Prompt govt response needed to alter shape of recovery

Since the onset of the pandemic, there have been incessant discussions over India’s shape of recovery. From the rapid and optimistic V to the sharp and pessimistic W, conversation on how we will come out of the pandemic has not ceased. Lately, however, there has been a growing consensus that India is witnessing a multi-speed recovery, with different sectors of the economy growing at different paces. The issue, however, is that this multi-speed recovery hinges on another shape – ‘K’, which could lead to exacerbated inequality in an already unequal India.

The government has been insistent on the V-shaped recovery argument, which is essentially a steep decline in the economic activity and employment, followed by a sharp rise. In Indian context, this rise can be viewed in terms of increasing demand and business activity with lifting of the lockdown. However, it only provides a myopic view of the bigger picture that illustrates an uneven economic impact of the pandemic on industries as well as workers.

This bifurcation has been reflected in the K-shaped recovery, wherein the economy experiences a fall in growth, followed by a split in recovery, where one section of the economy prospers while the other continues to suffer.

Indian economy has shown a significant improvement with 7.5% contraction in Q2 2020-21 as compared an unprecedented 23.9% year-on-year contraction witnessed in the previous quarter. However, the improvement does not necessarily imply that the recovery path is alike for both formal and informal sectors as the latter is not completely captured in the GDP calculations. Overall, while the formal sector has recovered relatively steadily, the informal sector has been severely impacted by the pandemic.

The stark contrast is exemplified in the plight of blue-collar workers who had to migrate on foot in peak lockdown while white-collar workers could work from the comforts of their homes. Additionally, a study by Ashwini Deshpande and Rajesh Ramachandran indicated that daily wage workers’ rate of job loss was nine times higher post-lockdown as compared to the pre-lockdown phase.

Besides, the impact even within the formal sector exhibits great discrepancy. For instance, while e-commerce sector registered a 17% growth between February and June 2020, India’s hospitality sector declined by 43.5% in terms of revenue per available room in April-October period of 2020 over 2019.

Similarly, while fintech companies remain hopeful about their growth, given the structural shift in consumer behaviour towards online solutions, aviation sector continues to function far below its pre-Covid levels due to the cap on operational capacity as well as reluctance of travellers due to potential risks.

Thus, while sectors like pharmaceutical, technology, e-retail and software services have fared well during the pandemic, sectors such as tourism, transport, hospitality, entertainment and the like still face the brunt of it.

The bifurcation is also visible in labour unemployment across formal and informal sectors. Although India faced unprecedented levels of job loss during lockdown, unemployment levels have now returned to the pre-lockdown phase. However, India’s recovery in employment has not been equal for all, with vulnerable sections being left behind. Besides, marginalised sections are majorly employed in the informal sector which leaves them even more vulnerable to economic downturns like the current crisis.

The study by Deshpande and Ramachandran estimated that the rate of job losses among Scheduled Castes, after the lockdown, was three times higher as compared to the upper castes. Another study by Deshpande reported that women employed during pre-lockdown were 23.5 percentage points less likely to be employed post-lockdown as compared to men employed before the lockdown.

IMF warning

An International Monetary Fund report warned that the current crisis could follow the path of previous pandemics and lead to higher income inequality and unemployment for people with basic education qualifications while barely impacting employment prospects of people with higher education.

A joint report by Asian Development Bank and International Labour Organisation suggests that youth (15-24 years) will face a severe immediate and long-term economic and social blow as compared to adults (25 years and older) due to the pandemic with estimated job losses of 4.1 million among youth.

Hence, in a deeply unequal India, an uneven recovery post-lockdown is exemplifying existing inequalities. While economically and socially better off sectors are experiencing a stable growth, the sectors comprising of marginalised workers and households are undergoing a battle for survival. Although the government did provide a timely fiscal stimulus for revival, it has largely proven to be inadequate as compared to other countries.

India fares amongst the bottom five and way below the average fiscal stimulus undertaken by the Emerging Market and Middle-Income Economies (EMIMEs) as a whole. In the long run, this pattern of growth could be highly detrimental to India which highlights the GDP losses to various Advanced and Emerging Market Economies in 2025 as compared to GDP projections made pre-pandemic. India stands to lose almost 12% of its GDP as compared to pre-pandemic projections – the second worst amongst the selected countries, given its unbalanced recovery.

However, evidence suggests that given the right mixture of monetary and fiscal policies, extreme economic downturns like the Great Recession, have successfully transitioned the shape of recovery from K to V. Similarly, India could also adopt policies that target the affected sectors, enabling their speedy revival and paving the way for a balanced growth story.

The recovery of the better-off section often tends to dominate the misery of the weaker section, as has been the case with the current crisis. Instead of turning a blind eye towards the multi-speed recovery, there is a need to put concerted efforts towards ensuring an inclusive one. The need of the hour, thus, is a prompt government response to alter India’s shape of recovery.

(Kasliwal is Junior Fellow, Observer
Research Foundation; Nain is an
independent researcher)