Following the COVID-19 shock, economic growth has slowed, and private investment and demand have decreased as well.
In this environment, India needs a rapid rebound in demand, which necessitates increased per capita earnings.
However, in order to raise demand and increase the rate of economic growth, a number of obstacles must be overcome.
Observations on the Economy The agriculture sector continued to develop at a rapid pace, demonstrating that it is still an important part of the economy, particularly in times of crisis. Production interruptions due to localised lockouts were blamed for the manufacturing sector's subdued growth performance. The contraction in trade (-18.2 percent), construction (-8.6 percent), mining (-8.5 percent), and manufacturing (-7.2 percent) is a cause for concern because these sectors account for the majority of low-skilled jobs.
Challenges Confronting Economic Growth :-
- Rising unemployment rate: India’s unemployment rate is expected to rise in May 2021, according to the Centre for Monitoring Indian Economy (CMIE).
- At 40%, the labour participation rate remained unchanged from April 2021. However, the jobless rate increased from 8% to 11.9 percent.
- A steady labour participation rate paired with a rising unemployment rate signifies job losses and a decrease in employment.
- According to the Center for Market Innovation and Entrepreneurship (CMIE), approximately 15 million jobs were lost in May 2021, up from 12.3 million in November 2016, the month of demonetisation.
- Strong Informality: Job losses highlight India’s high informality and fragility of labour, with daily wage workers accounting for over half of all jobs lost during the epidemic. This poses a threat to the country’s inclusive growth and better economic growth potential.
- Low Business Confidence: According to the FICCI’s poll, the business confidence index (BCI) has plummeted. The Purchasing Managers Index (PMI) has also dropped to a 10-month low, suggesting that the manufacturing sector is under stress, with growth forecasts being lowered.
- The fact that both the BCI and the PMI are declining shows that general optimism for 2021-22 is low, which might affect investments and result in more job losses.
- Weak Demand :Demand is poor since household income has been badly hit and prior reserves have already been depleted during the first wave of the covid-19 epidemic.
Issues With India’s Policy Response :-
- The government has taken less direct actions to assist the underprivileged in alleviating their burdens.
- The majority of the policy initiatives are on the supply side rather than the demand side.
- Direct state investment for a swift demand boost is essential in times of financial worry, and large sections of all the stimulus packages proposed so far would work in the medium term (not immediate).
- These policies include those pertaining to the external sector, infrastructure, and manufacturing. When compared to any direct action on the demand side, the use of credit backstops as the major plank of policy has limitations, since it may result in poor economic performance if private investments do not take up.
Way Forward :-
- Overall Demand Revival: Growth recovery is contingent on demand recovery. Only greater saving and income levels will result in increased demand.
- Investment, particularly private investment, is the “key motor” that drives demand, builds capacity, boosts labour productivity, introduces new technologies, allows for creative destruction, and creates jobs.
- Export Promotion: External demand appears to be strong, as India’s exports reached USD 32 billion in May 2021, up 67 percent from May 2020, showing a rapid recovery in global demand.
- Export funding is also available to exporters.
- Increasing MGNREGA financing and extending to urban regions: The MGNREGA programme has shown to be a rock of support in both normal and tough times (such as Covid-19), and expanding the scheme to urban areas will be a smart idea.
- Transfer of monetary benefits: A substantial cash transfer might help these families regain their confidence. Money in people’s hands may create an instant sense of stability and confidence, which is essential for economic recovery.
- It will boost the economy’s spending and demand, perhaps resuming the virtuous cycle.
- Use of technology: Governments should partner with industry leaders to establish online lessons in local regional languages to transmit information and skills to everybody, especially as internet penetration rises.
- promoting labor-intensive industries including gems and jewellery, textiles and apparel, and leather products
In the long run, focusing on growth rates makes sense since obtaining greater income levels necessitates long-term growth.
India’s economy is slowly but steadily improving, and investment is the only way to keep the trend going.