India’s economy contracted 7.3% in 2020-21 and the Reserve Bank of India (RBI) now expects it to expand 9.5% this fiscal year. Though this is down one percentage point from the projection it made before our second wave of covid, output would still exceed that of 2019-20 if this growth materializes. It is still an ‘if’. The case for optimism rests mostly on covid curbs being less restrictive this year, commercial activity better adapted, and the hope of a snap back to form in most sectors once our infection curve drops. Like last year, the first quarter of 2021-22 has been lost to the pandemic. But how subsequent quarters pan out will depend to a large extent on whether Sars-CoV-2 has nasty surprises in store. Our health risks have proven worse than thought at budget time, policy response has been weak, and our confidence in risk estimates has got shaken badly enough to warrant an uncertainty upgrade. Lives, livelihoods and other dismal trade-offs must suddenly adapt to a Delta-wave scenario of exposure to a worse variant. Of the many ways in which 2021 differs from 2020, the cost of complacency seems higher and the prospect of a demand revival looks more forlorn. Such uncertain times call for the certainty of state stimulus in aid of an economic recovery.
The second-wave setback is still being assessed. Activity in our manufacturing sector slumped but escaped a contraction in May. The central bank’s consumer confidence survey saw a dip, with even year-ahead sentiment slipping into its gloom zone. Car sales, e-way bill generation and goods and services tax collections have slowed. Mint’s latest monthly macro tracker had just one-fourth of its 16 indicators in the green, or above their five-year average trend, this April. Unemployment and other conditions have clearly worsened. A pull-through that relies largely on a return to normalcy by dint of a vax shield now looks less likely than it did on 1 February, when the Union budget for 2021-22 was unveiled. This is not just because it will take long for at least half our population to get vaccine jabs, a level globally seen to mark an exit from danger, but also due to the pandemic’s unpredictability. Safety lines may need to be redrawn, rural areas defended from infection, and urban clamps re-tightened at the first sign of another surge in infections. An economy haunted by covid can operate only in fits-and-starts. If this has turned out to be a steeper challenge than foreseen earlier this year, the Centre’s need to support demand has grown heavier too.
Supply-side easing has been done in spades, but cheaper credit made widely available cannot fill in for the impulse that a fiscal push could impart where needed. Last year, government spending was amped up late. This year, the annual budget needs to be adapted to a changed outlook right away. A big healthcare ramp-up must get an enlarged outlay, even as rescue missions are mounted for the needy and state projects are activated to generate jobs and move cash around. The year’s deficit target looks likely to go unmet if tax collections stay subdued, so our public finances need a revisit anyway. Should privatization be unable to fetch funds within the required time frame, New Delhi could mortgage some of its public-sector holdings to our central bank for a loan. It’s the Centre that must do the heavy lifting to backstop our economy. As the crisis of the past two months begins to let up, this would be a good time to go for a fiscal boost.
Never miss a story! Stay connected and informed with Mint.
our App Now!!
Feed By www.livemint.com