Lakshmana Venkat Kuchi
Like we had expected a few weeks ago, Covid has hit our economy very badly.
The numbers have come : The Indian economy for the year 2020-21 has contracted by 7.3 percent, that is negative growth and one that is the lowest in the past few decades.
And adding to this in continuation is the second Covid wave as a consequence of which shutdowns in different cities and States had to be imposed, leading to further loss of jobs as manufacturing, trade, and business suffered. Unemployment has climbed to the highest level.
Reports are indicating loss of 2.2 crore jobs during the ongoing second wave, as estimated by the Centre for Monitoring Indian Economy.
Unemployment rate at 12 percent, estimated in the last week of May as opposed to April (8 percent), shows a sharp rise in job losses. And more bad news follows: or rather a manifestation of the devastation of the economy–an estimated 23 crore people have been pushed into poverty, as against many crores of people brought out of poverty in the past several years. On one hand, India has been hit severely by the ferocity and intensity of the second wave and on the other hand, a series of shocks that the domestic industry--in particularly by the Micro, Small and Medium Enterprises (MSMEs) –suffered meant the near-death of countless manufacturing units.
Over and above all this, with the impoverishment of a huge section of the population, demand for goods and services has also slumped, which in turn is beginning to hurt the industry. Repairing the demand-side problem is easier said than done.
Consider this : In just two months of April and May, a huge number of people, 2.27 crore, lost their jobs during the severe Covid second wave, which saw substantial disruptions in economic activity.
The big macro numbers are more depressing really.
Contraction in Gross Domestic Product (GDP) at-7.3 percent, as estimated by the National Statistical Office, is a shade better than anticipated but still is a major cause for concern. Largely also due to the fact that GDP in the year 2019-20, just before the pandemic hit had also fallen to 4 percent.
Only agriculture and forestry and fisheries showed some positive growth but on the whole rest of the economy floundered. Key sectors like Hotels, Transport, Communication and Broadcasting-related services recorded a sharp decline and did Construction, Mining and Quarrying, and Manufacturing.
While the Opposition has been gunning for the Government, on a host of issues and the bad news on the economic front has only enabled the Opposition to mount a sharper attack. More importantly, the seemingly flawed vaccination policy, over which even the Supreme Court has a series of questions, has only made matters worse. For, it has now been proven that vaccination was the only key to beat the pandemic as the experience of countries that vaccinated aggressively have shown.
The UK and the USA have begun reopening the country, and normal life is returning in areas that have seen higher vaccination. In India, we are still a very long way off as so far we have been able to vaccinate just 3.4 percent of our population, which is very low even though in absolute numbers it is pretty high.
On the vaccination front, logistics are yet to be worked out, even as a political slugfest has begun between the Centre and the Opposition-ruled States, which lay the entire blame over vaccine shortage at the doors of the Central Government. But this political blame game is not going to help anyone and the sooner the issues are resolved the better for us as a Nation.
Whoever purchases the vaccines, it is people’s money, whether the Central Government procures or the State Governments. Ultimately, it is the money of the people that these Governments are entrusted with, to make the best decision in the overall interests of the people.
With concerted action from the Centre, we may assume that vaccination drive will gather momentum as we go along, and the Government has already declared that all eligible people in the country will be vaccinated by the end of this calendar year. The Government is also slated to share its concrete action plan on vaccine and its vaccination policy to the apex Court in a few days’ time.
Government estimates that the impact of the second wave was not likely to be very large, but predicting whether India could have a double-digit growth or not was a tad difficult. Adequate support in the form of fiscal and monetary support, of course, would be needed to help the economy revive, according to Chief Economic Adviser KV Subramanian. Economic Survey for 2020-21 released in January had predicted an 11 percent growth for the current financial year ending March 2022.
But the second wave hit in March- April and this adversely affected the various sectors of the economy, due to the uncertainty that prevailed with different States going into individual lockdowns. This naturally hit the supply chains for the manufacturing sector and trade services too suffered badly.
Government assessment of staging a recovery is based on the less than expected contraction in the last financial year that ended in March 2021 when growth was picking up in India. But second-wave peaked in May, and now in June first week, there are signs of the wave ebbing. States though are not yet ready to lift lockdowns as they want to be doubly sure. On the whole, as per Government assessment, the overall impact of the second wave is not expected to be very large.
One thing that puzzles many, is that even on the day when news of growth contracting by 7.3 percent came, the stock market was hovering around dizzy heights. This contrast that confuses many, in fact is a stark reality that the pandemic has increased poverty and also increased the wealth of a very few people in the country.
Very few big firms did better, gained more market share by squeezing out smaller players. Very small players totally wiped out.
And those who do exist, only barely do.
Without Government help, they are doomed. But even then, they don’t have any idea as to how long they need support, as for the past couple of years MSMEs have been caught on the wrong foot. The GST requirements are only adding to their overall stress, and more so the tax administration system that at times is seen as oppressive.
What the MSMEs want is a moratorium for a year or two. “Just allow us to do our job, manufacture, and free us from tax liabilities for a year or so. Let us get back on our feet and then when we are able to repay, take the tax dues then, is the common refrain of the smaller manufacturers,” an MSME entrepreneur speaking on behalf of many like him pleaded in a message to the Union Government. Let us hope , for the sake of the MSME sector that is a huge employment generator, the Government comes up with a plan to rescue it.
Lakshmana Venkat Kuchi is a senior journalist tracking social, economic, and political changes across the country. He was associated with the Press Trust of India, The Hindu, Sunday Observer, and Hindustan Times. He can be reached on [email protected]
and Twitter handle @kvlakshman