Potential Economic Consequences of Pandemic

Source: Livemint

Relevance: This article highlights the possible long-term economic consequences of COVID-19 for India.

  • A recent exercise at the National Council of Applied Economic Research shows a few possible scenarios. It reveals the permanent effects of the pandemic shock that will persist for a very long time.
Possible Long-term consequences:
  • Firstly, after the V-shaped growth curves were seen, many analysts quickly pronounced after a shock that the economy is bouncing back. But such curves simply reflect the ‘bowstring’ effect of a negative shock. Thus, these can be quite misleading.
    • For instance, in the present case, most forecasts have suggested that the Indian economy will grow by about 8% to 10% during 2021-22. But in the last two years, no such recovery has been seen.
  • Secondly, In the optimistic scenario, it is assumed that after recording a growth of over 10% this year, the economy will continue to grow at a high trend rate of 7%. However, it doesn’t look possible.
  • Thirdly, even at a high growth rate, the catch-up will only happen by the year 2029-30.
    • This is also the year when our low demographic dependency ratio will bottom out.
    • It implies that the narrow window for India’s so-called demographic dividend will start closing.
  • Fourth, taking advantage of demographic dividend requires a complete reform of our dysfunctional basic education system to improve learning outcomes.
    • It will also require a more effective skilling program and rapidly growing employment opportunities to absorb the large slack of unemployment and underemployment.
    • Without these prerequisites, the demographic dividend will turn into a disaster.
  • Lastly, a high trend growth rate of 7% or more can only be sustained through an ambitious, wide-ranging 1991-like reform program.
    • As the latest Financial Stability Report (FSR) points out, the gross non-performing assets (GNPA) ratio has not deteriorated further in 2021.
    • It has happened only because of regulatory forbearance by the Reserve Bank of India on account of covid.
    • The FSR stress tests indicate that the GNPA ratio is likely to rise to nearly 10%- 11% by March 2022.
    • The power sector needs transformation from high-carbon fossil fuels to renewable energy.
Way forward:
  • Complete overhaul of the network of primary health centers, which is the base of our public healthcare system.
  • Reform in the financial sector.
  • The regressive return to discretionary tariff hikes and other protectionist trade policy measures needs reversal to compete in global markets.

The need of the hour is to motivate the central and state governments to urgently introduce reforms to counter the long-term effects of the pandemic.


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