Sustainability of economic recovery a challenge : The Tribune India

Sushma Ramachandran

Senior Monetary Journalist

Excellent news is available in small doses these days. The newest information for the third quarter (October to December) of 2020-21 reveals gross home product (GDP) progress of 0.4 per cent indicating that the economic system is lastly on the upswing.

The total 12 months will nonetheless finish with a contraction of 8 per cent, increased than the sooner prediction of seven.7 per cent. Even so, it seems the economic system is clawing again to normalcy slowly. There’s an inherent fragility, nevertheless, within the information regardless of the sudden spurt in some sectors like building, monetary providers, actual property and even some motion in manufacturing.

It appears to be like like a V-shaped restoration at first look, however may conceivably disappoint, if optimistic indicators don’t deepen within the subsequent few quarters. One of many largest uncertainties is the lack of know-how concerning the casual sector which isn’t adequately captured within the official information. This space has been hardest hit by the pandemic and would have been struggling even within the third quarter which has proven a return to optimistic progress.

The opposite section that’s persevering with to face ache is journey, tourism and hospitality. The info reveals a contraction of seven.7 per cent on this sector, a slight enchancment from the 15 per cent decline within the earlier quarter. There has visibly been some enchancment within the restaurant and resort enterprise from December onwards, however that is solely relative to the entire shutdown of the earlier months. Many resorts that depend on overseas vacationer occupancy are persevering with to see vacant capacities, although most are resorting to reductions for the staycations which can be a lot favoured now by millennials.

The sector was a letdown within the Funds as effectively. The pre-Funds hopes of a particular package deal for journey and tourism did not materialise at a time when the business wanted help in an enormous manner. This can be a massively labour-intensive sector and the tepid revival to date has meant persevering with lack of livelihoods for thousands and thousands, together with migrant employees.

The Centre for Monitoring the Indian Financial system (CMIE) has precisely captured the influence of such job losses in each the city and rural economies in its latest research. These present an unemployment fee of 6.9 per cent for February, rising from 6.53 per cent within the earlier month.

Hospitality and journey are additionally among the many sectors which can be prone to revive shortly in case the present vaccination drive is successful. Actually, all the strategy of financial revival is critically depending on the effectiveness of the vaccination programme and, in flip, the prospect of herd immunity. It might not be an element affecting the ultimate GDP progress information for 2020-21, which might be accessible in Might this 12 months, however it should have a major influence on the present fiscal.

In a pandemic 12 months, one should transcend the same old parameters to foretell financial progress. The influence of Covid and whether or not there might be one other surge in March and April needs to be taken under consideration. Mass vaccinations are thus sure to play a job in financial restoration.

The opposite key aspect within the progress course of is the gas costs and resultant inflationary pressures. The federal government took benefit of the collapse in world crude oil costs final 12 months to lift excise duties. It will be troublesome to fault such opportunism at a time when different income sources had dried up owing to the lockdown. Apart from, there was no change then in shopper costs of petroleum merchandise owing to low base charges.

Now issues have modified. Worldwide oil markets are exhibiting a hardening pattern with demand rising and inventories having been drawn down. The Saudi Arabia-led OPEC is continuous manufacturing cuts in tandem with different main producers like Russia to make sure that costs proceed their upward pattern.

India, because the world’s third largest oil importer, now has the dual worries of a mounting oil import invoice in 2021-22 and the prospects of upper inflation because of the pass-through impact of enhanced gas costs. There’s additionally appreciable public outrage over the retail costs of petrol crossing Rs 100 per litre.

A extra holistic, long-term method to useful resource mobilisation must be taken proper now on the oil entrance. The federal government should lower excise duties on oil merchandise to cut back the burden on the buyer as additionally to minimise the cascading impact on the economic system. Inflationary pressures will construct up quickly owing to excessive gas costs regardless that value rise has to date been contained at round 4 per cent. Industries are already gearing as much as elevate costs throughout the board to take care of the influence of hovering gas charges.

The fragile financial restoration may simply be derailed by a push to inflation at this delicate juncture. So, it will be sensible economics as additionally politics for the Finance Ministry to chop excise duties to extra affordable ranges. States which have equally been milking oil merchandise by levying excessive taxes additionally must pause and formulate extra rational insurance policies.

One of many plus factors rising, nevertheless, from the third quarter information is the upper progress within the building in addition to actual property sectors. This augurs effectively not only for the event of infrastructure but in addition for employment as these financial segments have all the time been drivers for financial progress. A lot will rely, nevertheless, on the expansion of presidency expenditure within the fourth quarter because it must choose up tempo in comparison with the primary half of the 12 months.

And eventually, the marginal restoration has but to be mirrored in small and medium enterprise enterprises that are nonetheless in hassle. The manufacturing sector revival of 1.6 per cent is extra the results of giant enterprises getting again to full operations. Smaller models are nonetheless ready for a much bigger pickup in demand. That is once more a labour-intensive space and the sluggish tempo of restoration means persevering with job losses.

The third-quarter efficiency has thus proven the economic system is out of the trough. However whether or not it should get again to a rising path in a sustained manner is a query depending on a number of things, together with the progress of Covid-19 and the destiny of the vaccination programme.