The Second Wave Challenge

Context: To fuel demand and address inequalities, vaccination, expansion of rural healthcare, cash transfers are key.

Challenges due to the pandemic:

• Low economic growth:
  • The overall GDP growth would be less than the earlier expectations —to be around 8%.
  • India would have zero% or negative growth over the two-year period FY20 to FY22.
  • The RBI Bulletin says that “the biggest toll of the second wave is in terms of a demand shock” as aggregate supply is less impacted.
• Rising inequalities:
  • The State of Working in India 2021 report of the Azim Premji University revealed that both poverty and inequality increased during the first wave, pushing 230 million to poverty.
  • CMIE data shows that in the week ended May 16, 2021, around 56% of households reported a loss of income, and unemployment rose to 45%.
  • The recovery post the second wave is likely to be K-shaped with rising inequalities.

Policies needed for higher growth and a reduction in inequalities:

1. Aggressive vaccination programme and improved healthcare facilities:
   • Vaccine inequality between urban and rural areas has to be reduced.
   • Create universal healthcare facilities for all, particularly rural areas.
   • Other states can learn from Kerala on building health infrastructure.
2. Boost infrastructure investment:
   • Utilize the Development Financial Institution (DFI) for funding long-term infrastructure projects.
   • A boost to infrastructure investment, including in rural areas, can lift the economy and reduce inequalities.
3. Need for safety nets:
   • Provide safety nets in the form of free food grains for six more months.
   • Expand work offered under MGNREGA in both rural and urban areas.
   • Undertake a cash transfer to provide a minimum basic income.
4. On economic growth:
   • Increase the investment rate from the present 30% of GDP to 35% and 40% of GDP for higher growth and job creation.
   • Focus on increasing export, as it is one of the main engines of growth and employment creation.
   • Expanding the fiscal space (since monetary is limited) by restructuring expenditure, widening the tax base and increasing non-tax revenue.