Economic Whirlwinds

With India firmly in the grip of the second Covid wave, the much-expected catapult from a buoyant Q1 is unlikely. How should the Centre steer a slowing economy?

- JOE C. MATHEW AND ASHUTOSH KUMAR

At 8:05 PM on April 20, the Twitter handle of the Prime Minister’s Office (PMO) announced that PM Narendra Modi will address the nation on the Covid-19 situation in the next 40 minutes. The PMO tweet put the entire country on listening mode since Modi has made disruptive announcements at short notice — demonetisation was declared overnight and national lockdown against Covid-19 last year happened within four hours of the announcement. Thankfully, a hard lockdown was not even an option this time round. The one emphatic message the Prime Minister conveyed was, “Lockdowns should be used as a last resort. States should focus on micro-containment zones. We have to save the country from lockdown”. There was a reason why he urged state governments to instil confidence among migrants that their income and livelihood were safe. The lockdown between end March and June 2020 had the most debilitating impact on the economy. In Q1FY21, the Indian economy shrank 24.4 per cent, the maximum among major economies. For FY21, India’s GDP is projected to contract 8 per cent according to government estimates.

If that was the main reason to avoid a lockdown, the current state of the economy may have been another. India’s economy, which was slowly inching towards normalcy and growth between July-December 2020, appears to have hit a major roadblock during January-March 2021. The Index of Industrial Production (IIP), an indicator of manufacturing activity across sectors, has lost steam and the output of eight core sectors registered the steepest fall of 4.6 per cent in February. The Purchasing Managers' Index (PMI), a barometer of supply chain movements in the manufacturing sector, fell to a seven-month low, foreign investments have slowed, car sales declined and inflation has risen. These and most other indicators point to an economic recovery that is stalling, if not already stalled.