‘‘What is necessary for livelihood and what is necessary for addressing the issue of pandemic does not deserve the kind of constraints which the FRBM places. Certainly, this is the time for forbearance, not rigid adherence to fiscal rectitude”
– N K Singh, Chairman, 15th Finance Commission and FRBM Roadmap Committee
A drastic contraction of 23.9% in quarterly GDP has taken our economy to FY 2014 quarterly levels. With COVID — 19 cases continuing to soar, and no new fiscal stimulus announced by the Government, our economy’s short-term decline is set to continue in the foreseeable future.
The pandemic’s ‘peak’ that our government was expecting to reach by now, remains elusive. Making matters worse for the economy is that 5 large states that contribute ~40% of our GDP — Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, and Gujarat — are those where >50% confirmed cases of COVID — 19 remain concentrated as on date. The pandemic has also reached India’s rural areas, of the districts with over 1,000 cases, almost half were in rural areas, up from 20% in June, raising concerns.
The problem is a slump in aggregate demand with its repercussions on both the manufacturing and the services sectors and consequent job losses. Services industry contributed >55% to India’s GVA, in FY 2020 and 2019, and employed 31.5%of our workforce. With services and manufacturing sector experiencing a grinding halt for last ~ 4 months, most of the job losses of 85 million have been in these sectors. Most importantly, manufacturing is expected to remain in the negative domain till the 4th quarter of FY 2021. Construction activities, including real estate bore the severest brunt of the prolonged lockdown. Even today, it remains far from its pre-Covid-19 level due to labour shortages, slump in demand for…
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