Year end Challenges to Economy
Prof. Lallan Prasad
Economy is recovering with lockouts lifted in most parts of the country. Festive season has given a boost to demand, manufacturing indices are going up, auto industry which has been depressed since last three years has picked up with demand of passenger cars and motorcycles rising, GST monthly collection has crossed rupees one lakh mark, forex is at all time high, corporates are showing profit and stock exchange is having a bull riding. Kharif crop has been good due to favourable monsoon, there is no food shortage.Economy is expected to contact by 7.5% due to Covid shock as per RBI in current year as against its own forecast of 9.5% only two months back. It is expected to rebound to grow by 7.9% in the coming financial year as estimated by the Organisation for Economic Cooperation
and Development (OECD) which predicted the world economy’s return to pre- pandemic growth level by the end of next year.
Over all economic scenario however, is not yet rosy at the end of the year. The recovery is uneven. The latest consumer confidence survey of November shows that more than half of the respondents continue to report a fall in income and employment. Rich have escaped the worst
effects of pandemic, but poor not yet. Economic inequality has risen further. Salaried workers constitute top layer of over 350 million workers in the economy. Non salaried which constitute the bulk were more affected. Similarly large businesses were less affected than the small and medium due to lockouts during pandemic. The gulf between haves and have- nots has increased. Inflation has crossed two digit mark, inspite of good winter crop food prices especially of
vegetables, fruits, milk. meet and fish rose because of disturbances in supply chains and transport bottlenecks. This has put pressure on household budget. Further non food, non fuel components of consumer price index basket has also been rising during the last few months. This has resulted into RBI not changing the rapo rate to make loans cheaper for giving boost to domestic investment and consumption. Economic revival in most countries may increase demand for crude which will further fan the inflation.
Domestic investment problem persists inspite of the fact that economic revival is in sight.
Companies have been showing profit though sales has not been growing in that proportion. One reason may be the cost control especially reduction in manpower cost. New recruitment’s are limited while retrenchment have been heavy during lockdown. Large majority of migrant workers have returned to cities though not all are placed. Only 10 industry groups out of 23 has so far breached February 2020 production level. Contraction of primary goods continues and growth of
intermediate is marginal.
Recovery in services sector is also uneven. International flights being limited due to restrictions because of pandemic, foreign tourist arrivals are negligible. Tourism gives employment directly and indirectly to large number of people. Unless tourist arrivals increase job opportunity in this
sector will be limited.Catering and resturant business are reviving as restrictions have been eased. Banking and finance services are recovering fast. E-commerce is thriving which is notemployment intensive while reality sector which is employment intensive is on very slow recovery path.
The Year 2020 has been one of the worst in the last hundred years both in terms of economic and human life losses due to COVID19 pandemic. Most countries are struggling to come out of this tragic situation, hope 2021 will heal the wound with the arrival of vaccines.