New year blues: Latest Covid variant could slow down India's growth
There is an element of the unknown in tackling the situation right now despite past Covid experience, given the uncertainties of the variant’s impact
As the country moves into a new year, the outlook for the economy has suddenly become dismal. This is in spite of the positive economic indicators that seemed to presage a return to a higher growth path over the past few months. The villain of the piece is the new Covid variant, Omicron, that has caused a sudden surge in infections all across the country. The net result is that movement curbs have been reimposed in many areas with Mumbai and Delhi leading the way. The financial capital has actually imposed section 144 prohibiting gatherings while the political capital has opted for night and weekend curfews. There seems to be little option, given that December continued to be marked by crowded maskless festivities, but the outcome is going to be a somber one for the economy.
Much will depend on the impact of the virus over the next two months. Experts are indicating that the new highly contagious variant may rapidly spread to large numbers but cause mainly mild symptoms. The fear, however, is that medical infrastructure will be handicapped as many healthcare professionals will be laid low initially. There is an element of the unknown in tackling the situation right now despite past Covid experience, given the uncertainties of the variant's impact. But doctors stress the basics of masking and hand sanitization provide the greatest protection. Vaccinations are useful in preventing serious illness apparently but the plan for booster doses for healthcare workers and for the elderly seems to have been delayed longer than it should have been. On the plus side, vaccinations for the 15 to 18 age group have now been launched giving hope that schools can open up sooner rather than later.
The renewed health crisis has come at a time when the economy seemed to be poised for a leap in growth. For instance, Goods and Service Tax (GST) collections have been over the Rs. one lakh crore mark for the past six months, while foreign exchange reserves are at a record high of 635 billion dollars. Exports are surging as December last year recorded 37.29 billion dollars, the highest ever in a single month. Over the April –December 2021 period, exports rose by 26 per cent compared to 2019 to reach 300 billion dollars. The start-up arena was also marked by a record 42 companies turning into unicorns bringing the total to 79 till now. Demand for automobiles has also risen rapidly though sales are not growing proportionately due to the global semiconductor crisis having created a chips shortage.
The fresh Covid wave has thus come as a disruptor to the economic revival process, as was anticipated in earlier columns here. The first and immediate casualty has been contact-intensive sectors that were poised for a resurgence over the last few months. The restaurant and hotel industry that employs millions of workers has to weather yet another setback. The aviation sector which had also returned to pre-pandemic levels of passenger traffic is also likely to face another slump.
But some responsibility needs to be taken by the government for failing to provide adequate support to this critical services sector. Even when several relief packages were announced over the past year, the vast hospitality industry was left out of the reckoning. Some support needs to be given to such establishments which are now again having to cut back on personnel. Latest reports say that restaurants in several cities have already had to dispense with as much as 30 per cent of their existing staff. In other words, more job losses.
Growing unemployment has been one of the most devastating outcomes of the pandemic and lockdowns. It has been much more widespread in the informal segment of the economy as was evident from the sight of migrant workers walking to their rural homes last year. Latest data from the Centre for Monitoring Indian Economy (CMIE) shows the unemployment rate rose to a four-month high of 7.9 per cent in December. Rural areas are reporting better job rates but the quality of work available here is poor. The demand for work under MGNREGA, for instance, has shot up indicating the jobs are largely in the category of unskilled labour. Better quality of jobs are declining in urban areas, according to CMIE.
It is therefore time for policymakers to recognize that even as indicators for the organised sector of the economy are looking up, the informal sector continues to feel the pain of job losses. The lack of wage security has heightened the impact of inflationary pressures right now. Fuel prices especially have put a strain on household budgets. While the government has made some attempt to reduce the burden of higher fuel costs by cutting excise duty marginally, it has not gone far enough to provide significant relief to consumers. At a time when revenue collections, both in terms of direct and indirect taxes, are relatively buoyant, there seems to be some leeway for a further cut in duties. This would serve to moderate inflation and thereby reduce strains for those at the bottom of the pyramid.
As the third Covid wave is now casting its shadow on the economy, the government must take measures to ensure that hardships do not increase in the coming months. A special relief package needs to be formulated for the services sectors that are being repeatedly affected by the pandemic. In addition, efforts must be made to curb further push to inflation. Otherwise, the economic revival process will slow down and dash hopes of reaching a higher growth path in the new year.