The Second Wave Challenge

The Indian Express     25th May 2021     Save    

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.