Due to COVID-19 pandemic, the global economies are currently facing the most unparalleled shock. The sudden lockdown in India brought all economic activity to a sudden stop; all the hopes of a turnaround have come to be pinned on an easing of restrictions. The economic data showing the signs of recovery in various business activities by easing the restrictions which began in May in stages and for some time. Now, these signs are warning because the lives-versus-economy dilemma enters a more critical stage.
The gradual easing of lockdowns has sparked hope in some quarters even though the government clutches at straws in search of potential game-changers. But the fact is that what will come to the economy’s rescue after the reopening relief fades, remain entirely uncertain.
During the month bank credit shrank and tax collections too moderated. According to the Centre for Monitoring India Economy, the developments in the jobs scene also at a narrow path. According to Prachi Mishra, chief India economist, Goldman Sachs, If any improvement in economic data that we may have seen recently is just a reflection of normalization through extreme lows; it is unlikely that India’s macroeconomic fundamentals have seen any such developments.
Mishra adds that credit rating agencies concerned with India’s administrative and fiscal ability to introduce large-scale support programmes. In this situation, India could get a boost in 2021 due to policy support and pent-up demand in advanced economies; India’s GDP drive on the view that there is no domestic fundamental force from here on. According to Mishra, she considers the government’s capacity for the countercyclical policy is curtailed due to fiscal dominance during normal times. She added that “the price of not saving and investing in an umbrella when there is sunshine is that we have to bear the costs when it is raining.”
At the same time, most GDP estimates for India in 2020 paint a bleak picture of sharp contraction. To make matters worse, the economy’s struggling with the sharp increase in Covid-19 cases, especially since reopening began in May. The forceful situation states to impose localized shutdowns over the country in July to curb the outbreak.
Monetary manoeuvres are also decreasing. According to the widely accommodative monetary policy stance of reducing repo rate by 115 bps, liquidity injections and fresh regulations over the past few months, RBI’s actions have at an average compared to the policy support being provided by other central banks. The government of India announces fresh measures in the upcoming days, including various infrastructure projects and policy changes, to make local industry more competitive, to rebuild the economy.
