International rating agencies have painted a gloomy picture of Indian economy, projecting a deeper contraction than previously estimated.
They fear a contraction of up to 12 per cent for the entire financial year 2021, a significant increase from 5.3 per cent shrinkage earlier expected.
These projections followed the release of shocking official GDP data of the quarter ending June — a contraction of 23.9 per cent primarily blamed on the pandemic, a comparatively worst performance by any country battling the health crisis.
Given the uncertain economic environment and growing Coronavirus cases, it is hard to say how the economy will behave in the coming months. Mounting job losses in organised sector may deepen this crisis as consumer spending dips, slowing down demand and hurting businesses further
The economists are divided on the exact cause of poor performance. A section believes the downward slide is a continuation of economic mismanagement preceding the Coronavirus crisis.
Others say the latest crisis is solely because of disruption of economic activities in organised and unorganised sectors as the country had to be shut down to save lives. They also argue that the loss of one quarter is unlikely to significantly dent the overall performance.
Whatever is the cause, one thing is clear that tens of millions of jobs have been lost and the salaried class is taking a big hit. Small businesses have either shut down or struggling to survive while the large companies have introduced painful salary cuts and reducing headcount just to survive.
The coming months are likely to remain painful as the pandemic continues to spread in cities and rural hinterland.
However, the slowness has not prevented foreign investors from pumping money into the stock markets. Just in the month of August, they poured in a whopping $6 billion into shares, an encouraging trend given the fact that other economies in the region have witnessed a reverse flow of foreign money.
India’s ability to give healthy returns
This shows that foreign investors continue to have faith in India’s ability to give healthy returns to every dollar they invest. Two, after the painful lockdown, small green shoots are visible as businesses resume operations, malls and metros reopen and the country’s pandemic response becomes less disruptive.
Still, given the uncertain economic environment and growing Coronavirus cases, it is hard to say how the economy will behave in the coming months. Mounting job losses in organised sector may deepen this crisis as consumer spending dips, slowing down demand and hurting businesses further.
The scope for direct intervention by the government is limited given the massive shortfall in tax receipts. The only option is to borrow heavily and pump money into the economy by boosting liquidity of banks, extending moratoriums on corporate and retail loans and by placing money directly into the hands of consumer.
This will boost spending and help shore up businesses that are struggling to survive.