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Home | Editorials | Editorial No Room For Complacency

Editorial: No room for complacency

Though business activity has increased sharply this month, consumer sentiment and labour market remain weak

By Telangana Today
Published Date - 12:00 AM, Fri - 18 June 21
Editorial: No room for complacency
Though business activity has increased sharply this month, consumer sentiment and labour market remain weak
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Though the latest data shows that the Indian economic activity has sequentially gained momentum for the third consecutive week, there should be no room for complacency, nor can the country afford unreasonable expectations from the post-pandemic growth. Consumer sentiment continues to be subdued, a factor that is expected to limit the pace of the recovery. The jury is still out on the extent of damage caused by economic disruption and health shock of the second wave to household balance sheets and demand. Nevertheless, it is a matter of relief that the business activity has increased sharply this month with most States gradually easing the restrictions as the Covid-19 cases are on the decline. The Nomura India Business Resumption Index jumped by 8.1 percentage points to 76 for the week ended June 13, from 67.9 a week earlier. The pace of economic recovery will entirely depend on how quickly the country can ramp up vaccination coverage which alone will revive consumer confidence. The economy is still struggling to revive and sustain growth on a durable basis, a task identified by the Reserve Bank of India’s Monetary Policy Committee as a key challenge. Moreover, the threat of stagflation — low growth and high inflation — is looming large over the economy. The unemployment rate is still high at 8.7% for the week ended June 13, although this represented a decline from 13.6% recorded in the previous weeks.

At a time when the labour market continues to be weak, the inflationary shock will further mute demand prospects. Though the weekly unemployment rate has come down to 8.7% from the double-digit levels which persisted between May 16 and June 6, it is still too high for comfort. The labour participation rate — the percentage of the working age population in the market — has come down to 40% now from the pre-pandemic levels of 42.5%. Inflation is another area of concern. If it continues to rise, the RBI will not have much elbow room in terms of monetary policy and rate cuts. There is a strong argument in favour of reduction of taxes on petrol and diesel by both the Centre and States to ease inflationary pressures. Unless consumption demand picks up, there is a danger that the recovery will run out of steam. At this juncture, the economy needs a booster dose in terms of fiscal support from the government. There is a strong case for implementing an income-support programme to put purchasing power in the hands of battered households. The recovery is going to be a long and arduous journey. The government needs to reset its expectations based on a pragmatic assessment of the ground realities rather than being overly optimistic.


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