As a developing nation, India faced and continues to face significant economic challenges as a result of the corona-virus pandemic. The Indian economy was already slowing down, and Covid-19 amplified the underlying flaws even more. According to estimates, India’s economy contracted by 23.9% in the April-June quarter in 2020. A ‘V-shaped’ recovery is what everyone expects this year.
STATE OF INDIAN ECONOMY
According to the ‘State of the Economy Report 2020’ by the RBI on 21st January 2021, the economic recovery of the nation in FY 2021-22 must be V-shaped, where ‘V’ stands for ‘Vaccine.’
COVID-19 would leave deep wounds in the majority of economies. According to Oxford Economics, a global forecasting firm, long-term economic scarring in India would be one of the worst as compared to other nations. Limited financial support for recovery, structural rigidities, financial sector imbalances, and other factors would cause the economy to recover more slowly than expected.
WHAT IS A ‘V-SHAPED’ RECOVERY?
A V-shaped recovery is a form of economic recession and recovery that looks like a “V” in a graph. Such recoveries occur when there is a rapid and sustained improvement in the country’s economic performance after a sharp downfall. They are triggered by bringing major changes in economic activities such as re-adjustment of demand, investment spending, etc.
When an economy has entered a recession, a V-shaped recovery is considered to be the best way out. The following are two previous examples of v-shaped recessions and recoveries:
- 1. The 1920-21 U.S. depression
- 2. The 1953 U.S. recession
INDIAN ECONOMY UNDER CRISIS
The COVID-19 pandemic came as a sudden hit on the Indian Economy. According to experts, a recession is unavoidable. Even if the spread of the virus is controlled by the middle of 2021, the overall economic recovery would be poor and unstable. There are various challenges the economy is suffering from right now. Some of them are as follows:
1. Banking sector problems
Since April 2020, the credit growth of banks’ slowed as well as their asset quality. This led to an increase of non-performing loans in the retail and MSME sectors. As a result, credit costs increased, hurting banks loss bearing reserves and profitability.
The financial sector is under major stress in India. In the aftermath of the pandemic, many private banks are now facing capital shortages. Urban cooperative banks are also struggling financially.
2. Capital Shortage
Following COVID-19, India and other countries around the world have seen a significant drop in tax revenues. Economic activity ceased, and spending on healthcare services increased. Both direct and indirect tax collections are falling significantly behind. The same is the case with non-tax revenues. India’s fiscal deficits are rising. Simply put, India is experiencing serious capital shortages.
3. A smack in the face to the already tattered public health system
Only by addressing the health crisis can India’s economic situation start to improve. The pandemic highlighted India’s healthcare system’s weaknesses. It showed that the system is incapable to cope even with the most common diseases like malaria, dengue, etc.
Even before the COVID-19 outbreak, Indian public hospitals were facing a serious lack of infrastructure and healthcare staff. The government of India spends less than 2% of its GDP on the healthcare system. The pandemic inflated the issue even more.
The lockdown stopped the economic operations of the entire country. It led to the loss of millions of jobs. Every day, people experienced significant income loss and rising expenses. A large number of micro and small-scale companies closed their doors. According to reports, an estimated 10 million migrant workers returned to their native places due because of lack of livelihood.
The biggest worry is that millions of jobs may be lost permanently, reducing demand and harming the economy as a whole.
5. Mental Health
The pandemic has changed people’s perspectives on life. According to research, one-third of Covid-19 survivors experience neuro or mental health problems within six months. Isolation, social distancing, the grief of losing a loved one, uncertain future, economic instability etc. deeply affects the mental well being of a person. A report also says that mental health issues will be the next pandemic after the COVID-19 crisis.
6. Delivery of vaccine
The next biggest challenge is the distribution of the corona-virus vaccine. India lacks the infrastructure required to deliver vaccines in extremely cold temperatures as well as remote rural areas. Furthermore, India is also suffering from a serious shortage of healthcare workers. The vaccine must be supplied in an equal and reasonable manner. It could take a lot of time to vaccinate every Indian against the corona virus.
As per the challenges posed by the COVID-19 pandemic, the government must act quickly to develop a credible recovery plan. The lawmakers should raise public spending and implement an expansionary monetary policy. This fiscal stimulus in all the sectors of the economy would increase aggregate demand for goods and services. As demand increases, production will restore thereby creating employment.
Implementing a fiscal stimulus would not only lift the economy out of its recession but will also address some of the existing income and wealth allocation inequalities.
The most effective way out of this situation is to immediately invest billions of dollars into the economy in hopes to save a $2.9 trillion economy.
GOVERNMENT’S PLAN FOR RECOVERY
Nirmala Sitharaman, the finance minister of India presented India’s Union Budget for 2021-22 on 1st February 2021. It imposes no new taxes on the citizens of the country. The budget prioritises healthcare growth, agriculture, and demand revival. It aims for the overall progress of the country.
The government’s focus on infrastructure, low-interest-rate, real estate demand, commodity price recovery, and healthy consumer spending all point to better times ahead for the GDP curve. As per Industry Chamber, the corona-virus vaccination program is estimated to produce enormous benefits for the country.
The COVID-19 vaccination programme, according to the Industry Chamber, is expected to generate enormous economic benefits for the country.
Minister of State for Finance, Anurag Thakur said that “India is standing back on its feet. The economy is witnessing a V-shaped recovery. And in January, the total collection was close to Rs. 1.20 trillion.”
The coronavirus pandemic is a once-in-a-lifetime imbalance that affects all aspects of life. We can’t pretend that once the pandemic is over, everything will return to normal. Besides, the old way of doing things was no longer working out for people. The old economy was becoming more and more unequal and corrupt, leaving India vulnerable for the future.
Every challenge creates a new opportunity. It’s time for India to take a revolutionary new approach towards the economic development of the country. Finally, I’d like to state that
It will get better, it always does.
If you liked this article, you can also read COVID 19: Impacts on the Indian economy