investments and savings:
  • Householders have got deeper into debt over the last year.
  • Enterprises are currently running at only 66% capacity utilisation, giving them no incentive to spend in investment to create new capacity to meet anticipated high demand.
• Rising inequality: The rich who are investing in the stock market which is witnessing an unseemly and unhealthy boom, even as the economy and the conditions of ordinary people are precarious.
• Risk-averse business climate: The RBI is maintaining an easy money policy that is creating enough liquidity to enable businesses to borrow, but business sentiment does not seem to be keen on undertaking fresh investment to create new capacity.
• Rising inflation: The wholesale price index shot up to 12.95 in May, followed by the retail index, which, in the same month, has recorded an inflation of 6.3%.
  • The reasons cited for this are high fuel and commodity prices and low base effect

Way Forward:

• Push to domestic consumption: Critical need of the hour is to ensure that domestic consumption is given a push by putting money in the hands of people.
  • The government must liberally put cash into the hands of the poor and small businesses, stop making money out of diesel and petrol and absorb some of the rising prices of imported commodities.