Indian economy, hit by Covid-19, needs its lost growth

NEW DELHI – The coronavirus continues to hit India’s damaged economy, putting increasing pressure on Prime Minister Narendra Modi to fos...


NEW DELHI – The coronavirus continues to hit India’s damaged economy, putting increasing pressure on Prime Minister Narendra Modi to foster a nascent recovery and get the country back to work.

The coronavirus, which struck in two waves, killed hundreds of thousands of people and sometimes brought cities stopped. Infections and deaths have abated and the country is returning to work. Economists are predicting growth could rebound in the second half of the year on paper.

Yet the damage could take years to repair. Economic output was 9.2% lower for the April to June period of this year than it was for the same period in 2019, according to India Ratings, a credit rating agency.

The coronavirus has essentially robbed India of much of the momentum it needs to provide jobs for its young and rapidly growing workforce. He also exacerbated longer term problems that were already weighing on growth, such as high debt, a lack of competitiveness with other countries and political mistakes.

Economists are particularly concerned about the slowness of vaccinations and the possibility of a third wave of the coronavirus, which could prove disastrous for any economic recovery.

“Progress in immunization remains slow”, with only 11 percent of the fully vaccinated population so far, Priyanka Kishore, head of India and Southeast Asia at Oxford Economics, said in a research briefing last week. The company lowered its growth rate for 2021 to 8.8%, from 9.1%.

Even 8.8% growth would be a big figure in better times. Compared to the previous year, India’s economy grew 20.1 percent from April to June, according to estimates released Tuesday evening by the Department of Statistics and Program Implementation.

But these comparisons benefit from comparison with India’s dismal performance last year. The economy shrank 7.3% last year, when the government shut down the economy to stop a first wave of coronavirus. This lead to big job losses, which is now one of the main obstacles to growth, according to experts.

Real household incomes have fallen further this year, said Mahesh Vyas, managing director of the Center for Monitoring Indian Economy. “Until this is fixed,” he said, “the Indian economy cannot bounce back”.

At least 3.2 million Indians lost stable, well-paying salaried jobs in July alone, Vyas said. Small traders and day laborers suffered greater job losses than others during the closures, although they were able to return to work after the restrictions were lifted, Vyas said in a statement. report earlier this month. “Salaried jobs are not that elastic,” he said. “It is difficult to recover a lost salaried job.

About 10 million people have lost such jobs since the start of the pandemic, Vyas said.

Earlier this month, Mr. Modi’s government decided to revive the economy by sell stakes worth nearly $ 81 billion in state-owned assets like airports, train stations and stadiums. But economists largely see politics as a move to generate short-term liquidity. It remains to be seen whether this will lead to more investment, they say.

“The idea is that the government will borrow this money from the domestic market,” said Devendra Kumar Pant, chief economist at India Ratings. “But what happens if this project comes back to a national actor and he has to borrow on the national market? Your demand for credit at the national level will not change.

Dr Pant added that questions still remained about the willingness of private actors to maintain these assets for the long term and how the monetization policy will ultimately affect prices for consumers.

“In India, things will get worse for the worse instead of better,” he said, adding that the costs for users of highways and other infrastructure could increase.

During the second wave of May, Mr Modi resisted calls from numerous epidemiologists, including Dr Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, to restore a nationwide lockdown.

The lockdowns in 2021 were nowhere near as severe as last year’s national restrictions, which pushed millions of people out of cities and in rural areas, often on foot because rail and other transport had been suspended.

Throughout the second wave, basic infrastructure projects across the country, which employ millions of domestic migrant workers, have been exempt from restrictions. More than 15,000 miles of Indian highway projects, as well as rail and urban metro improvements, continued.

On Tuesday, Dr Pant said India’s growth estimate of 20.1% for the period April to June was just an “illusion.” Growth contracted so strongly Around the same time last year, a record 24%, that even double-digit gains this year would leave the economy behind two years ago.

Economists say India must spend, if not splurge, to unleash the full potential of its huge, low-skilled workforce. “There is a need for very simple primary health facilities, primary services to provide nutrition to children,” Vyas said. “All of these are labor intensive jobs and a lot of them are government services.”

One of the reasons, Mr Vyas said, that Indian governments have generally not spent in these areas is because it has been seen as “not a sexy thing to do.” Another is the “dogmatic fixation” of governments on controlling budget deficits, he said. The government simply cannot rely on the private sector alone to create jobs, Vyas said.

The “only solution,” he said, is for the government to spend and stimulate private investment. “You have a demotivated private sector because there is not enough demand. This is what is holding India back.

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Newsrust - US Top News: Indian economy, hit by Covid-19, needs its lost growth
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