While half the world is already experiencing the third wave of the Coronavirus, India is still economically recovering from the first wave; and in January to March, while demand was still very fragile, supply-side snags eased.
Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stockbroker said: “Barring a severe third wave (which remains less likely), the pace of economic recovery would be more dependent on demand.”
According to CMIE, during the second wave of the Coronavirus in India, the household’s spending power decreased as we witnessed approximately 15 million job losses in May. The unemployment rate which was previously 8% in April, increased to 11.9%.
So how do we boost demand and save the economy from drowning any further?
According to Chief Economist, Madan Sabnavis, the government has to immediately spend on capital expenditure to prevent a huge economic collapse.
We also need more demand to encourage growth. “It should be more of demand… we need to see higher consumption and investment. Right now with the pandemic affecting several families, the power of consumption has come down.
Also with several deaths recorded, families will tend to cut back on discretionary expenditure. Therefore push from investment by the government is needed,” he said.
R Nagaraj, Visiting Faculty, Center for Development Studies also claimed that the government needs to increase its expenditure. According to him: “The government’s first task should be to support the consumption and livelihoods of the poor by a massive expansion of government current expenditure, ignoring the rise in fiscal deficit for some time being. Such an effort will restore household consumption demand and hence boost output.”
An economist at Geojit Financial Services, Deepthi Mathew states that the government may need to step in once again as RBI has done its part in 2020 and have its hands tied this time.
She also added that “Consumption being the backbone of the Indian economy, the focus should be on reviving the consumption demand in the economy. The second wave of the pandemic has heightened the degree of uncertainty in the economy. The government should step up as there are limitations on the RBI to announce any further stimulus measures.”
Furthermore, Economist Rumki Majumdar, the highway construction budget grew by 74% on-year during the pandemic. “Such spending will result in a higher multiplier effect on income, jobs, and assets and thereby, spur demand and investment in the economy,” he warned.
He also stated that: “With finite resources, the government has to be prudent about spending. Recent data suggest that government infrastructure projects have picked up at a rapid pace.”
According to Economists, the supply side has been able to pick up on its pace with January to March being the best period for the functioning of the domestic economy since the beginning of the pandemic. However, the demand side remains weak.
Weakness in investments has also been witnessed and government spending is a vital point to focus on. It is, therefore, in conclusion, dependent on the government expenditure and projects that go out of the required financial aid.