While the recent GDP numbers for the fourth quarter and 2020-21 paint a dismal picture of the recovery and the long-term effects of COVID-19 on the economy, these numbers show the slow pace of the recovery and the economic impact of COVID-19 in the first year of the pandemic. However, while a marginal growth of 0.5% from the third quarter of 2020–21 to the fourth quarter of 2021 may provide a small amount of comfort to policymakers, the positive signals are so insignificant that it won’t make a noticeable difference.
Despite the overall revival of both private and government consumer expenditures accounting for 55% and 10% of the overall demand in the economy, the slow 0.8% growth in private consumption in the fourth quarter of 2020–21 was due to the persisting demand deficit in the economy. Due to the pickup in investments, investments across fixed capital and valuables have both lengthened. Because investments in valuables have nearly ten times the growth rate of investments in fixed capital, it is commonly believed that such investments grow tenfold. Investment and consumption demand, which are both currently highly skewed, further underscores the fragility of the nascent recovery.
While it looks like recovery in the fourth quarter of 2020–21 will only take place in sectors like construction (14.5 percent), utility services like electricity, gas, and water supply (9.1 percent), manufacturing (6.9 percent), and financial, real estate, and professional services (18.9 percent), the supply-side numbers also show that recovery in the fourth quarter of 2020–21 is more significant for sectors like construction (14.5 percent), utility services like electricity, gas, and water supply (9.1 percent), manufacturing (6.9 percent), and financial, real estate, and professional services (18.9 percent) (5.4 percent ). However, while GDP (Gross Domestic Product) grew in both trade, hotels, transport, and communication, it fell in mining and quarrying. While on the other hand, the agricultural sector’s 3.1% growth comes on top of a much larger 6.8% gain from the previous quarter and thus is very impressive.
Although the marginal gains in the third and fourth quarters could not significantly impact GDP, which decreased by 7.3% in 2020–21, it is still possible that these marginal gains will help generate an increase in the number of jobs in the country over the next several years. As a result, the per capita real income fell by an 8.4% on average, while the per capita private consumption declined by a 10.1% in real terms.
In 2020–21, total private and government consumption expenditure, as represented by annual demand-side or expenditure-side numbers, experienced contrasting trends. As for the slight 2.9% increase in government consumption, it wasn’t nearly enough to make up for the 8% reduction in total private consumption. Additionally, capital investments decreased by over ten percent, while investments in valuable increased by one and a half percent. Investment and consumption data once again reveal a sluggish economy.
Even though the national government took a big hit on the state economy, it has yet to provide any relief packages for the worst-hit states. A more accurate number for the number of COVID-19 vaccinations administered is still missing in a number of them. Numbers so far in May show that out of the most affected states, only three have managed to boost vaccination rates above 2 lakh per million: Delhi, Kerala, and Chhattisgarh. However, in Andhra Pradesh and Tamil Nadu, it is only around 1.5 million and 1 million vaccinations per million residents, respectively, while in Uttar Pradesh and Maharashtra, it is yet to reach the 1-million mark.
In addition to these, other large states with vaccination rates under one million are Bihar, Madhya Pradesh, Assam, and Jharkhand. This is a huge threat that can torpedo any realistic hope for sustained economic growth regardless of the government’s successful or unsuccessful efforts to shape the macroeconomy. A significantly accelerated vaccination rate is required in this current context to reduce the intensity of the disease and save lives while also making people accessible to employment. Unfortunately, however, the country has thus far been unable to procure adequate quantities of the required vaccines, and therefore has not been able to increase vaccination rates.
Worst of all, the millions who have lost their source of income don’t receive any assistance, and are forced to choose between going hungry or re-entering poverty. There is only one possible way the government can meet the need for more funding to accelerate vaccinations and provide a universal basic income to the needy: providing a large supplementary package of funds. This will increase demand, and doing so is both appropriate public policy and good economic policy at this time.