COVID-19 pandemic had a devastating impact on the world economy and India was no exception. Very harsh lockdown of 2020 in India shattered an already crumbling economy. Fourth time in independent history, Indian economy contracted-this time the maximum- by 7.3%. Developed and emerging economies rushed for financial stimulus packages last year to boost the economic recovery.
Developed countries could afford huge amount of money for stimulus. Emerging economies like India also tried their best but were inhibited by limited resources. I may remind here Nirmala Sitharaman‘s 20 Lakh crore stimulus package given in five tranches. It was about 10% of Indian GDP but many emerging economies spent much more. Indian stimulus was mainly monitory and not fiscal in nature. This meant that government gave little from its budget but told the banks to provide funds on loan. Even then the deficit became 11% of the GDP.
A very strange outcome of the impact of these stimulus packages of different countries has shown that recovery is not related to the amount spent on stimulus. Many Indian economists last year decried the stimulus as paltry and called the finance minister timid. In the hindsight, India did well to restrain, though by compulsion, its stimulus at a medium level of spending.
Many emerging markets which aggressively stimulated got no pay off in a faster recovery and in some cases stimulus backfired. Noted global investment expert Ruchir Sharma has studied and shown statistically that there is no link between the size of the stimulus and the pace of recovery. It is a mind-boggling exercise for economists to explain this phenomenon.
Coming to Indian context, we can safely say that economic recovery is gaining steam. Glaring economic data suggests that Indian economy has crossed the slump of pandemic and is in better shape even compared to the pre-pandemic situation. RBI has indicated that the economic activities suggest to a GDP growth of 9.6% in July – September quarter. CMIE‘s employment data clearly indicates creturn to normalcy in employment.
The total employment estimate in September was 406.2 million which is almost same as in 2019–20. At the same time it is true that only salaried jobs rose sharply and consequently advance tax collection was 14.6% higher than the pre-Covid collection in 2019-20 for this quarter.
India is still facing a big problem of non-availability of informal jobs for the poorer sections of society. There is a surge in demand for MGNREGA suggesting dearth of proper informal jobs. This has reduced the purchasing power of a vast section of the workforce. This has depressed the demand in the market especially for FMCG.
A sustained recovery requires demand from low income groups. This weakness is due to the lukewarm performance of MSME. There has been a rise in the bank credit for personal loans and big industries are having their fair share of credit. It is evident now that for some reasons bank credits are only not going sufficiently to MSME. There are 60 million units of MSME. The government needs to incentivise this sector as it has a lion share in workforce and economy. The green shoots of recovery should be strengthened for healthy development.
