How To Help The Economy

Vaccinate all for free, jobs programme for urban poor, GST cut for consumer durables

- Amartya Lahiri

The Indian economy, having barely started showing some signs of flickering life, is bracing itself for another round of negative shocks. The marginally positive news of 1.6% GDP growth in the March quarter over the same period last year has already been superseded by the second Covid wave.

Economic costs of the second wave are showing in various indices. According to CMIE, the unemployment rate in May rose by almost 3 percentage points to 11.9%. RBI’s consumer future expectations index has declined by 11% since March. JP Morgan’s composite index in April and May has declined by 15% relative to the March quarter. People are losing jobs, people are afraid about the present and the future, and it is showing in leading indicators of the economy.

While there is conjecture about the extent of actual infections and deaths due to the second wave, the debate centres on whether the actual numbers are 10 times or 25 times the official numbers.

Infirmity and death extracts both tangible and intangible economic costs. Dealing with lost incomes as well as treatment severely dents budgets of families that suffer infections. In addition, families that have lost their main breadwinner are likely to be staring at economic ruin. Economic planning by most households under such conditions is geared towards survival, safety and precaution. In this backdrop of uncertainty and fear, it would be folly for policymakers to expect a return to pre-pandemic demand in the economy even when conditions become relatively benign.