Indian Economy Post Covid-19

It’s now certain that Indian economy has already ventured into recessionary mode. It is expected to post a GDP growth rate of around 2% in the last fiscal year 2019-20. Also, if Indian economy contracts in the first quarter of the current fiscal year then it would not be surprising. Pre-Covid-19, Indian economy was already in bad shape along with a weak financial sector and ailing real estate. So there is not much room left for Indian economy to venture into any kind of adventure rather than to a policy precision which instead of holding investment and expenditure (public and private) could rather promote it.

Indian government has to think beyond all the conventional strategies for recovery. It has to seriously think and evaluate to provide a kind of tax holiday for one or two quarters to the companies and individuals to keep them afloat and ease the tremendous financial distress post Covid-19 scenario than just concentrating on the second wave of stimulus only. In many empirical studies, tax benefits have been proved to be better in increasing economic activities with higher multiplier effect than the stimulus.

Along with this, the government has to increase expenditure on different accounts and mainly on infrastructure to absorb the extra unskilled and semi-skilled unemployed labour (increasing due to the follow up retrenchment post Covid-19) to avoid demand shocks which are already unfolding. However it certainly will have a negative impact on the fiscal deficit vis a vis inflation and exchange rate but that would not be a problem and can be taken care off later if the policy responses could start accelerating economic activities before the end of second quarter.

On the other hand it is also very much important for the companies to innovate their processes as well as skill and re-skill their human resources than to retrench to ease the financial burden if they want a faster recovery back to the growth trajectory even if they have to absorb some extra financial burden for a few weeks to a few months. This extra financial burden would later be set off as in the new world post Covid-19; many economies will start looking for new destinations for goods and services than China and India can fill that void. If this can happen, it would not take long to bring things together and accelerate economic activities. But for it, there is a need for coordinated efforts between the government and industry.

Rajeev Upadhyay