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:
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.
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.
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.
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.