Representative image. | Photo credit: PTI
Key points
- Some analysts have recommended sector-specific aid packages to overcome the prolonged period of uncertainty.
- The government has declared its intention to create between 50 and 60 lakh of jobs in the next six months in the formal sector, but more will need to be done to help India’s huge and weakened informal sector.
- Protracted farmer protests taking place across the country against the three recently enacted farm laws threaten to dampen India’s prospects for future agricultural growth.
In late March, Prime Minister Narendra Modi, threatened with an unprecedented public health crisis, imposed a rigid blockade across the country whose consequences have been devastating for the Indian economy.
During the April-June quarter, the Indian economy experienced its worst contraction with GDP contracting by a staggering 23.9 percent. Since then, it has crawled upward posting a better-than-anticipated reading of negative 7.5 percent which, unsurprisingly, revived the theory that the economy was on its way to a V-shaped recovery.
However, much of the recovery in the final months of the year has been driven by stifled demand, and the two consecutive quarters of negative growth have placed the economy firmly in the grip of a technical recession.
A focus on sick sectors
A more nuanced look at India’s recovery suggests that it is not uniform across sectors. For example, while the e-commerce space grew 17 percent between the months of February and June, India’s hotel sector contracted by a historic 43.5 percent.
Furthermore, while fintech companies have reason to be optimistic about the huge business shifts towards digital adoption, the aviation industry continues to be plagued with serious uncertainty. Similarly, while other sectors such as pharmaceuticals and software services have also performed well during the pandemic, transportation and entertainment have suffered.
Recent reports that the Ministry of Finance is planning a massive increase in spending in the next Budget (to be released on February 1) will be positive news for many, but given the skewed nature of India’s recovery, some analysts They have recommended aid packages for specific sectors. to overcome the prolonged period of uncertainty.
Employment creation
During the months of April and May, India’s unemployment rate rose to levels never seen before in the nation’s democratic history. Following the lifting of restrictions, it gradually rose back to pre-COVID-19 levels, but recent reports from the CMIE have suggested that it is once again declining. As such, it is very clear that for a sustained recovery to materialize, job creation will have to be at the center of government policy in the short term.
Under Aatmanirbhar Bharat Rozgar Yojana, the government has declared its intention to create between 50 and 60 lakh of jobs in the next six months in the formal sector, but more will need to be done to help India’s huge and weakened informal sector . Incentivizing the millions of migrants who made dangerous trips back to their native homes during the shutdown to return to cities and seize opportunities should be at the forefront of policy making.
Farmer problem solving
Some analysts will also point to the positive markers in the manufacturing and agriculture space as indicators that the Indian economy is showing resilience. However, protracted farmer protests taking place across the country against the three recently enacted farm laws threaten to dampen India’s future agricultural growth prospects.
Agriculture continues to be the bread and butter of the Indian economy and continuing difficulties in the sector can have very adverse supply side knock-on effects. The faster a breakthrough is made in talks between farm union representatives and the Center, the more likely the nation is to meet its growth targets for next year.
