Covid-hit Economy

INDIA’S GDP for the financial year 2020-21 has contracted 7.3 percent, according to the provisional estimates of GDP released by the Ministry of Statistics and Programme Implementation on Monday. This despite the fact that the GDP had marginally risen in the January-March quarter (Q4) grew by 1.6 percent, and the October-December quarter had reported a growth of 0.4 percent. The reason for the deep contraction has been the abysmal performance of the economy in the April-June and the July-September quarters when the GDP plunged by 24.4 percent and 7.3 percent respectively. This was a result of a strict nationwide lockdown due to the novel coronavirus. Among the other industries, the contraction was visible in trade, hotels, transport and communications.

With the first quarter of 2021 once again witnessing the curbs on the movement, the GDP is set to suffer one more drastic contraction. The businesses have come to a halt, some sectors like tourism completely so. The union government could thus hardly afford to go for yet another lockdown. At the same time, it can't afford to let its guard down as far as the strict implementation of the measures to prevent the Covid-19 from spreading deeper into the society. It is a tightrope walk for the government. It has far fewer options as far as enforcing strict measures to arrest the spread of Covid-19. And it also has little fiscal space to pump more money into the economy to help resuscitate it. So, it is unlikely that the economy will get back on track anytime soon.

This means that the lakhs of jobs that have been lost will not be created in the near future. Last year, the lockdown triggered a flight of lakhs of labourers from the cities to their distant villages. This scene may not have replicated this year but the jobs have once again been lost in large numbers. And they are not coming back anytime soon. For that to happen, the economy will have to kickstart again. And this, in turn, will not be possible on a sustainable basis until the country is vaccinated. This would mean probably a wait of three to six more months. Perhaps even more, considering the vaccines are in short supply. Until the vaccination takes place, the Government will need to display some ingenuity to keep the number of new Covid-19 cases at a manageable level. And what's more important, ensure that the economy is not halted further.

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