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Rise & reset: India has a long road to recovery but there is hope and optimism


(This story originally appeared in on Dec 28, 2020)

NEW DELHI: The swift recovery displayed by the economy after the bruising impact of one of the strictest lockdowns in the world to prevent the spread of the Covid-19 infection has surprised many. It has also brought some cheer for policy makers in an otherwise gloomy year.

Never before has so much attention been devoted to the gross domestic product (GDP) growth figures as has been for June and September quarters. The June quarter data may have plunged the country into gloom, as the economy had slumped nearly 24%. But the sharp rebound and narrowing of the contraction to 7.5% in the three months to September triggered hope and optimism.

However, most economists reckon that it will be a long road to recovery before the economy gets back to the 7-8% growth trajectory. Several recent economic indicators have pointed to the fact that some sectors may be running out of steam after the festival and pent-up demand push. Still, other sectors have held up, and offer hope.

Rise & reset: India has a long road to recovery but there is hope and optimism 2

While the low base will lead to a significant improvement in the numbers next year, experts call for a close vigil as several risks lurk along the path to recovery. First, the fresh wave of infections and lockdowns in the UK and Europe as well as the US do not augur well for the country’s exports, which had shown some signs of getting back on track.

The building of inflationary pressures also poses a significant risk and will act as an obstacle for the Reserve Bank of India’s efforts to help boost growth by cutting interest rates. Further, the high fiscal deficit is a significant challenge, although some experts reckon that the target should be relaxed to provide the government headroom to help with a bounce-back.

The engines for the revival will be in the farm sector as well as in manufacturing and construction. Additionally, the raft of reform measures unleashed by the government will help boost the economy, with the infrastructure sector attracting fresh interest from overseas funds. The production-linked incentive schemes to boost ‘Make in India’ products have drawn interest from investors and should act as a growth enabler.

The Budget, to be unveiled in February, is also likely to have more steps to help sustain the momentum and aid recovery. Already, the finance minister has promised a “Budget like never before”. Government spending has been key to aiding the rebound and will be vital again in the 2021-22 fiscal year. As the world bids goodbye to a dismal year like never before, there is hope and optimism about the economy’s ability to come back roaring.

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