COVID 19-IMPACTS ON INDIAN ECONOMY-INDIA RISKS STAGNATION
Updated: Dec 13, 2020
By M. Palani Selvi, B.Sc.,
The corona virus lockdown imposed to curb its spread has blown the economic activity of India. This led to the contraction in growth rate. It is significant to note that the country was already facing the pre-pandemic economic slowdown. In the fiscal year 2017, the growth rate of the Indian economy was 7%, it reduced to 6.1% in 2018 and it further reduced to 4.2% in 2019-20. The World Bank estimated that India’s economy will shrink by 3.2%, while the International rating agencies like Moody’s Investors Service, Fitch Rating and S&P Global Ratings have all predicted 4 to 5% contraction during the fiscal year April 2020 to March 2021.
CRISIL (Credit Rating Information Services of India Limited), an Indian analytical company, reported that this could be the worst recession for India since the 1990s. This recession would affect the unorganised sector and semi-skilled job holders as they may lose their jobs. The prolonged lockdown and weak GDP lead to the downfall of employment opportunities in the country. The International Labour Organisation and Asian development Bank jointly reported that “For India, the report estimates job loss for 4.1 million youth. Construction and agriculture have witnessed the major job losses among seven key sectors”. The CMIE (Centre for Monitoring Indian Economy) has calculated the unemployment rate from 22 March to 5 April. The data showed that as of 5 April, the unemployment rate had risen to 23.38 % from 8.41% recorded on 22 March. Employment generating sectors such as construction, real estates, tourism chopped down on their service which will further lead to unemployment. The lockdown caused labour shortage which affected the firms in their production which in turn affected the supply side of the economy. The RBI envisaged that labour shortage and less productivity impact on inflation and output gap and it produced an upward shift in inflation and a downward shift in potential output respectively. The Monetary Policy Committee (MPC) expected the real GDP growth for the year 2020-21 to be negative.
Mckinsey Global Institute’s report:
India’s GDP needs to grow 8-8.5% annually. The country will have to focus on increasing productivity and creating jobs so that it can escape from the risk of stagnation in GDP. Taking urgent steps is necessary as the country risks a decade of stagnating incomes and quality of life due to pandemic. By 2030, there will be 19 million additional workers in search of non-farm jobs and India will have to triple the job creation to 12 million jobs from the 4 million jobs achieved between 2013 and 2018. And the report says about 60% of reforms will have to be undertaken by states and 40% by the center.