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The global economy has been reeling under the effects of the ongoing Covid-19 pandemic for more than a year now. If we look at the data for GDP growth rate, India’s gross domestic product (GDP) recorded a contraction of 7.3 per cent for the fiscal year ending March 2021. The economy witnessed a recession after almost four decades. As per a recent survey conducted by The Confederation of Indian Industry (CII), the Indian economy might recover swiftly despite the impact of the deadly second wave of the pandemic. Unlike last year, it was not a complete shutdown of the economy, which helped in the limited impact of the second wave on economic growth.
The state of employment
One of the biggest challenges facing the Government in India is the problem of job creation. According to the survey conducted by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India peaked at a high of 23-24 per cent in the fiscal year 2021, with additional 10 million people losing their jobs due to the second wave of the pandemic. The data also revealed that around 97 per cent of households’ incomes have declined since the onset of the pandemic. Out of the total labour force comprising about 40 crore people in India, more than 12 crore people lost their jobs leading to the number of employed reducing to around 30 crores within a month or two. Though the Covid-induced lockdowns affected the total labour force, the informal workers were the worst affected.
The industry outlook
The CII’s poll with top corporate leaders of India showed a positive outlook for the economy. Around 60 per cent of the CEO’s participating in the survey confirmed that they had to curtail their operations during the second wave. However, they expect a better recovery in their sales than the first wave, with vaccination being the key driver of reducing the impact on the economy. Almost 55 per cent of the employees of these firms have received their first dose of vaccination.
Regarding consumer sentiment, 49 per cent of the CEOs anticipate better consumer demand in the first half of FY 2022 compared to the same period in FY 2020. Further, the CII stated that around 72 per cent of the CEOs expect a boost in private investments compared to the same period in 2019-20.
Exports aiding growth
According to CII, the external demand is likely to act as a growth driver in India owing to the fiscal stimulus by the rich countries into their economies and the rapid vaccination drive across major global economies. With countries such as the U.S., Europe and Canada running an intensive vaccination drive, there is an expectation of a rise in consumer demand, eventually aiding the Indian export industry.
Future growth projections for India
The rating agencies had initially estimated the GDP growth for FY22 to be in double digits but a virulent second wave has resulted in a downgrading of the growth forecasts.S&P Global Ratings has slashed the growth forecast for India to 9.5 per cent from the initial 11 per cent. The Fitch Ratings has cut down growth rate expectation from the earlier 12.8 per cent to 10 per cent now.
Easing lockdowns by states help in providing some economic relief but, there is a looming threat of an upcoming third wave in India due to a lower than expected rate of vaccination. Nobody can firmly predict the shape of economic recovery in the current uncertain scenario. Hence, a massive vaccination drive is a primary factor that can aid the revival of the economy.
This article has been written by Khanak Sharma for the Paradigm.
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