The third wave of the pandemic may be slowly receding, with Covid infections waning, but the impact of the pandemic on the economy may last longer than expected. A lot will depend on the government’s response in dealing with the disruptions induced by the pandemic. It is clear from several national-representative surveys that India’s economy is not only facing a growth slowdown, but it has had a very diverse impact on different sections of our population.
The recent findings of the ICE360 Survey 2021, conducted by think-tank People’s Research on India’s Consumer Economy, show that the income of the bottom 20% of the population declined by 53% between 2015-16 and 2020-21, while the richest 39% for 20%. These results are not surprising. In fact, they corroborate similar data from several other surveys and nationally-representative estimates of wages and employment officially carried out by government agencies. Given that our economy was already in a sharp recession before the pandemic struck, the urgency to revive it is not only an economic necessity, but also a social and political imperative.
The difference in the fortunes of those living at the two ends of our broad spectrum of income distribution is a matter of concern from the perspective of inequality in the country. But it is also central to any effort to revive the economy. Government policies and disruptions caused by the pandemic have only exacerbated the income crisis for most of our population. With the real wages of casual workers accounting for nearly one-third of all workers showing a decline in the past five years, the claim of declining income for the bottom 40% of the population is no longer just a statistical artifact, but a harsh reality. Indian farmers also saw a decline in real income from crop cultivation, according to a recently released survey of farmers by the Office of National Statistics. The recently released advance estimates of national income confirm the gravity of the economic situation, with private consumption in the country still lagging behind its 2018-19 levels in real terms.
Despite the evidence, the policy response has shied away from using the fiscal route to revive economic growth, with monetary policy bearing the bulk of the burden. Unfortunately, with rising global inflation and the possibility of a tightening of easy-money policies in developed countries soon, monetary policy in India is unlikely to play a pandemic role. But there is another reason why fiscal policy has come to the center stage. Experience so far shows that our current approach has had limited success in reviving economic growth. The fact that private investment has failed to revive and consumption demand is showing signs of weakness is not accidental, but the result of our flawed understanding of economic reality.
The recent enthusiasm seen around economic reform based on stimulating tax collection is nothing but a reflection of massive inequality and consumption by the rich. Not only has this led to a misreading of economic recovery, the rising incomes of the rich have failed to revive the ‘animal spirits’ of the economy, if viewed on the basis of trends in private investment. Various tax exemptions and exemptions, which have mostly benefited the betterment of India, have only widened the divide of wealth and income even though they have failed to make any positive impact on the real economy.
Recent projections are an eye-opener to the burden of differential adjustment borne by different sectors to account for our growing inequality and a range of policy-induced and natural shocks to the economy, as they appear to change the country’s current policy regime. There are timely reminders for ,
Our policymakers’ unwavering belief in investment-led growth financed by the savings of the rich in a demand-constrained economy has not yielded any significant improvement. On the contrary, it has contributed to a reduction in income for the majority. With capacity utilization barely over 60%, an investment push is unlikely to help. Consumption demand is the real challenge.
While it is clear that the government’s upcoming budget and subsequent policy actions should focus on reviving consumption demand on a priority basis, such a policy is likely to succeed only if it is broad-based and leads to Increase the disposable income of the people. Lower half of India. Since inflation can further reduce their purchasing power, protecting real income alone is not enough. The budget needs to go further and ensure that real incomes increase.
Fortunately, the success of various government programmes, such as the Rural Employment Guarantee Scheme, provisions of the National Food Security Act and various income-transfer initiatives, in addition to pension schemes, have ensured a leak-proof distribution mechanism that has been activated to ensure distribution. can be done. Of the benefits provided by government expenditure to the poor and vulnerable people of the country. The Center is also likely to be in a lucky position on revenue, with its financial health expected to improve, owing to the high indicative growth. Therefore public expenditure needs to be expanded to broad-based spending on social security and infrastructure. It is not just a surefire way to revive the economy, it is the only way to do so, no matter the financial cost involved.
Himanshu is Associate Professor at Jawaharlal Nehru University and Visiting Fellow at Center de Sciences Humanes, New Delhi
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