Given the mayhem and uncertainty unleashed by covid 19 on India’s healthcare sector, the second wave of the pandemic has a high potential to jolt the economy much harder than what was being anticipated earlier. Sectors which were bruised immensely during the first wave, namely retail, hospitality, tourism and aviation, will be even more badly crippled during the second wave. The reason for high contraction in the economy at the moment can be attributed to the lockdowns being imposed by more than two-thirds of the states in the country.
States like Karnataka and Delhi have imposed a full lockdown for two weeks and other states might follow their suit to curb the virulent nature of the despicable Covid 19.
Given the stringent lockdown at place in various states, many well-to-do households, amounting to roughly 250 million, have been impacted by Covid. This in turn could hurt consumption demand in the economy, albeit temporarily. Also, the second wave has emphatically affected the rural areas and could lead to demand staying suppressed for a few months.
According to the reports, the economy, at the moment, is somewhat sluggish. It is to be noted that growth in the service sector is particularly receding, thus this will have an impact on the direct consumption of the households. But it is to be also noted that demand for both goods and services should bounce back around September as the festive season in India begins. The pattern of consumption in India can unfold the same way it did last fiscal, where the pent-up demand was responsible for the revival of the economy. Additionally, savings, at least in the form of bank deposits, are growing, indicating either to one of the two factors— the inability to spend or extreme caution.
picture credits- the financial times
As it has been already reported, due to pandemic restrictions imposed last year, household savings rose all around the world. As people were forced to remain indoors due to the stringent lockdowns placed in the economy, there was an unlikely winner in the pandemic-ravaged year, household savings, which, according to a report, rose to 22.5 per cent of GDP from 19.8 per cent in 2019.
While, according to reports, the balance sheets of various companies in the organized sector would be affected very slightly but lakhs of small enterprises, in the informal sector, can once again be in deep distress and many can even go extinct.
It is to be noted that joblessness is already running high. The CMIE data has showed that the unemployment rate has hit 8% and additionally ten million salaried persons have lost their jobs. In a blow to the Indian economy, as per CMIE’s data, it was reported that urban unemployment in India had been recorded at 7.21% on April 4 which jumped to 9.81% for the week that ended on April 11 and further to 10.72% for the week that ended April 18.
Thus, it can be rightfully stated that the unemployment rate in urban India has been on the upswing since the beginning of April.
Moreover, according to researchers at the Azim Premji University, a large number of workers have found work again, after having lost them in the first wave, but the remunerations being paid to the workers is much lower. The monthly per capita income, in October 2020, for an average household of four members was a fifth lower than what it was in January 2020, at 4,979.
Thus, joblessness and reduced income of households and labor means plummeting labor’s share of GDP, dropping from 32.5% in Q2 FY20 to 27% in Q2 FY21. The demand for jobs in April under MG-NREGS, both at the household as well as the individual level, has been the highest compared with any previous April since 2013-14. Unfortunately, fresh capex is unlikely in big measure for a few years, which will be a dampener on job creation in future.