Is Indian Economy dragged into a Deep Freeze Mode ?

 Is Indian Economy in "Deep Freeze Mode" ?

 

We all know that life will not go back to normal after the COVID-19 pandemic but what will the “new normal” be and how best can we shape it to be economically sound?

The top news buzzing everywhere is the forecast picture of the economic impact of COVID-19 on India, and what is needed to rebuild a sustainable economy. The poor performance of the non-government part of the GDP is taking place because investment in the economy has stalled, consumption is muted, and exports are barely growing. Weak consumer demand is the cause of low investment. Obviously, there are limits to the extent to which government stimulus can drive the Indian economy. Government expenditure accounts for just above 10 per cent of India’s GDP and now the economy that has stagnated, tax collections start to taper off. The threat to India is most vulnerable in terms of lost livelihoods, poverty and hunger cannot be emphasized enough if there is a 10% contraction of GDP in FY 2020-21. India has been making sustained progress in poverty reduction since 1991, a process that needed to be strengthened and accelerated. A reversal or even a halt in this process would push millions into poverty, with serious consequences for their lives as well as for the possibilities of economic recovery.

In fact, the current “wait and watch” approach will shrink GDP, destroy capacity and lead to hyperinflation.

First, given the relatively robust growth rates of the economy until 2016, India was seen as a major contributor to global growth. And second, India’s relatively young population meant that, with the right set of policies, this demographic dividend could propel the economy towards an even higher growth path. The economic recovery will be deeply influenced by the nature and level of government interventions, which could be direct transfers to individuals, support for businesses, and expansion of national credit availability.

It is a perfect storm: Interplay of uncertainties will define the impact

There are an estimated 63 million micro enterprises that employ a total of 110 million workers. These micro enterprises employ fewer than two people on average. Financial support based on worker retention is essentially meaningless for own-account workers and household enterprises. On the other hand, approx. 300,000 small and medium enterprises employ 3 million workers and could only in theory, benefit from payroll support. In practice, given the high incidence of casual and informal workers in these firms, it may be less administratively onerous to link financial support to their tax filings rather than to their payroll.

We are dealing this pandemic with a high level of unpredictability and uncertainty. Thus, even the most comprehensive analysis will have to be updated almost daily, incorporating new information as soon as it becomes available. COVID-19 presents a grave threat to India’s economic potential, and at the same time, is equally an opportunity for India to re-examine all the obstacles that lie in its path to greater prosperity. The costs of seriously diminished economic activity are going to be substantial everywhere, but in developing economies with large informal sectors, such as India, are going to be particularly vulnerable.

views are personal.

for more thoughts to ponder upon visit my web page https://ndnemin.wixsite.com/website

reference:

Some viewpoints are related to business related articles.