No economic recovery till 2022-23: India Ratings explains how lack of demand stimulus will hurt

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June 1, 2020 7:02 PM

"The near-absence of demand-side measures in the economic package will jeopardise recovery even in 2021-22 and 2022-23 and may even lead to a second-round impact on the economy," it said.

indian economy, economy package, GDP, India Rating, private consumption growth, lockdown, Reserve Bank of India,latest news of indian economyAn appropriate demand-side measure is as important as supply-side measures, said the report. (Reuters photo)

With practically not much cash support coming in from the stimulus package the government announced last month, demand is unlikely to get a boost and economic recovery may now take place before 2022-23, according to a report.

The fiscal impact of the Rs 20-lakh crore economic package stands at only Rs 2.14 lakh crore or just 1.1 per cent of GDP and not the 10 per cent of GDP, as much of the government support is in the form of credit guarantees or additional credit lines, having minimal impact on government finances, said the report by India Rating on Monday.

“The near-absence of demand-side measures in the economic package will jeopardise recovery even in 2021-22 and 2022-23 and may even lead to a second-round impact on the economy,” it said.

The report added that it means even if the supply side gets restored on account of the various measures announced by the government or the Reserve Bank of India, it may soon run into difficulties due to the lack of adequate demand for goods and services.

An appropriate demand-side measure is as important as supply-side measures, said the report. Likening the government’s economic package to the ones announced by Brazil, Germany, France, Italy, Japan, Korea, Spain and Britain, the report said that as against this, countries like Australia, Canada, China, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, Turkey and the US focus more on spending and revenue measures in their bid to address the fallout of the coronavirus pandemic.

The report further noted that “steep salary cuts/job losses/reverse migration due to the lockdown have only added to the dwindling consumption demand, already reeling under the reduced income growth of households coupled with a fall in savings and higher leverage over the past few years.”

Despite private consumption growth collapsing in 2019-20, the Budget 2020-21 did not announce any measures to put more money into the pockets of the poor and the pandemic-driven lockdown has only aggravated the sagging consumption demand as it has led to loss of livelihoods for millions.

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