Reasons for bouncing back from current economic crisis in India

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The crisis was caused by currency overvaluation, current account deficit and investor confidence played significant role in the sharp exchange rate depreciation. The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. During mid-eighties, India started having the balance of payments problems.

Whether one goes by data or anecdote, that the Indian economy has been experiencing a contraction- rather than growth - since March 2020 has been evident from all accounts. It has been almost six months since the crisis broke, we are no longer using the strange term "negative growth" and are getting used to calling the change in GDP for what it really is: contraction. 

Of course, the Covid-19 crisis is not unique in India. It is a global shock that is playing havoc in the world. So, in order to have a sense of how bad the economic impact has been, we should compare India with other countries. Much of the recovery in the later months of 2020 has been driven by pent up demand and the two consecutive quarters of negative growth have planted the economy in the grip of  technical recession.

India has a large informal sector that contributes about half of its GDP. The measurement of informal sector output is largely a matter of guesswork and therefore we do not have good estimates to assess how badly this sector has been hit. 

A sharp rise in unemployment would be another indicator of the economic impact of the crisis which peaked in the months of April and May almost three times of what it was in January and February. This is in line with the drop in GDP figure.

In fact, the biggest engine of growth continues to be Govt. spending, which is supposed to grow by 11 % in real terms this year. Secondly, as the Govt.'s pre-budget survey of Indian economy pointed out, the return to growth is accompanied by concerns about not just fiscal deficit but also inflation. As such, if RBI tightens the monetary policy sooner than expected, will that choke the revival of private investment before it begins is anyone's guess. 

In addition to forming a monitoring mechanism to see proper implementation of schemes to ensure its applicability to common man, Govt. should also focus on the following issues mainly to bounce back the economy from current crisis - 

1. Focus on ailing sectors e.g. Real Estate, Auto, Exports. 

2. Simplify tax systems and rates.

3. Strengthen base of providing health issues.

4. Focus on boosting investments.

5. Revive growth by boosting bank lending.

6. Focus on more industrial production as a substitute to Imports.

7. Resolving Farmers' issues.

8. Create more/varied job prospects in urban as well rural sectors.


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