The International Monetary Fund (IMF) slashing India’s growth forecast for the year 2021-22 by 3 percentage points to 9.5% is yet another grim reminder of the ongoing crisis and the tough recovery road ahead. The virulent Covid-19 second wave has dealt a severe setback to the recovery process, prompting a relook at the earlier optimistic projections. The IMF’s earlier forecast of 12.5% was made in April when the second wave of the pandemic had broken out. The scaling down of the forecast comes at a time when the economy is grappling with an excruciating recovery process after suffering a deep contraction in the fiscal year 2020-21. Last month, S&P Global Ratings projected a 9.5% GDP growth in the current fiscal while the Reserve Bank of India also cut the projection to 9.5% from the earlier 10.5%. The Asian Development Bank (ADB) too has downgraded India’s economic growth forecast to 10% from 11% estimated in April. One cannot lose sight of the fact that there is a widening gap between advanced economies and the emerging markets and developing economies in terms of the pace of economic recovery. While in the advanced economies, nearly 40% of the population has been fully vaccinated as against 11% in emerging market economies, and a tiny fraction in low-income developing countries. This is bound to have an impact on the recovery rates. The economic recovery is faster in countries where the inoculation pace is better while lack of access to vaccines and renewed waves of Covid-19 cases in some countries like India have led to the downgrades.
After experiencing an unprecedented contraction of 24.4% in the quarter ending June 2020 due to a prolonged lockdown, the economy is still reeling under the impact of the extensive damage caused by the health shock of the second wave. According to the annual Periodic Labour Force Survey report, the urban jobs fell by 11.05 million between April-June 2019 and April-June 2020. The unprecedented fallout of this is that the rural jobs increased by 14.67 million during the period. This means that the pandemic has pushed people from the more productive urban economy to a less productive rural sector. Inflation is another area of concern. If it continues to rise, the RBI will not have much elbow room in terms of rate cuts. There is a strong argument in favour of the reduction of taxes on petrol and diesel by both the Centre and the States to ease inflationary pressures. 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 money in the hands of the people reeling under double-digit unemployment.