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Vaccination pace too slow, India Ratings lowers GDP forecast

It is no news that the pandemic has taken over the world like a storm. India has been one of the worst-hit nations, which had contracted by 7 percent for the financial year 2021. It is to be noted that India is still in its nascent stage of growth. Experts and analysts have been retreating various methods to revive the economy, of which one is- robust vaccination campaign.

It is no news that the spread of the virulent disease has led to the imposition of partial lockdowns in the economy. This has invariably led to falling public footfall, leading to lesser demand in the economy. However, according to reports, though India’s daily covid count is receding, its pace of vaccination is quite low. Thus, effectively linking India’s growth to its pace of vaccination in the economy, Fitch group company India Ratings effectively and quite detestably revised down India’s GDP forecast. The forecast has been revised from 9.6 percent earlier to 9.4 percent for the financial year 2021-22.

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Threats to India’s economic growth

It is to be noted that the economic growth faces the biggest threat from an invariable increase in the healthcare sector, wage growth, and emphatic decline in household savings. Household savings are plummeting due to an increase in consumer expenditure on the healthcare needs of the household. On the other hand, rising consumer inflation is also expected to weigh down heavily on the consumption of the households and consumer demand. Crude oil prices, recently, have been burning a loophole in the consumer’s pocket which is also leading to a fall of savings as expenditure of consumers in the economy has increased. Consequently, economic growth will be affected invariably.

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On the other hand, India’s central bank, the Reserve Bank of India has positively projected a 9.5 percent of real GDP growth rate for the financial year 2021-22. Though the GDP estimates for the months of April, May, and June will be released on August 31, experts have effectively predicted a two-digit growth. This comes at the back of an extremely low base as the economy had contracted by an unprecedented 24.4 percent in the April-June quarter last year.

The assumption

India Ratings had earlier predicted a robust growth on basis of certain assumptions. It had maintained that if the country is positively able to vaccinate its entire adult population effectively by December 31 of the financial year 2020-21, then GDP growth could be positively and effectively expected to touch 9.6 percent for the financial year 22. But if such a condition was not fulfilled, the growth might actually plummet to 9.1 percent for the financial year 2020-21.

It is to be noted that the Principal Economist, Sunil Kumar Sinha stated that if seen the pace of vaccination in India, it is now almost effectively certain that India will not be able to vaccinate its entire adult population within the stipulated time period ending by 31 December 2021.

But on the other hand, projected faster Indian recovery after the crippling second wave of the odious pandemic, higher exports due to increase in global demand, and sufficient rainfall will effectively provide support for the economic growth. According to the agency’s estimates, 5.2 million doses daily if administered from August 18 onwards, will effectively fully vaccinate more than 88 percent of the adult population.

india's covid-19 vaccine tally set to cross 100-crore mark as serum keeps supplies going - the financial express

But even though exports might be increasing and the business season might be quite apt for economic growth, consumer’s confidence and demand story does not effectively look encouraging even from a medium-term perspective.

The spread of the pandemic has been widespread and immense. Unlike COVID’s first wave, which was effectively and emphatically largely an urban phenomenon, COVID’s second wave had spread like wildfire to the rural areas as well. Therefore, even if the agricultural output leading to robust agriculture income remains intact, given the robust pace and progress of the monsoon so far, rural households are quite unlikely to loosen their purse strings. This is due to the effective third wave predictions that will induce a rise in health expenditure.

Wage growth

It is to be noted that the wage growth in the economy is plummeting be it agriculture or non-agriculture. Even in urban areas, wage growth has been muted. On the other hand, the quality of jobs in the market has fallen and self-employment is on the rise. In fact, it can be seen that the urban households are not only witnessing a rise in health expenditure but are also facing the double whammy of income loss coupled, quite detestably, with high consumer inflation in the economy. Thus, this will quite severely dent their disposable income.

As aforementioned, the rise of non-quality jobs has led to plummeting income in the economy. This disproportionate impact has been effectively seen in the urban area. Auch a claim has been corroborated in the CMIE data that effectively showed that salaried jobs that stood at 76.5 million for the month of July 2021 were effectively 3.2 million fewer than they were in the month of June.

Corporate paradise

Scrutinizing the corporate tax ratio and the income tax ratio to GDP, it has been seen that the corporates have been immensely benefiting from the reduced corporate tax that was announced in the financial year 2020, to infuse liquidity in the economy. But here it is worth mentioning that such low corporate rate benefits have remained elusive for urban households. This has led to a rise in income inequality in the economy so much so that much of the middle class has slipped below the poverty line. Thus, it is to be noted here that whatever recovery that will be witnessed in the economy will be a ‘K-shaped’ recovery and not a V-shaped one.

It is worth noting here that a ‘K-shaped’ recovery effectively points towards inequality. This effectively means that the poorer sections will bear the brunt even as there is an overall recovery in the economy. This is due to the fact that the economic recovery will be benefitting the most to a select few.

According to experts, the government has not been paying attention to such signs as it effectively feels that the resentment among the public masses is not high enough and hence the need to act on such cues is low. Thus, the government will positively continue to keep the taxes and duties at high levels to raise revenue for its growth-oriented budget. On the other hand, much higher taxes will lead the higher revenues to be effectively distributed for public schemes.

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