Context: GoI must spend on vaccination, cash transfers and infrastructure for any hope of economic revival.

Recent data on GDP: By Central Statistical Organisation’s (CSO)

• Better estimates than the previous year: GDP contracted in FY2021, the extent of decline (–7.3%) is less than what CSO had projected in Second Advance Estimates (SAE) presented in February.
  • Q4 GDP grew 1.6%, up from 0.5% in Q3, 3.7% growth in Q4 gross value added (GVA) is an improvement over the nominal increase of 1% in Q3 and the sharp contraction of 22.4% in Q1.
• Declining sectors: Barring agriculture, growing at 3.6%, and electricity that grew at 1.9%, every other sector contracted during the year.
  • The contraction in trade (–18.2%), construction (–8.6%), mining (–8.5%) and manufacturing (–7.2%) is particularly ominous, as these account for the bulk of jobs, especially low-skilled ones.

Challenges to the government:

• Chances of continuing the trend: As a large-scale, localised lockdowns will make Q1 FY2022 look like a replay of Q1 FY2021; Greater uncertainty lies due to localised lockdowns and fear of a third wave.
• Inability of the government to spend despite having resources: GoI preferred to act through the financial sector, in the form of loan guarantees and RBI, rather than spend outright.
  • According to RBI’s annual report, though GoI announced measures that cumulatively amounted to Rs 17.2 lakh crore, its total expenditure increased by just Rs 4 lakh crore.
  • Ironically, GoI’s cash balances at the end of FY2021 stood at Rs.2.5 lakh crore, almost double the norm in recent years.
• Worsening inequality: In India, a large section of the population is vulnerable at the best of times; Covid has rendered them even more so.

Way forward: Needed government measures

• Address immediate health crisis through aggressive vaccination: According to India Ratings and Research, the cost of vaccinating the entire population over 18 years will be just Rs 67,193 crore (0.36% of GDP), a fraction of the food subsidy budgeted for the year.
• Make cash transfers to those at the bottom of the pyramid: Especially those who have lost their job due to pandemic, by using tax-payer’s money or printing money to reverse a consumption collapse.
• Increase spending in infrastructure: Important as private investment is limited, and this could create jobs, provide incomes and crowd in private investments.

Conclusion: Higher direct spending by the government is the need of the hour, without which the economy is unlikely to revive, and there is every need to rush with a stimulus in response to the second wave of Covid.