The economic impact of Covid-19
The second wave of Covid-19 infections is bound to have an adverse impact on the economy. While Reserve Bank of India (RBI) governor Shaktikanta Das has said that its economic impact will not be as severe as that of the first wave, private forecasters are beginning to factor in the effects. For example, S&P Global Ratings has slashed its GDP forecast for 2021-22 from 11% to 9.8%. Such projections, if true, will mute the V-shaped recovery that the government was banking on.
But it is important to go beyond the headline GDP numbers. Azim Premji University’s latest State of Working India report, which was released on May 5, makes a convincing case about the pandemic’s regressive impact — it has affected the poor more than the rich — on jobs and incomes. According to the report, 230 million people fell below the income poverty line (at a minimum wage of ₹375 per day) due to the pandemic. Had the pandemic not happened, according to the report, 50 million people would have come above the poverty line. The report also shows that employment recovery has stagnated at a lower benchmark than pre-pandemic levels, and even when jobs were restored, there has been a fall in quality of employment or incomes. These findings align with anecdotal accounts of the post-pandemic recovery being profit- rather than wage-led. They also underline the threat of prolonged demand headwinds for the economy.
The Indian State — and this includes both central and state governments and independent institutions — was complacent about the threat of a second wave. The latest APU report should caution policymakers, both at the national and state level, against being complacent on the economic front as well. Supply-side measures, including the latest ones announced by RBI on Wednesday, will not be enough to mitigate the pandemic’s economic impact. More demand-side relief measures are needed, as the report argues. This is especially true for those who are at the bottom of the pyramid. This is not just a matter of academic debate anymore. Post-pandemic relief measures by state governments seem to have played a big role in shaping voting preferences in the recent state elections. Politicians who ignore the economic pain of the pandemic will do so at their peril.