Bring back Indian Economy on Track

According to the Indian government, the country’s economy shrank by 7.3% in 2020-21 and the Reserve Bank of India (RBI) predicts it will expand by 9.5% in this fiscal year. Even though output has dropped one percentage point short of our initial forecast, if it increases, we will still surpass 2019-20 levels of output. The case for optimism is based mainly on the favourable conditions of 2018 including less restrictive commercial activity, commercial activity better able to adjust, and a general hope for a turnaround once our infection curve declines.

The first quarter of 2021-22 is lost to the pandemic because of the flu outbreak of last year. On the other hand, how the following quarters turn out will heavily depend on whether Sars-CoV-2 holds any nasty surprises. Because of our budgetary woes, policy response has been sluggish, and our trust in risk estimates has been severely shaken. These dire consequences will soon be felt, and lives, livelihoods, and other trade-offs will have to quickly adapt to a Delta-wave scenario of exposure to a worse variant.

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The cost of complacency seems to be higher, while the likelihood of a demand revival looks somewhat dimmer. Such uncertain times require the implementation of state stimulus, whether in the form of tax cuts or other forms of monetary policy, to aid in the economic recovery. The long-term impact of the second-wave slump is being evaluated.

Manufacturing activity was less active in May, but avoided a contraction. The consumer confidence survey by the central bank showed that consumer sentiment for the year ahead had entered its pessimistic zone. The sale of cars, electronic way-bill generation, and the collection of GST/HST all have slowed. Clearly, conditions for the unemployed and other groups have worsened. The Union budget for 2021-22 was released on 1 February, but it now looks like a return to normalcy rather than a reliance on a vax shield will help the pull-through occur.

Urban clamps will need to be tightened once again, as well as rural areas defended from infection, and new safety lines will have to be drawn. In order to move in fits and starts, an economy haunted by codependency can exist. In addition, the amount of demand the Centre needs to support has increased. The supply-side easing that has been done is abundant, but more accessible credit will not replace the impulse a fiscal stimulus could provide when it is needed. Last year, spending was ramped up near the end of the year. This year, the annual budget needs to be revised immediately in response to a changed perspective.

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When it comes to trying to help those in need, much larger initiatives must be undertaken, even as rescue missions for the needy and state projects are mounted. Even if tax receipts remain sluggish, the deficit target will likely not be met because of it. In that case, the budget should be revisited anyway. The Centre must bear the brunt of this effort to prop up our economy. The present time would be a good time to put forth a fiscal initiative.

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