Covid Blues: Second wave could give economy a jolt

By: |
May 10, 2021 5:15 AM

While the balance sheets of companies in the organised sector would be affected very slightly, lakhs of small enterprises, in the informal sector, will once again be in deep distress and many even go extinct.

Economy, India statesUnlike the V-shaped recovery in 2020, we expect the economy to have only a gradual recovery this time, as consumer sentiment remains weak on pandemic-related uncertainties. (Representational image)

The second wave of the pandemic could jolt the economy much harder than is being anticipated. Sectors such as retail, hospitality, tourism and aviation, which have already taken a big hit during the first wave, will be even more badly bruised with more than two-thirds of the country having imposed curfews or partial lockdowns. States like Karnataka have imposed a full lockdown for two weeks and others might follow.

This time around many more well-to-do households – numbering in all roughly 250 million – have been impacted which could hurt consumption demand, albeit temporarily. Also, the second wave has affected rural areas and could result in demand staying suppressed for a few months. The economy right now is somewhat sluggish – growth in the services sector particularly is slowing – but demand for both goods and services should bounce back around September as the festive season begins. Savings — at least in the form of bank deposits — are growing, indicating either the inability to spend or extreme caution.

While the balance sheets of companies in the organised sector would be affected very slightly, lakhs of small enterprises, in the informal sector, will once again be in deep distress and many even go extinct. The dichotomy seen in the recovery following the first wave will get exacerbated; additionally, many more low-income households are likely to get hit.

Joblessness is already running high; the CMIE data showed unemployment has hit 8% and ten million salaried persons have lost their jobs. Moreover, researchers at the Azim Premji University have found that while a big chunk of workers did find work again, after having lost them in the first wave, the remuneration was much lower. The monthly per capita income for an average household of four members in October 2020 was a fifth lower than what it was in January 2020, at `4,979. Joblessness and reduced income have meant labour’s share of GDP dropped from 32.5% in Q2FY20 to 27% in Q2FY21. The demand for jobs in April under MG-NREGS, both at the household as well as the individual level, has been the highest compared with any previous April since 2013-14, Unfortunately, fresh capex is unlikely in big measure for a few years, which will be a dampener on job creation.

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