A big surge in the Goods and Services Tax (GST) collection for April — Rs 1.41 lakh crore — is an encouraging development amidst tales of gloom, but it alone is no indicator of the economic revival. Painting a rosy picture based on a single month’s collections could be a miscalculation because all indicators point to a grim picture of the economy, be it the soaring unemployment rate or declining industrial production and consumption. Experts predict a fall in the GST collection in May, with the lockdown in several States taking a toll on sales. A slowdown in consumption and supply chain disruptions due to the lockdown will trigger a decrease in e-way bill generation in April, which will be reflected at the end of this month. In fact, there is a clear pandemic-led downside risk to economic growth in the first quarter of 2021-22. For April 2021, the Federation of Automobile Dealers Associations reported a 28% sequential fall in auto registrations, a key indicator of economic health. The weekly unemployment rate has seen a sudden rise to 14.45% in the week ending May 16, according to the data released by the private think tank Centre for Monitoring Indian Economy. This is almost double the 8.67% unemployment rate on May 9. The high infection rate and lack of employment opportunities in urban clusters due to lockdowns forced people to leave for their villages. But in rural pockets, there are not enough income opportunities. Given this scenario, a faster and successful vaccine strategy alone will ensure economic normalisation.
The year-on-year numbers will look better considering the base effect — economic activity had collapsed in the first quarter of last year — but the slowdown in momentum suggests that a recovery to pre-Covid levels is a long way to go. The Index of Industrial Production, despite growing 22.4% year-on-year in March 2021, is lower than its March 2019 levels. MSMEs (micro, small and medium enterprises) are in terrible shape while informal jobs and self-employment in rural India are virtually in tatters. The situation may get worse over the next few weeks if the pandemic spread in rural India is not checked. There is a demand shock, a supply chain constraint and severe income loss. This is a critical situation for any economy and labour market. The economic trajectory in the months ahead will depend on the duration and stringency of the lockdowns which, in turn, is linked to the spread of the virus. As India grapples with the onslaught of the second wave of Covid-19, the economy has taken as big a battering as the nation’s healthcare system. The biggest toll of the ongoing second wave, according to the RBI, is the demand shock.
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