The economic situation and severity of the Covid-19 crisis in India is now unfolding rather rapidly. The Reserve Bank’s annual report, while providing details on the current situation, has acknowledged that contraction in economic activity will likely prolong into Q2 and the path to recovery is a very long one. The unemployment situation has aggravated as per a report jointly published by International Labour Organisation (ILO) and Asian Development Bank (ADB) highlighting that in India, the equivalent of 4.1 million youth jobs may be lost. While the Covid-19 pandemic is severely affecting the country, the Government is gradually implementing lifting of the lockdown in order to revive the economy. This increases fears of fresh spikes and surges and ironically, according to a Moody’s report, economic recovery is dependent on containment of the virus.

RBI Releases Annual Report – The Reserve Bank of India (RBI) recently released its Annual Report for the year 2019-20. The report inter alia mentioned that for India, high frequency indicators that have arrived so far point to a retrenchment in activity that is unprecedented in history. Moreover, the  upticks  that  became  visible  in  May  and  June  after  the  lockdown  was  eased  in  several  parts  of  the  country,  appear  to  have  lost  strength  in  July  and  August,  mainly  due  to  reimposition  or  stricter  imposition  of  lockdowns,  suggesting  that  contraction in economic activity will likely prolong into Q2. Going  forward,  government  consumption  is  expected  to  continue  pandemic-proofing  of  demand,  and  private  consumption  is  expected  to  lead  the  recovery  when  it  takes  hold,  with  non-discretionary   spending   leading   the   way   until  a  durable  increase  in  disposable  incomes  enables  discretionary  spending  to  catch  up.  An assessment of aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-Covid-19 momentum.  Private consumption has lost its discretionary elements across the board, particularly transport services, hospitality, recreation and cultural activities. Behavioural restraints may prevent the normalization of demand for these activities. The Reserve Bank’s survey for the month of July indicates that consumer confidence fell to an all-time low, with majority of respondents reporting pessimism relating to the   general economic situation, employment, inflation and income; however, respondents indicated expectations of recovery for the year ahead.

Moody’s Forecasts Recovery Moody’s Investors Service recently said India along with 2 other Asian countries will be the only G-20 emerging economies to post a strong enough pick up of real GDP in the second half of 2020, and retained its projection of 3.1 per cent growth contraction for India in 2020, which had been reported by Asia Law Portal. Moody’s said an economic recovery is underway, but its continuation will be closely tied to containment of the virus. It said in countries with existing banking sector weakness, such as India, there is a risk of a self-sustaining negative loop in which adverse real economic developments and bank weakness reinforce each other and harm long-term productive capacity. Moody’s said disputes over trade, technology and foreign policy between China and some of its trading partners, including India, have escalated since the start of the pandemic

World Bank Ease of Doing Business Ranking Halted – The World Bank recently issued a statement mentioning that a number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology. It has asked the World Bank Group’s independent Internal Audit function to perform an audit of the processes for data collection and review for Doing Business and the controls to safeguard data integrity. The publication of the Doing Business report will be paused as the World Bank conducts its assessment. India is unlikely to be affected by the irregularities reported in the data used by the World Bank to prepare the Ease of Doing Business ranking. “The incidence of data irregularity relates to China, Saudi Arabia, the UAE and Azerbaijan,” a source said while making it clear that India does not figure anywhere in it. “We are not worried about the World Bank’s reported decision on taking a relook at previous ‘Doing Business’ reports as India is not one of the marked countries,” said a senior official of the Department for Promotion of Industry and Internal Trade (DPIIT).

Job Losses in India – The Asian Development Bank (ADB) and International Labour Organisation (ILO) has recently published a report titled ‘Tackling the COVID-19 Youth Employment Crisis in Asia and the Pacific. This report assesses the damaging impacts of the coronavirus disease (Covid-19) pandemic on youth employment in Asia and the Pacific and recommends critical policy responses. The report mentions that in India, the equivalent of 4.1 million youth jobs may be lost. Responses to a survey on the Covid-19 impact on staff development and training with public and private enterprises and other organizations indicate that, in India, two thirds of firm-level apprenticeships and three quarters of internships were completely interrupted. The severe economic and labour market impact of the Covid-19 pandemic on young people’s employability and employment requires urgent, large-scale and targeted responses. The recommended measures include short-term actions for the outbreak phase and medium-term actions for the recovery phase.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

Leave a Reply