Indian Economy and the second wave of COVID 19

-Ayush Burman

INTRODUCTION

It has been more than 17 months since India had its first case of COVID 19 on January 30, 2020, which later got declared as a Pandemic by the World Health Organization (WHO). The pandemic made humans realize the importance of mother earth. The first wave of the COVID 19 saw the peak somewhere around September, with cases touching to 1 lakh a day. By the end of February, we thought we had gained control over the situation, having less than 10 thousand cases a day and active cases well below 1 lakh.

But the 2nd wave came out with more challenges for us. People struggled to find oxygen, medicines like remdesivir and Fabi flu, and beds in hospitals. However, it might appear today that the 2nd wave of the pandemic has almost ended. The cases have now come to 40 thousand a day from 4 lakh plus cases in the month of April- May. However, it is worth noting that we have also lost around 4 lakh lives due to this already, with cases and death toll rising every day.

The 2nd wave started from the western part of the country in Maharashtra, went north in Delhi, Haryana, and UP, and has struck in the southern states. In the 2nd wave, the rural population was also severely hit. The 2nd wave became more severe because of the infrastructural inefficiencies of medical facilities and health care centers in the rural areas.

The image here clearly shows how severely it has impacted the country with peak cases quadrupled this time.

Let us closely analyze the impact of the 2nd wave in all three sectors of the Indian economy. Has it been the same as last year or the impact has been relatively moderate or severe on the Indian Economy.

1. Agriculture or the Primary sector

It is a well-known fact that the lockdown was imposed by the state government and not by the central government and so there was lockdown happening in different time span and durations depending on the severity of the spread, healthcare facility, awareness among the masses etc. The lockdowns were little more extended than the previous one, due to which the APMC Mandis were closed. And for the states like Maharashtra, Gujarat and Rajasthan had their Mandis closed during the peak harvesting season. Due to this the vegetable vendors and food processing industries have also been hit hard.

There was significant relief which happened in mid-May due to timely arrivals of monsoon and peak also declining at the same time. Mr. Ramesh Chand, member of NITI Ayog, expects the agriculture sector to grow by 3% in 2020-21. The Indian economy contracted by 7.3% in the FY ended March 2021. The average wage growth of the agricultural sector between Nov 2020 to arch 2021 has reduced by 2.9% (2nd wave) from 8.5% in April to August 2020 (1st wave).

2. Manufacturing or the Secondary sector

The manufacturing sector was most affected in both the waves with factories operating at 20-33% human resources or being wholly shut. There was a vast migration that happened last year during the lockdown and most of them were factory workers. The supply chain was disrupted due to which the procurement cost has increased for the industries. However, the impact of the second wave is expected to be moderate as the state and the businesses have adjusted to the situation. The manufacturing PMI has remained the same in April 2021 as compared to the March level of 55.4. As the manufacturing sector witnessed a moderate impact, we expect an economic recovery. It may not be ‘V-shaped like last year like the recovery post first wave. The manufacturing activity is expected to pick up from the 2nd quarter of the year to reach the levels of early March 2021.

3. Services or the Tertiary sector

The first wave came up with lessons for the organizations to develop infrastructure and strategies for work from the home regime. For the employees, the first wave was a new paradigm and it took them some time to adjust to work from home culture and be productive. Prolonged lockdown and unlocking phases during the 1st wave ensured that both the employer and employee got into sync and the productivity started reaching pre-covid levels. The 2nd wave disrupted the sync. All these assessments say that the services sector will be the least hit from the 2nd wave from an output standpoint.

The overall impact on GDP

On May 31, the Indian government of India released the data for GD during the financial year 2020-21 which contracted by 7.3 percent. The reasons behind this contraction were obvious – lockdown leading to the closing of business units, large-scale migration, increasing unemployment, and a significant reduction in household consumption.

For the current year, the RBI has forecasted a growth of 10.5%. But the rating agencies have reservations about this growth figure. And downgraded it due to the 2nd of COVID-19. Moody’s initially projected 13.7% of growth for FY 2021-22 but later decreased it to 9.3 percent. The same goes for S&P Global Rating. They have lowered the growth rate from 11% growth to 9.8% in case of moderate impact of the second wave, but in the worst-case scenario, it could go as low as 8.2 percent.

Policies by the Government

The central government’s fiscal measures can be divided into two categories. (i) Above-the-line measures which include government spending ( 3.5% of GDP, of which 2.2% of GDP is estimated to be used last year), foregone or deferred revenues (0.3% of GDP), and expedited spending (about 0.3% of GDP falling due within the past fiscal year). And (ii) Below-the-line measures to support businesses and shore up credit provision to several sectors (about 5.3% of GDP). In the 1st wave of the pandemic response, above-the-line expenditure measures focused on social protection and healthcare.

Measures to ease the tax compliance burden during April and May 2021 were re-introduced in response to the recent surge in infections. Standards without an immediate direct bearing on the government’s deficit position aim to provide credit support to businesses (1.9 percent of GDP), poor households, especially migrants and farmers (1.6 percent of GDP), distressed electricity distribution companies (0.4 percent of GDP), and targeted support for the agricultural sector (0.7 percent of GDP), as well as some miscellaneous support measures (about 0.3 percent of GDP)

Sixty thousand crores are kept for sectors to support over 11,000 tourist guides and travel agencies so they can survive in these tough times. Working capital or personal loans will allow people in the sector to discharge liabilities and restart businesses affected by COVID-19. Loans are to be provided with a 100% guarantee under the scheme to be administered by Ministry of Tourism.

Efforts targeted to stimulate growth, exports, and employment levels and provide relief to affected sectors. Ms. Nirmala Sitharaman announced an expansion of the existing Emergency Credit Line Guarantee Scheme (ECLGS) by ₹1.5 lakh crore. She also announced a new scheme of ₹7,500 crores to guarantee loans up to ₹1.25 lakh to small ticket size borrowers via micro-finance institutions.