Well over a year into the pandemic, both Maharashtra and India, find themselves at another turning point. A new wave of Covid has hit the land, requiring new lockdowns and furtherrestrictions. However, unlike last year, safe and effective vaccines are now in sight. While the pace of vaccination is still slow, a coherent strategy is underway to deal with Covid. Reflecting the recurring waves of Covid and the pace of the vaccination, India’s economic revival is proceeding in fits and starts. While production in parts of the economy has returned to pre-Covid levels, there are still some important sectors which have not yet picked up to the desired levels. The only consolation – if any – is that the whole world is sailing in the same boat, one where economic revival is in sight but not (yet) fully attainable.
The prime concerns this time are virus mutations and vaccine delays. A key worry over the medium term is economic scarring – output that never fully recovers because people who lost jobs during the pandemic cannot find new ones. This could occur because gaps witnessed in education and worker training are not fully recovered, deferred productive investment remains shelved, or resources continue to remain in declining sectors rather than move to expanding ones. Many experts claim that it is the coordination issue that lies at the heart of macroeconomics, and that has now become problematic. Given this backdrop, the topmost policy priority is to boost vaccine production and distribution. Investing in such an effort will pay off in our move towards a comprehensive economic revival.
If today’s world has a true universal religion, it is employment. People change countries (even continents) to find it. This is precisely where fiscal policy needs to play a proactive and supportive role. Fiscal support should be redeployed to accelerate the transformation of the economy, including via infrastructure investment, especially in green and digital technologies. A more sustainable revenue base for the country could better manage changing economic conditions and the impact of black swan events such as Covid. Comprehensive tax reform will enhance the ease of doing business in the country, and help to stem the brain-drain.
The impact of the pandemic has highlighted the inherent challenges facing small businesses. They include their acute exposure to shocks beyond their control, and their vulnerable economic and fiscal bases, which further exacerbates their inability to manage the socioeconomic ramifications of shocks. Policymakers need to pay special attention to the issues faced by such enterprises, as they form the backbone of the nation’s industrial growth.
A multipronged approach involving several stakeholders (regional and global)will be needed to move towards sustainable economic growth. Enabling socioeconomically marginalized communities to become more resilient is the key to returning to pre-pandemic growth rates. Policymakers need to focus on bringing about inclusive growth, so that citizens, especially the dispossessed, can survive the crisis and thrive.