This week, India will complete two years since the Government embarked on what is now considered the harshest and quickest lockdowns in the world in a bid to block entry points for the infectious COVID-19 virus. The efficacy of that lockdown, both in terms of curbing infection rates (and mortality rates) and the accompanying hardships imposed on the population at large, can be debated at length. There is, however, little argument over the massive economic costs for the country. The Reserve Bank of India has underlined that some of that damage to India’s GDP is permanent. This can be linked to businesses shutting shop for good, labourers migrating home (with many choosing not to return) and consumers turning increasingly reluctant. The rebuilding effort remains a work in progress, although record tax collections would suggest that all is well. Personal consumption and employment-driving contact-intensive sectors remain below pre-pandemic levels, even as other macro metrics have surpassed pre-COVID performance. Just as the virus appeared to be ebbing, triggering hopes of a revival in consumer confidence, the Russia-Ukraine conflict has thrown up fresh challenges, including high commodity and crude oil prices.
Health-care costs are considered a key factor for pushing several middle- and lower-income households below the poverty line, while high inflation affects all economic actors. The Russia-Ukraine situation has not only catapulted gas, oil and coal prices higher but also fertilizers, wheat, corn, and seed oil. A section of farmers growing crops such as wheat may gain, but inflation in essential items such as food and transport, will impact the poor the most. For now, India’s oil marketing companies, who the Government has argued determine the retail prices of fuel, have shown extreme benevolence in holding rates at November 2021 levels and this may persist till Parliament’s current session ends. This is, however, not fiscally sustainable, just as the Finance Ministry has argued that high global commodity prices are not. A prolonged conflict in Europe could tip the global economy into recession, even as monetary policy missteps and social risks associated with high inflation, could dampen growth, Moody’s Investors Service warned last week. On the other hand, the Government’s robust direct tax collections that have surpassed even revised estimates by ₹1.13 lakh crore, give it room to not just push forward the LIC share sale till market volatility subsides but also slash fuel taxes further, curb other inflationary pressures and expand the COVID-19 booster shots coverage. Unless people get more certainty about the pandemic’s end-game, and have some money in their hands, it would be difficult to spur consumption enough to reach the necessary next stage of the recovery — a revival in private investments.
