Introduction

The economy has been shut down due to the coronavirus-imposed lockdown implemented since March 2020. As per the observations of Mr. Amitabh Kant, CEO of NITI Aayog, the unlock process initiated by the Government of India will soon respond positively to come out from the COVID-19 crisis as the economy is witnessing emergence of good signals. He expressed the optimistic view that the economy will bounce back, while addressing a session organized during FICCI FRAMES 2020. 

He emphasized and advocated that India must identify and concentrate on selective 12 to 13 sectors, which will enable the economy to revive from setback caused by the pandemic. The key areas will include big data, artificial intelligence, genomics, mobility, drones, along with media and entertainment in addition to FMCG and other manufacturing & service sectors, wherein the MSME sector is expected to play an important role. The objective is not only to boost local economy but to increase the presence of Indian products and services in global market.

New Normal  

Now the Indian economy has entered a phase of New Normal, in which most of the activities are to resume by taking utmost care by following three norms: Social distancing, Use of Masks and Sanitisation. The basic objective is to reduce the rate of infection and zero down the death rate due to COVID 19. The return to normalcy would also be delayed by the migrant labour crisis. With lakhs of migrant labourers back to their homes in the wake of the pandemic, sectors like construction and real estate, which are dependent on them, would take a hit. Things will never be the same again. Covid-19 will change the way the world works, just like the Great Depression, Dot-Com Bubble, and the 2008 financial crash which had happened in the past. 

The question on everyone’s mind is, ‘Will things go back to normal?’ The fundamental changes will take place in how people, businesses, and economies function. The next 12 months will be rough. Many businesses will struggle, some may even close or merge with other entities. But with the economic adversities of present times, new industries will emerge bringing with renewed hope of recovery. The emergency exit for achieving the new normal future will be through – Mass Vaccination & Herd Immunity. Eventually, things will go back to normal but with the change of definition of normal.

The recovery process is going to be painful and slow. The six months of FY 2020-21 have been lost but since September–October 2020, there has been a positive growth on various counts like manufacturing, service sector, increase in sale of residential & commercial properties, increase in exports, increase in collection of G.S.T. etc. Simultaneously, there has been reduction in imports. The overall picture is very encouraging. Earlier Indian economy had grown at 4.2 per cent in the 2019-20 fiscal. As such as per the initial forecast of World Bank, the Indian economy was to contract by 3.2%. But in reality, the drop was drastic, almost near to 10%, due to the second wave of the pandemic.

As per FITC, furthermore, high inflation has been an added strain to households. Supply-chain disruptions and excise duty hike have caused prices to rise. The drop in the economy was a historic low. On the background of India’s success in containment of pandemic, the revised estimates of FITCH Ratings & IMF, the Indian economy is expected to bounce back between 6% to 9.5% of G.D.P. in next financial year 2021-22.

Steps and Formula for Recovery

The government has granted a reform & stimulus package under the Aatmanirbhar Bharat Yojana. Finance Minister Nirmala Sitharaman said recently that the Government and the Reserve Bank of India (RBI) were in talks over a possible one-time loan restructuring effort for companies which were highly stressed due to the pandemic. The government has given Standard Operating Procedures (SOP’s) for MSMEs and stressed sectors as part of its earlier package through soft loan schemes. However, banks are already struggling under the load of earlier non-performing assets (NPAs) and are running a risk with the fear that more loans may turn into NPAs once the moratorium is lifted.

Banking sector needs to pass on rate cuts induced by RBI to the borrowers. Personal tax cuts & tax holidays for 6 – 12 months can be adopted to revive consumption, which will help spur economic growth. To support the economy, Reserve Bank of India has eased monetary policy by reducing interest rates and providing liquidity through liberal lending on soft terms. The measures are also initiated by extending stimulus measures amounting to 10% of GDP and fiscal package which is equivalent to 1% of GDP. The special trains are run to bring back the migrant labour force back to their workplace.

The China Factor 

Even as the pandemic takes its toll, India’s border tension with China has emerged as a major threat to rapid recovery. Most economists believe that the India-China border standoff has come at a wrong time, when the country is grappling with a recessionary situation and the continuing increase in infections. While the impact on Indo-Chinese trade remains to be seen, economists warn that the relations between the two countries cannot be seen as an on-off switch, but instead India has to slowly reduce its dependence on China for some basic raw materials. The issue will be about the disruption of the supply chain for India. There are a number of products where Chinese parts are used. If we want to source them from elsewhere, there may be pricing issues which could eventually impact production costs and, in turn, dent demand. This can further delay India’s recovery process. The recovery, then, will have to be attempted even as the virus is around and that task will be a bigger challenge. It will be a test for both the Government and Indian entrepreneurs and companies which make up the economy which India hopes to win at the earliest.

Global Scenario

The global economic picture is looking bleak, with recessions in almost every developed economy across the world. We assume that there will be a recovery in the second half of the year,” said Agathe Demarais, Global Forecasting Director, EIU. The overall expectation is India will be the fastest recoveree among G-20 economies. Even as the Indian economy is likely to be affected by the pandemic this year, it is still likely to be better off than all other G20 countries. 

The Economist Intelligence Unit (EIU) in its post-Covid-19-outbreak revised growth forecast for G20 countries in 2020 downgraded projected FY21 GDP growth of India to 2.1 per cent from 6 per cent before the outbreak. While this looked like a free fall but when compared to other G20 countries, India’s growth projection stood on the top while others are set to dive deep into recession except for two other countries – China and Indonesia. While India will be the fastest growing country this year at 2.1 per cent, China and Indonesia will grow at 1 per cent in 2020, EIU forecast said. 

We assume that there will be a recovery in the second half of the year, but downside risks to this baseline scenario are extremely high, as the emergence of second, or third waves of the epidemic would sink growth further,” said Agathe Demarais, Global Forecasting Director, EIU in the forecast update on its website. As per the IMF Report on “World Economic Outlook”, there is a global recession and the growth rate of global economy would be -4.4%. Similarly, it is anticipated that though there will be steep drop in Indian economy due to Coronavirus in 2020, the Indian economy will bounce back to the positive growth of about 8.8% in 2021. It is interesting to see the projections of IMF for various countries’ economies in year 2020 & 2021 as follows:

IMF comparative Projections for Growth of Various Economies in the World

ECONOMY20202021
Global(-) 4.4%            5.2%
USA(-) 4.3%            3.1%  
Europe(-) 8.3%            5.2%  
Japan(-)5.3%             2.3%
Russia(-)4.1%             2.8%
China1.9%             8.2%
India(-)10.3%            8.8%       
Source: IMF

Conclusion

This may be the time to reset. Never before the world had come to a standstill. We have the opportunity to rethink everything. If we do things right, we may be able to fix challenges that are faced by Indian economy in particular. More importantly, we must ensure that similar blow never happens again. With the active supportive schemes and steps from Government of India & R.B.I., there has been positive improvement on most parameters of economy since September – October 2020, in which there was a drastic drop since March 2020. 

The parameters showing encouraging growth are increase in exports, decrease in imports, increase in power demand, increase in production & sale of manufacturing & automobile sector, increase in contribution by service sector, increase in revenue through G.S.T. collection, practically to normal level which was before start of COVID. There has even been a growth in P.M.I. (Purchasing Managers Index). All this is possible due to action of various State Governments, under the guidance of Government of India and active   support from citizens, in following strict guidelines for lock down and unlock procedure. As effect there has been a substantial drop in active COVID cases in terms of infection and deaths. In short, the revival and normalization of Indian economy has been faster than expected which promises the bright future in 2021, as compared to other bigger economies.

Ajit Phadke

Ajit Phadke, B.Com.(Hons), M.B.A., LL.B, has been operating as a freelance industrial consultant for 35 years and specialises in 100% EOU / Export / Import, Foreign Exchange Rules and Industrial Regulations.

The views and opinions expressed in the article are those of the authors and do not necessarily reflect the official policy or position of The Tilak Chronicle and TTC Media Pvt Ltd.

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