Economic fall out of the second wave of covid epidemic
By prof Lallan Prasad
The second wave of COVID 19 epidemic has proved to be deadly both in terms of loss of previous human lives and the GDP of the country. The wave started in mid February 2021 and continues, though in mild form, except in some of the states in South where it is still taking heavy toll. While in the first wave elderly people above 60 years were affected most, in the second wave the younger people in the age group of 25 to 50 had been the worst sufferers. The health system was overwhelmed throughout the country.
Government as well as private hospitals had been struggling to cope with critical drugs and oxygen in short supply. Epidemic started spreading in rural areas also where it was less predominant in the first wave. Several new variants of COVID 19 including white and black fungus were reported in the patients in large numbers. Partial lockdowns of offices, commercial and business enterprises and industries, curfews and other restrictions were resorted from time to time to control the epidemic in most part of the country. Economy is still not in the full gear. In July update to the World Economic Outlook, the International Monetary Fund downgraded India’s 2021-22 growth to 9.5% from its April projection of 12.5%, the main reason was severe second wave of covid-19 infections in the country.
Joblessness has grown both in cities and villages during the second wave. Unemployment rate soared to 7.1 4% in the week ending July 25. According to CMI urban unemployment continued to be higher than rural at 8.01%. A large number of industrial and commercial enterprises are not working in full capacity. Daily wage workers in the cities are the worst sufferers. Employees in many private offices, industrial and commercial enterprises have also been facing salary cuts and retrenchment. Most offices have started functioning in virtual mode. Fresh
recruitment is almost at stand still.
The situation at price front has been grim. Petrol prices have been skyrocketing. In May 2021 alone petrol prices rose 15 times crossing rupees hundred mark per litre in most cities in India. Edible oil prices have also jumped during the second wave. Mustard oil prices rose from Rs.118 per kg of May 2020 to Rs.171 in 2021. Prices of daily use essential commodities like vegetables, fish, meat, eggs and milk aso gone up making hole in common man’s pocket and life miserable. Cost of treatment in hospitals has gone up considerably. Corona treatment cost in private hospitals has been varying in the range of Rs.5 lakh to 25 lakh.
A large number of cases of black marketing were reported for supplying essential medicines and oxygen at very high prices when the the epidemic was at its peak during April-May 2021.
The services sector of economy particularly tourism, air transport, hotels and resturants continue to be in a state of depression due to certain restrictions imposed by the state and cautious consumer sentiment. IHS marketing data showed PMI (purchasing managers index)for June 2021 at 41.2. A figure below 50 indicates contraction in economic activity. The PMI manufacturing for June contracted after a gap of 11 months.
New orders decreased in most areas of service economy except in consumer services, transport and storage. Average input costs increased during this period due to higher transport and material costs.
Fiscal deficit which was already 9.2% of GDP widened further due to increased Government expenditure on health services and additional relief packages of Rs.6.29 lakh crores during second wave. India’s debt soared to 58.8%of the gross GDP in the fiscal year ended March 2021 from 51.6 a year ago. Moody the rating agency said in May 2021 that India’s credit profile was increasingly constrained by obstacles to economic growth, a high debt burden and a weak financial system. The Fifteenth Finance Commission has also warned of fiscal deficit at all time high during COVID 19.
A silver line in otherwise dark phase has been on international trade front.
Merchandise export and import remained robust. Also foreign investors had shown confidence in stability of Indian economy. Foregn exchange reserve is at all time high.