Just as in many emerging economies, the Covid crisis has jolted India. Precautionary measures to contain the spread of the virus, including lockdowns and restrictions on movements in public spaces, resulted in a temporary decline in economic activity. Despite all the positive policy announcements made so far, it is clear that the government’s budget is stretched as the economic slowdown reduced tax revenues. The silver lining is that India entered the crisis with relatively strong economic fundamentals. Thus, the government was able to respond to Covid in a timely manner, with a comprehensive support package preserving financial and macroeconomic stability. Policy measures put in place since March 2020 also helped create some fiscal space for social spending. Structural reforms in various key sectors are also implemented to strengthen the business climate, attract investment, and increase employment opportunities, particularly for the socioeconomically marginalized.
Looking ahead, continuing to preserve macroeconomic stability and reigning in fiscal deficits will matter. With the impact of the second wave receding, it is also essential to focus on structural reforms to encourage more private sector participation in India’s post-Covid economic revival. An innovative step has already been taken in this direction with the launching of the National Monetization Pipeline (NMP), but much of its eventual success will depend on enhancing governance and transparency, as well as further developing financial markets.
Vaccination will play a pivotal role in maintaining growth amidst the pandemic-induced uncertainty. While there have been impressive achievements (like, for example, over a crore vaccines being administered daily across India), the fact is that the reason for vaccination not doing enough to stave off rising infection is that, in most districts, the rate of fully vaccinated population is still below 20%. This does not bode well for a nation of our size and potential. Until the entire population gets vaccinated, or until the genuine threat of vaccine-resistant variants persists, herd immunity may continue to elude us. That could hamper a sustained economic revival.
India needs an approach to employment that strengthens the linkages between economic growth and job creation, particularly where educated youth are concerned. Failure to create employment-intensive growth could lead to serious socioeconomic issues, and risk derailing whatever progress has been achieved so far. Millions of Indians are currently trapped in low-quality employment, and a decline in their living conditions is not compatible with any kind of sustained socioeconomic revival.
The way ahead is by fine-tuning the role of the state in the economy, enhancing the ease of doing business, ensuring a level-playing field for all enterprises, reducing transaction costs, and intensifying the thrust on vocational training and skill development. Policymakers also need to further rationalize trade barriers and guarantee the predictability of customs procedures and tariffs. We have no choice but to change how we consume, produce, and invest. All of this will be crucial to unleashing India’s enormous growth potential, reducing poverty, and ensuring that the gains of liberalization, privatization and globalization, do indeed trickle down to the bottom of the pyramid.