Our economic recovery requires a broader base
2 min read . Updated: 17 Nov 2021, 06:17 AM IST
PremiumIt’s now amply clear that a revival has taken shape after the convulsions of covid, but India’s economy must improve on many more counts before it can regain the broad vigour it needs
The latest report published by the Reserve Bank of India (RBI) on the state of our economy strikes an optimistic note. Monetary and credit conditions are conducive for a “durable recovery" to take shape, it says, even as indicators of aggregate demand point to a brighter outlook for the near-term amid uneven but clear gains visible across sectors. Farm harvests have been abundant, manufacturers now have better operating conditions and services are in expansion mode. Headwinds from overseas do spell uncertainty, the report notes, but India currently stands apart from a global situation “marred by supply disruptions, stubborn inflation and surges in [covid] infection in many parts of the world." Vaccination coverage has improved and exports are back up. It also highlights a recent shift in government spending towards capital projects and speaks of “signs of ebullience" in the job market. “Overall economic activity is on the cusp of a revival."
Uptrends over the past few months have been observed on various counts, with three or more successive readings on the rise. The purchasing managers’ index for manufacturing orders, for example, showed expansion for a fourth month running in October, while the index for services which took a while to start expanding climbed to a decadal high. Notably, our monthly exports have been well above their pre-covid trend. Should the Centre’s $400 billion target this year be achieved, which looks likely, exports could be on course to emerge from the past decade’s slump. Back home, GST collections have also been on a roll lately, with a variety of other signals such as power usage and freight traffic flashing positive as well. Taken together, we have evidence of a commercial comeback from our covid crisis. Unless another infection upsurge disrupts the economy, or a global shock kicks in, it should be able to sustain this momentum till it regains last year’s lost output in 2021-22 for it to expand further after that.
The durability of this recovery, however, would need a broader set of assurers. Conditions for a revival of private investment may be turning favourable after several false starts over an extended phase of weakness, but while online startups roar and novel business plays get great chunks of capital, some segments of demand might have got scarred by covid, given how it ravaged livelihoods by the multitude. Profits have grown faster than wages in our national income and job generation has not been adequate. What’s more, RBI’s consumer confidence index for the “current situation" was at only 57.7 in September, a bit above its all-time low of 48.6 in July but still below 100, which marks gloom apart from cheer. Little can be taken for granted. An index of consumer sentiment run by the Centre for Monitoring Indian Economy has shown a slower haul back up from a covid crash among those with bigger household earnings. By most accounts, distress persists at lower levels of India’s pyramid. An education snap-off among the poor was one among several covid factors that widened disparities. For our economy to keep up a fast clip of post-pandemic expansion, we would need wider prosperity than this year’s upswing so far has delivered. While infrastructure projects will have a multiplier effect on incomes, we also need a hefty increase in public outlays for healthcare and education, without which the fragility of a K-shaped rebound—with a sharp divergence in fortunes—may get exposed if the going gets tough. We need fiscal correctives.
