Ghosh Forgive my political and social impertinence but allow me to say that this battle against COVID-19 is unlike any war we have ever seen. In a war, while lives are lost, economy thrives. Manufacturing activity goes up, service industry sizzles, ports, transport, infrastructure, even agriculture thrives during a war.
This COVID-19 battle, however, has turned the world turtle. Instead of young soldiers, the older gents are dying. The entire population is in a lockdown, and almost all economic activity has ground to a halt. A recent projection by the Economist Intelligence Unit (EIU) claims India’s GDP growth rate will go down from 6% to 2.1% during fiscal year 2020-21.
China’s from 5.9% to 1% while most of the Western G20 Economies have been projected to grow negatively, with Germany’s GDP predicted to decelerate at (-) 6.8% while US at (-) 2.8%.
While the jury is still out on the exact growth rate, India tops the chart compared to many other economies – both developed and emerging – but that is little reason to cheer.
The fact remains that the Indian government’s fiscal relief during this crisis to the economically weaker sections of the society notwithstanding, it will take quite a long while for the national economy to splutter back into shape.
First things first. India’s finance minister has promised Rs 1.7 lakh-crore fiscal stimulus package to help the poor and migrants tackle the financial difficulties arising from the coronavirus (COVID-19) outbreak. Sectors like trade, hotels, transport and communication are likely to severely impacted.
The lockdown will also impact manufacturing, construction and core sector growth, severely pushing down the GDP. Considering these setbacks, the government has already revised its new fiscal deficit target to 3.88 per cent of GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage.
It is more than likely that even this fiscal deficit target might be breached. And that is fine too. The healthcare needs of this pandemic can’t be dictated by fiscal deficit rules. The good news is that crude oil has fallen to almost $20 a barrel that will help ease the massive foreign currency outgo that we pay to import in excess of 19 million tonnes of crude each month.
And since the Parliament has already approved an excise duty cap of Rs.18 per litre for petrol, and Rs.12 per litre for diesel, the state can still hike excise duty on fuel between Rs.6 and Rs.8 per litre, since they have already have used Rs 10 per litre and Rs 6 per litre of the cap during the recent duty hikes. Globally, state loans, income subsidies and tax deferrals are the most common fiscal packages being offered and India is doing the same.
It is evident that even after the lockdown, it will take many months for normalcy to hiccup its way up. Migrant workers will take time to return. Even office workers will be wary for the first few months. Tourism is almost dead for this year. Business travel will be slow and tentative. Salaries may not be cut in large firms but kiss any extra allowances and overtime and commissions and bonuses goodbye for now.
Worse, food grains and crops are expected to have a bumper production this year. Once status quo returns, farm produce price is likely to drop, despite the government procurement scheme at minimum support prices. Many farmers might find it difficult to recover their production cost. Most weddings are likely to be postponed to next year, and with gold prices being what they are, jewellers are in for a rough time as well.
To add to it all, the lingering fear and the uncertainty of infection will keep whatever little disposable income Indians have, out of restaurants, malls, and luxury consumer items. And yet, human resilience and its amazing capacity to bounce back through the toughest of adversities have often defied pundits and prediction. Hope is truly the best aphrodisiac against despair.
SHEKHAR GHOSH IS A THOUGHT LEADERSHIP CONSULTANT, A COLUMNIST AND AN ERSTWHILE JOURNALIST WITH SOME OF THE LEADING PUBLICATIONS IN INDIA