Opinion and Editorial

KT edit: India could recover sooner than expected

Filed on November 15, 2020

(David Talukdar / Alamy Stock Photo)

Modi government has done well to earmark 10 per cent of the financial incentives for drugmakers.

A cursory glance at some of the high frequency indicators of the Indian economy are all looking up, suggesting the country could be up for a post-Covid recovery sooner than expected. The Reserve Bank of India in its recent report has also suggested if the upturn is sustained, the country could break out of the contraction in the third quarter, which is a shift from what was expected earlier. The Indian stock markets have posted double digit gains in the last one year and the two benchmark indices have touched new highs. Credit rating agencies are also revising their forecast, and steady decrease in the number of new cases of Covid-19 the sentiment has boosted to some extent. The Indian economy, much like any large economy world wide, needs support.

In the absence of government stimulus, economies can remain naturally stuck in recession for a long time, John Maynard Keynes had said. In this context, the Indian government has consistently offered stimulus support to the economy and people. The latest instalment of stimulus package and production-linked incentive scheme for ten vital sectors should boost manufacturing output and competitiveness. The investments will be spread over five years and build a strong foundation for these sectors. But this move won’t make an immediate impact on the economy in terms of boosting local demand.

At a time when firms in the private sector firms have been tightening their budgets and reducing operating costs, layoffs have marred household budgets. When uncertainty looms, consumers go into hibernation and become discretionary in their spending habits; that’s the human psyche. Low demand, therefore, has been a sticking point for the economy. Savings rate of Indian households consequently has risen

Savings rate of Indian households consequently has risen. It was more than twice the usual levels of 10 per cent of the GDP in the April-June financial year. Prospects of a Covid vaccine could give some confidence to people to spend more, which should help the economy. In that context, the Modi government has done well to earmark 10 per cent of the financial incentives for drugmakers. The ability to manufacture and supply Covid vaccine to its own population and also export to countries regionally or even further would give a boost to the broader economy. The manufacturing sector will benefit, and that should be good for India. The country now needs to build on its supply chain to pump up its exports. The worst seems over, with continued support from the government, India should emerge from pandemic induced crisis faster than expected.

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