It is no surprise that the Asian Development Bank (ADB) has downgraded India’s economic growth projection for 2021-22 to 10% from the 11% projected earlier. The fears over the possible third wave of the pandemic, coupled with growing unemployment, have created a situation where expectations of a quick economic recovery need to be tempered. Though the GDP growth recovered to 1.6% during the last quarter of the 2020 fiscal year, which narrowed the contraction to 7.3% while it was expected to be at 8%, the second wave forced many State governments to impose strict containment measures. This has slowed down the recovery process. Soaring inflation is another area of concern. The consumer price inflation rose to 6.3% year-on-year in May as both food and fuel inflation outpaced expectations. The debilitating impact of the pandemic is bound to linger longer than expected. While richer countries have begun to bounce back, India finds itself grappling with persistent unemployment, inflation, sluggish demand and falling savings and investment. In fact, many of these troubles were plaguing the country before the outbreak of the pandemic which has only worsened the situation. Adding to the woes, the pace of vaccination has slowed down. The Indian economy contracted by 7.3% last year, the worst dip since independence. According to the Centre for Monitoring Indian Economy (CMIE), there was a net loss of 7 million jobs between February 2020 and February 2021. Households experienced an average of 12% loss in income during the last fiscal year.
The poor and the middle classes have been bearing the brunt of the economic impact of the pandemic. It is estimated that 218 million additional people, a major chunk of them from rural areas, would have been pushed into poverty. The onset of the second wave of Covid-19 and its subsequent misery raised further uncertainty regarding the health of the economy. The weak demand for goods and services is not just an urban phenomenon anymore as rural India too reported compression of demand this year. Around 71% of businesses reported a significant dip in their sales in rural markets. Given the all-pervading impact of the second wave, most multilateral and international agencies have revised their 2021-22 growth predictions for India. The World Bank revised its estimates of GDP forecast to 8.3% from its earlier estimate of 10% for 2021-22. The RBI has also revised its estimate, pegging the GDP growth at 9.3% as against its earlier forecast of 10.5%. Under these circumstances, there is a need for the government to loosen its purse strings and spend enough to help tens of millions of poor and low-income households, without worrying too much about the fiscal deficit.
Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.