Aftershocks of the first wave of COVID-19 on Indian economy

Satyajit Kumar Sharmah Thakur

(The writer can be reached at sksharmahthakur@gmail.com)

The COVID-19 pandemic, in its first spell, was taking almost all the countries in the world by utter surprise. The preparation of most of the countries was pathetically poor. People started falling victim to the pandemic which started to spread like wildfire. The economies of most of the countries tumbled down and for the entire period of devastation, while the GDPs of most of the economies were finding themselves within the negative zone, factors like the rise of unemployment, contraction in demand mainly due to tapering of most of the people's purchasing powers, migration of workers seriously impacting manufacturing as well as self-economic conditions and closure of several industrial units were firmly dominating the economies. People became concerned more with saving their lives from that outbreak than their livelihoods. Almost all the industrial units compromised on their production and productivity. With people's purchasing powers getting impaired very fast, there was a "demand slow-down" inviting serious threats to the survival of the business concerns. The efforts to improve upon the position of liquidity also failed to see satisfactory results. India at that point of time had a reason to console itself on its economic front - which was: even the economically most advanced countries in the world were within the firm clutch of the negative territory of GDP for the same period as that of India.

Gradually, the first wave of the pandemic eased down.

That devastating outbreak taught the countries the lesson to be in preparedness for combating any further outbreak. Most of the countries got themselves prepared accordingly fearing that any recurrence of such devastation, besides taking a heavy toll on lives once again, would cripple their economies beyond easy repair in a short duration of time. China took the lead in the recovery of the economy in the first quarter of 2021 with a record annual growth rate. That, however, has not made the people forget the jolt that they received so long the growth of the country's economy was languishing in the negative zone during the first wave of the COVID-19 pandemic. It was also cautioned that another very dangerous effect of the post-COVID-19 situation might be in the form of growing differences in earning amongst the people with the resultant rapid increase in the growth of the numbers of poor people in the countries. In the case of India, this does not need any elaboration and that the Indian economy was not likely to make a V-shaped recovery, is evident. Rather, I must say, we should not be unhappy with a U-shaped recovery which was my contention. While in the event of improper management of the situation that there was a possibility of even a K-shaped recovery instead was also my comment and I came out with that apprehension even in this esteemed daily so many months ago. To take care of the period beyond this COVID-19 onslaught, the position of investment demand in the country requires urgent relooking.

That the COVID-19 pandemic cannot impede arriving at their economic goals has been proved by countries like China and the USA by now. As reported, China's GDP leapt 18.3% year-on-year in the first three months, the fastest rate since records began in the early 1990s. Even though the numbers came on the back of a low base as China's economy had slumped by 6.8% in the first three months of 2020, yet the most noteworthy feature was in that GDP growth, the economy received a boost by strong demand at home and abroad with continued government support for smaller firms. China's subsequent ability to contain the deadliness of the coronavirus cases and a frenzy of industrial production has resulted in its GDP growth which surpassed its pre-pandemic rate by the end of the last year. Thus, in the global economy, China has benefitted by being the first major economy to come out of the lockdown perils, although the USA is also showing a very satisfactory trend of economic growth which has been boosted amply by the Biden administration's $1.9 trillion fiscal stimuli. Therefore, the US economy is also on the path of rapid recovery to regain its pre-pandemic level of output in the first half of this year. Even in the pre-pandemic period, China was occupying a very influential position in the world economy- this rapid recovery surpassing earlier achievements in all likelihood, will take the position of China into a further height in the world economy. America, as I have already mentioned, has also taken that challenge with utmost priority. The IMF has already made the forecast that by 2024, the US will be one of the few major economies to be bigger than it would have been if the pandemic had not taken place. The most salient feature of the economic progress of those economic powers is global expansion. While the next wave of COVID-19 has already set on in so many countries and to a very severe detriment and suffering of India, the statement of Liu Aihua, a spokesperson for the NBS in a briefing regarding the economic turnaround of China mentioned: "We are confident that the current recovery trend will continue throughout the year" is having a great meaning for the other economies in the world.

True, it is no denying the fact that if we look at the devastation of the first spell of COVID-19, we shall find that it swept across all the countries in the world, but the data will also reveal clearly that India has not just slowed down, it has lost its rank also! The NDA government in power at the Centre, is already under commitment to make India a $5-trillion economy by 2024-2025. But India has been caught in a very precarious condition by the second spell of COVID-19; while, as predicted by so many experts, the third spell of COVID-19 is looming large on the country. As it is, the country was not recovering satisfactorily from the deep economic slowdown: on so many fronts like the growth of unemployment, the great downturn in demands in the market, and liquidity crunch etc. the economy suffered beyond common people's imagination. In the process of economic recovery, unless investment demand is healthy, the long-term objective may be severely affected. Alleged lack of preparedness of the country to confront the prevailing second wave of COVID-19 has become very costly both for human lives as well the country's economy. That the economy is languishing and the death toll is increasing almost every day in the country which the relevant statistics reveal is to our great despair. Lockdown spells in so many states and union territories are not only affecting them but the entire country as well. Amidst that, separation of labour has created problems both for the management and the employees- for the management by hampering production, and for the employees, by the creation of fresh unemployment: the number of which according to a reported estimate up to April 2021 was more than 70 lakh in this prevailing period of the second spell of the COVID-19 pandemic.

Recovery of the economy may seem to be satisfactory while the historical lows during the first spell are taken into consideration being the basis for comparison for the achievements starting the financial year 2021-2022. But, according to me, in any analysis of economic activities, more specifically from March 2021 onwards, instead of a year-on-year comparison, comparisons should be done with the pre-pandemic years to avoid a low base effect. Therefore, out of analysis on a year-on-year basis, the industrial performance measured by IIP i.e. growth of 22.35% in March 2021 and fabulous growth claim of 197% in merchandise exports in April 2021 are, according to me, not fair. Rather, this IIP figure of March 2021, in comparison to the IIP figure of March 2019 reveals a contraction of 0.5% instead. In comparison to the pre-pandemic merchandise export performance level, the merchandise export figure of 2021 shows an improvement of 16% instead i.e. much lower than 197%. I am not keen to consider export volume increase as a strong indicator of economic turnaround while industrial activity slowed due to domestic headwinds with repeated jabs on the unorganized sector as we have observed from the beginning of the COVID-19 first spell till now and now when the second spell is in full swing of its destruction. Therefore, the government, in its efforts to give shape to its vision of making India a $5 trillion economy by 2024-2025, must address the sufferings of the unorganized sector on top-most priority as a proactive move towards remedying the deficiencies in both consumption and investment demand. Looking at what the country derived out of the already implemented corporate tax cut, any belief that the Trickle-Down Theory may pay dividend instead of the government's taking serious care of the unorganized sector, to me, will be aiding a K-shaped recovery instead.

I beg to differ from those who find satisfaction at the economic progress because of the increase in export volumes in the post-COVID-19 first spell, while domestic consumption demand and liquidity are yet to be satisfactory. However, an increase in the volume of export is appreciable. Let us not forget that both are different domains and both require different strategies to deal with them with the domain of export being too dicey because once any international market is captured from India by any competitor of India, it will not be easy for India to reclaim it once again in future. There is an intensification of that apprehension as India has lost its pre-pandemic global position, but at least two global economic powers in the world namely, the USA and China are making a strong comeback having mitigated the shock of the second spell of COVID-19 successfully also looking at expansion of the international market. In the same vein for the country's economic prosperity, I, therefore, assert the indispensability of meaningful consumption demand and liquidity growth with the growth of the export curve.

A few days ago, I went through an article by Observer Research Foundation wherein apprehension was expressed by the writer of the article, Mr Siddharth Rathore regarding the K-shaped recovery of India in the post-pandemic period. The most crucial issue is the problems living persistently with the concerns under the unorganized sector compelling a number of them for closure thus rendering crores of people jobless; and, for those units which are on oxygen, before showing any satisfactory sign of recovery, the second wave of the pandemic has inflicted the next jab on them. I also came out with similar apprehension and at least in two of my publications in this esteemed daily, I expressed that fear unambiguously. Let us not forget that if that happens firmly, so long the diseases are not remedied, domestic consumption demand in India will not show any satisfactory upturn even though with great disparity in the distribution of wealth, the GDP figure may be lucrative to project before the world. Immediately preceding the onslaught of the first wave of first COVID-19, the economy of our country was not healthy enough, but yet, instead of doing statistical juggleries, based on the pre-pandemic figures being the bases, if the country does not show improvement in all the sectors of the economy meaningfully, the challenge that some of the leading economies in the world will overshadow our achievements by their several times greater achievements than ours.

Now, the position is such, with the prediction of GDP increase to be around 1.3% in the last quarter of 2020-2021 as revealed by SBI research report 'Ecowrap' and squeezing of the Central government's job hiring by 27% and the State governments' job hiring by 21% thus reaching the lowest levels at least three years in the fiscal year 2020-2021 as per the payroll data of the NPS, according to me, the trend of the economy does not augur a satisfactory turnaround, at least shortly.