India is presently faced with a deep economic crisis caused principally but not exclusively by the Covid-19 pandemic and nothing hints at an early improvement in the scenario. The shortfall in compensation cess this year is approximately Rs 2.35 lakh crore. As expected a note of caution was sounded by finance minister Nirmala Sitharaman on August 27 that an ‘Act of God’ meaning the pandemic has devastated the national economy.
Most sectors of the economy are suffering. Indications are that the farm sector might withstand the adverse impact of the pandemic spread, and might record a three-to-four per cent growth even in the face of the present odds. The cities suffered the worst, as the lockdown and social distancing norms resulted in job losses and a shrinkage of family earnings. Overall, GST collections have drastically come down this fiscal, starting from March when the lockdown of the nation was first effected. The months of March and April saw hardly any GST collection. As a result, the Centre is not able to meet its commitment of compensating the states for their loss in tax revenue, a system that was in force after the 2017 implementation of the GST as a unified taxation mechanism.
The finance minister’s proposal to states is to go for hefty borrowings from RBI, which would mean payment of interest for a period of five years and return of the principal thereafter – from state coffers. States are given a week’s time to respond.
There is no clarity as to how the GDP will show up in the present context. From an already fallen level of around five per cent in the last fiscal, a negative, below zero, growth is predicted for this fiscal, and how deep this can go further is anybody’s guess. Leaving things to god, or putting the blame on the Almighty, will not serve any purpose. The government is well-advised to look for ways to reactivate the economy, at least from the next quarter.
The present uptick in the spread of the pandemic was only to be expected; as activities have largely resumed in most parts of the country, with major cities like Mumbai continuing to ail under the impact of Covid19. One or other vaccine might help restore public life and economic activities to near-normal.
Meanwhile, the assessment on Sunday that India will face the worst economic hit compared to G-20 nations, vis-à-vis GDP contraction, is only a reflection of the present state of weak economic activity. It lays a bigger responsibility on the government to act in meaningful and effective ways so that a turnaround is done.
