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India, Specially Eastern States, Stare at an Economic Apocalypse

India, Specially Eastern States, Stare at an Economic Apocalypse

While some major policy failures have engineered a gradual economic disruption, the COVID19 pandemic has made the slide faster and chances of recovery much slower

The two paper mills in Assam have been shut since 2015 and 2017 respectively and the employees have not been paid for the last 41 months at least.

At least 67 workers have perished meanwhile.

The state’s poverty level will touch 50 per cent and  several thousand youths will lose their jobs soon.

In West Bengal, about 200 small and medium industrial units between Barrackpore and Howrah on the national highway shut down at 5pm on March 23 when the state went indoors to contain the spread of corona virus, two days before India shuttered for three weeks.

Sikkim has closed its borders till October this year to help avoid a COVID flare-up; so its hotels are practically dead, and tourism, the state’s mainstay in economy, is comatose.

In Arunachal Pradesh, the opposition Congress party is trying to build political capital, by launching the Unemployment Register due to a steep slide in employment.

The political move has received support from the state’s youth.

These are part of glimpses of what the states in the east are going to face over the next year or so.

But the much larger picture across India is even more terrifying.

An unprecedented contraction and a pandemic-induced slowdown have been wreaking havoc in Indian economy.

India is headed towards its maiden annual contraction since the Independence, with the gross domestic product shrinking by nearly 24 per cent in the April-June 2020 quarter alone.

And the gap between revenue and expenditure (Rs 8.21 lakh crore)  coupled with the continued spike in contraction , could terribly affect the Indian economy in the next few years, economists apprehend.

If India needs to shake off the corona virus gloom, the policymakers are required to take much bolder steps to avert a deeper recession in the next couple of years.

The rate of contraction is revealed in the data released by the India government’s ministry of statistics and programme implementation.

India’s factory output grew in August for the first time in five months, but the economists hardly expect a quick turnaround as mobilisation of cash in the market will take much more time than expected.

 

India’s fiscal deficit has already breached the full year’s target in April-July.

The figure of the fiscal deficit which has touched 103 per cent of the budgeted expenditure during April-July 2020, is available in the website of the Comptroller and Auditor General (CAG).

That India has plunged into its worst phase of deceleration ever, courtesy the pandemic, is confirmed.

The GDP growth which had been going down even before the pandemic, has only embarked on a steep downhill journey since clamping of the lockdown in end of March.

India’s urban unemployment rate and overall joblessness climbed up in August, reflecting a worsening jobs’ environment in the formal sector and saturation in the farm sector.

The promise of generating 10 crore jobs every year bombed and the government shrugged its shoulder with Home Minister Amit Shah stating that the ruling party had promised to ‘prepare’ 10 crore youth for jobs!

 

The Factors

Policymakers blame it on a number of factors. That Indian economy has been grappling with a vicious cycle of slowdown before the pandemic is well-known.

The pandemic induced lockdown has only injected a rare speed in the downturn process.

Business and manufacturing activities have almost stalled. Farm and factory output have dwindled like anything.

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As the consumption level drastically contracted in the wake of hundreds and thousands of job losses, the government has suffered unprecedented loss of revenue following closure of rail, air and road traffic for a prolonged period.

Even though the government is trying to revive some business activities through graded measures of unlock, fears of a resurgence in infections in some key sectors are discouraging firms from boosting capital expenditure.

“In most major economies except for China, factories are still running well below pre-pandemic capacity levels,” said Dipankar Dasgupta, a Kolkata-based economist.

“The recent recovery shown in some data, is largely due to pent-up demand after lockdown measures have been lifted. But this will dwindle ahead,” Dasgupta said.

A majority of economists are wary of a spurt in demand that could boost growth. Because people, irrespective of categories, are not earning enough to spend.

India’s factory output grew in August for the first time in five months as the easing of lockdown restrictions spurred demand.

But the economists hardly expect a quick turnaround as mobilisation of cash in the market will take much more time than expected owing to this prolonged shrinkage of business.

If one goes by simple statistics, India’s fiscal deficit has already breached the full year’s target in April-July.

The revenue deficit itself currently stood at 117 per cent of the budgeted target of Rs 6.09 lakh crore.

Even as the analysts broadly agree on a point that the pace of contraction might ease in subsequent months, a near collapse in investment demand might have a severely adverse implication for future growth potential of the economy.

At the moment, it is only the government expenditure which has been acting as a counter-cyclical force to some extent.

A much grimmer picture awaiting the Indian economy in the next couple of fiscals, will not augur well for the government.

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