The daunting impact of COVID-19 has drastically impacted the growth trajectory of Indian economy, which decelerated to (-) 7.3% in FY 2021 as compared to the 4% in FY2020. However, the meaningful and proactive reforms undertaken by the Government in last many quarters have pulled the economy from the lows of Q1 FY 2021. The GDP growth recovered in Q4 FY 2020-21 at 1.6% as compared with 0.5% in Q3, (-)7.4% in Q2 and (-) 24.4% in Q1, thereby taking the overall growth rate for FY 2021 to (-)7.3%.
The growth rate of (-) 7.3% in FY 2021 is not a matter of serious concern as the low economic activity was mainly due to the stringent lockdown of 2 months in 2020 to contain the spread of virus whereas, this statistical low base effect was expected to provide a good opportunity for India to attain a double-digit growth trajectory in FY 2022. However, the second wave of coronavirus has fully engulfed the country, with record new cases, active cases and deaths. Coronavirus-induced restrictions in the country have created a difficult time for the trade and industry.
The trade and industry have been impacted in four major ways; first being the partial/complete lockdowns in many States; second being the labour shortage; third is the skyrocketing price of commodities; fourth is the depressed demand scenario. In the second wave of coronavirus, the demand is heavily disrupted unlike last year, where demand was retarded only for a period of 2 months. The reason for this can be attributed to the spread of second wave of COVID to urban areas, metropolitan areas, small cities and rural areas. Further, the economy activity and spending has diminished as households are shifting their savings towards fulfilling the medical needs of their family members along with deferment of their expenditure on non-essential items.
Many national and international forecasting organizations including OECD, UN, Moody’s, Crisil, among others, have reduced their growth forecast for India’s GDP from double-digit to single digit. RBI has also reduced the growth forecast from 10.5% to 9.5% in FY2022 in its monetary policy review of June 4, 2021. The growth forecasts may further decelerate if the substantial measures are not taken by the Government.
At this juncture, to re-build the high growth trajectory, the Government has to focus on 1) National Infra Pipeline expenditure is front loaded as private investment are not coming, 2) Government/ PSU payments must not be delayed due to Work From Home issues or shortage of funds, 3) Do away with the custom duties on the imports of primary raw materials for industrial use for at least current FY 2022 and impose export duties on various primary commodities showing huge price increases, exceeding 50% over the last FY 2021, 4) More and more direct transfer benefits to be considered for the urban and rural poor under the various welfare schemes, 5) At least 75% of the population of country needed to be vaccinated with both doses of vaccination by December 2021 to do away with the uncertainty in the economy.
A substantial stimulus to create effective strides for futuristic growth trajectory and to diminish the daunting impact of the second wave of the pandemic coronavirus on trade and industry would be crucial to support the economic momentum in this extremely difficult time. If the Government undertakes the effective steps and provides a substantial stimulus to combat the impact of coronavirus, a double-digit growth rate of more than 10% in FY2022 will be achievable as anticipated earlier by various forecasting organizations along with GOI and RBI before the 2nd wave of pandemic coronavirus.
(Sanjay Aggarwal is President, PHD Chamber. Views expressed are the author’s own.)