It All Comes Down To Boosting Consumer Demand

While India's GDP growing at a rate of 1.6 per cent in Q4 of 2020-21, the full year growth ended at -7.3 percent. The Gross Value added (GVA) fell 6.2 per cent, better than the estimated - 6.5 per cent. The fiscal deficit is pegged at 9.3 per cent of GDP as against the revised estimate of 9.5 per cent.

The quarterly GDP data indicates farm sector growth – 3.1 per cent, manufacturing growth – 6.9 per cent, finance and real estate sector growth- 5.4 per cent. Notable also was the construction sector growth – 14.5 per cent. Trade, hotels, transport and telecommunication however posted negative growth of 2.3 per cent. The Q4 trends may not sustain through Q1 of 2021-22 due to the intense local disruptions and loss of productivity under the second wave.

Indian economy is expected to grow at 9.5 per cent during 2021-22 and that on a lower base after. Even the Organization for Economic Cooperation and Development (OECD) too lowered its forecast from 12.6 percent to 9.9 percent for the fiscal keeping in view of the likely slowdown/closure of economic units.

According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate is estimated to have entered double digit - 11 per cent mark, the highest since May 2020. Local shutdowns have taken a heavy toll with 7 million job losses in April 2021 exacerbating the prolonged woes of informal sector that employs close to 411 million people. The migrants who have ventured to join work are again retreating into their villages.

1. Deep rooted trends:

The pandemic has hurt the economy in ways that will take more time to heal than the earlier estimates. The household debt to GDP ratio is steadily increasing from 35.4 per cent in June 2020 to 37.1 per cent in September 2020 and even that would have risen by now. The household savings is estimated to have dropped to 22.1 per cent of GDP in Q3 of FY21 from 28.1 per cent in June 2020. The depleting household savings and falling incomes will have an impact on domestic consumption which can account for 60 percent of GDP.

Some estimates indicate that the total out-of-pocket medical expenses of people on Covid treatment ranges from Rs.75,000 crores to Rs.1 trillion, pulling most of the savings of the lower strata of the society including even distress sale of movable assets to save lives.

According to US-based Pew Research Center (PWC), the number of middle class in India earning from $10.01 to $20 a day will slip by 32 million. A year into the pandemic, the numbers of those in the middle class has shrunk to 66 million, down a third from a pre-pandemic estimate of 99 million.

In fact, 57 million were added to middle class during the decade 2011-19. In the same way, 74 million people are estimated to have slipped into poverty earning less than US $2 a day, increasing the number of poor from 60 million to 134 million in just a year due to the pandemic induced recession.

A study by the Azim Premji University in Bangalore showed even more alarming numbers. About 230 million individuals would have gone below the national daily minimum wage threshold of 375 rupees during the pandemic.

2. Measures to fight Covid 2.0:

Besides infusion of additional liquidity of Rs. 50,000 crores to banks for lending to health sector and Rs. 10,000 crores for small businesses through small finance banks by RBI, an added Resolution framework 2.0 has been rolled out permitting restructuring of stressed loans.

Government has also expanded the scope of Emergency Credit Line Guarantee Scheme – ECLGS 4.0 to cover civil aviation, health sector and for health institutions for onsite oxygen generation plants.

The centre has removed the loan outstanding ceiling of Rs. 500 crores. They can take a loan of up to 40 percent of outstanding loan or Rs.200 crores, whichever is lower. Loans granted under ECLGS 1.0 will also be eligible for additional assistance up to 10 percent raising the total government guaranteed assistance to 30 percent of outstanding as on February 29, 2020. But the upper cap of the government guaranteed loans through banks will remain at Rs. 3 trillion.

Banks indicate that they have granted loans under the scheme up to Rs. 2.54 trillion with a room to lend about Rs. 45,000 crores under the scheme. Disbursements under the scheme stands at Rs. 2.4 trillion. The expanded ECLGS 4.0 scheme is open up to September 30, 2021 or up to full utilization of the loans of Rs.3 trillion whichever is earlier. Disbursements can be made up to December 31, 2021.

Moving away from a routine, PSBs have come together to design a templated format for process flow in implementing the loan restructuring scheme. It is done under the aegis of Indian Banks Association (IBA) that brings uniformity. Such standardized transparent approach can help implementing the recast of loans seamlessly.

3. Way forward:

It is seen that many of the relief measures orchestrated are near term-centric while the repeat waves of Covid19 is stretching its affect far deeper, eating into the consumer demand. The businesses and manufacturing units too are not inclined to invest, expand capacity utilisation and put-up new projects because of the looming uncertainty. The loss of income and surge in unplanned and unexpected health expenditure of masses brought down the demand for non-essential purchases.

The stakeholders will have to work together to intensify vaccination campaign and find avenues to create safer work spaces to boost confidence. The corporate sector and businesses should facilitate vaccination of their people. Government should be synchronizing spending on infrastructure and augment investments contemplated under ‘Atmanirbhar Bharat Abhiyan’. If all stakeholders join together and coordinate, resumption of activities could be possible to reach pre-Covid levels at the same time. It is coming out clearly that in the way forward, pump priming consumer demand will be the key to speed up revival of the economy.

The author is former General Manager – Strategic Planning, Bank of Baroda. The views are his own.