Recovery of Indian Economy

Published: 24th Dec, 2020

There are discussions about the shape of the recovery. Whether it would be ‘V’ or ‘U’ or ‘W’ or any other shaped recovery is something that is important for investors.
While the government feels that there could be a ‘V’ shaped recovery, most analysts feel that the recovery may not be that sharp.
While the slowdown was sharp due to sudden lockdown, the recovery is expected to be prolonged and that depends heavily on the implementation of fiscal monetary packages.
The recovery could look like a ‘smoking pipe’ shape with a sharp dip in the beginning and a prolonged recovery at the later stage. There are few green shoots already visible in the economy that suggests a gradual recovery.
Indicators related to credit off take to MSMEs, rural development expenditures, electricity demand, etc., suggest pickup in economic activities across the sectors.
At the state level, while the expenditures due to pandemic has increased manifold, the revenues have dwindled largely due to decline in the revenues under GST.
This has led to large gap between the actual and the promised 14% increase in the GST proceeds to every state government.
Here, it is important for the Centre to help the states by borrowing from the market directly so that the interest burden on the states could reduce.
Going by the present trends, one could be optimistic that these measures should help the economy to revive, although the extent of revival could also depend on how the pandemic situation is going to evolve In the Coming months.