The second surge of Covid-19 in India has already overburdened the health- care system and is expected to drastically affect the Indian Economy. Just as the current Indian health infrastructure is proving to be inadequate in preventing the tsunami of the Covid-19, in the same way, this is also going to halt the recovery process of the Indian economy which has been already affected due to the first blanket lockdown. It had already propelled the Indian economy into a deep recession. Even a sizeable economic package of Rs. 20 lakh crore proved insufficient in restabilising the Indian economy. The Indian economy had contracted at the rate of 24% in the first quarter of 2020-21.
After a nationwide lockdown, when the Indian economy started to pick up again, it failed to gain desired results. Even in the September quarter, the rate of contraction was – 7.5%. However, eventually, the Indian economy started showing some improvements. It had witnessed some positive results at the end of the last financial year. For example, in February and March, the GST collection was more than Rs.1 lakh crore. In February, the total GST collection was Rs. 1,13,145 crore, and in March, it reached its ever highest Rs. 1,23,902 crore. The PMI (Purchasing Manager Index) also shown significant improvements. The PMI has been above 50 from January to April, indicating the expansion of the economy. PMI was 57.7 in January and 57.5 in February. But with the cruel second surge of Covid-19 cases since March and subsequent lockdowns by some state governments, PMI has shown a slight decline. The PMI index has come down to 55.5 in April.
Presently, there are two significant challenges in front of the Indian economy. The first is the lockdown imposed by the states in different states throughout India to prevent the Covid-19 virus and the declining confidence of the Indian consumer in the economy. Lockdown is the need of the hour. Even a highly organised nationwide lockdown is needed to break the virus chain. Yes, it will result in economic distress, but now life is more important. But the second biggest problem is ‘People trust in the economy’. This is the area where the government must look to reduce the broadening trust deficit. The foundation of any economy is the trust of consumers. When consumers have confidence in the economy, they do not hesitate to spend even after taking loans. Because it is expected that shortly more income generation opportunities will be created and they will be able to continue the process of consumption. But if he is apprehensive about the economy, he will afraid to spend his accumulated capital too. He feels that the present time is not to spend but to accumulate which ultimately proves to be highly harmful to the economy.
Currently, the consumer confidence index of the Indian economy has dropped. According to the RBI data, the confidence index of the Indian economy has come down to 53.1 in March 2021 from 55.5 in January. This means that since the second wave of Covid-19 has surged, once again, consumers’ confidence is falling in the economy.
What should be done to reduce the impact on the economy?
At present, a nationwide lockdown cannot be figured out even though it will have serious economic consequences. But the central and state governments can reduce the economic impact of the second wave at their level. This can be done through a well-planned economic package. This time country needs an economic package that is demand-based and must be able to bring the consumer into the market. The biggest drawback of the previous Rs. 20 lakh crore economic package was that it was a supply-based package, while the problem in the economy was demand-based. This package must focus on those aspects which directly affects the consumer. There should be a big cash transfer scheme in it. The weaker section of the society must be provided with a basic income. When the government gives direct money in the hands of the people, then the people’s confidence will remain in the economy. People will spend in the market and demand-side problems can be corrected. Always remember that the most prominent tonic for the economy is “trust”. If it stays strong, then investors invest, consumers spend and eventually economy prospers.
(Writer is a Student of M.Com at Faculty of Commerce, BHU and Founder and President of FETC)