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Covid -19, the roadmap to recovery. Getting the economy back on track.

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Essay Contest for UPSC Exam for IAS

To best answer this question, one must consider the possible answers under the following

criteria:

1. How significantly has the COVID-19 impacted the Indian economy?

2. What policies have the government implemented in the short-run to maximise recovery?

3. What investments must the government devote more resources to, to ensure long-term

economic growth and recovery?

The COVID-19 pandemic exceeds its role of being a global, catastrophic health crisis to

demolishing the economy to its core, sector-by-sector. This pandemic has not only created a

severe demand-deficiency in the Indian economy but is also a critical supply shock.

Economic uncertainty has grappled with consumer spending and business confidence levels -

delaying their consumption expenditure and investments. Amongst the worst-hit industries

include automobile, realty, financials and retails, which malignantly create a recessionary,

negative multiplier effect on the remaining sectors of the economy too. As private firms strive to

cover their costs of decreasing demand, workers are made redundant. Consequently,

household incomes are constantly decreasing; India is estimated to have lost USD 4.5 billion

everyday it remains shut. It is, thus, justified that the informal sector, accounting for 80% of

employment positions in India, is the most-affected. The lockdown constraints have caused

firms to operate on a work-from-home basis, hence, inflexibilities in the informal sector labour

market have made it increasingly difficult for workers to adapt to technological change in the

short-run. Those on the breadline of absolute poverty are more susceptible to contract the virus

due to unhygienic living conditions, thus, struggle to derive a treatment. Each of the

government’s 5 macroeconomic aims have been adversely-affected: price instability, lower

economic growth, higher unemployment, unstable BOP and greater income inequalities.

To aim for maximum recovery from the devastating economic impacts of the COVID-19, the

government must acknowledge policies boosting both- the aggregate demand and supply of the

economy. This can be broken down into two categories - long-run and short-run policies.

In the short-run, the government should target at implementing demand-side policies stimuli.

On the expansionary monetary end, the Indian economy witnessed a significant plummet in its

repurchase rate to 4.4% in the first quarter of 2020. Through this decree, the central bank

encouraged private firms to borrow funds at a cheaper rate for investments. Several liquidity

injections were consecutively implemented to increase the economy’s money supply. These

included a lower CRR, easier availability of overdrafts, temporary moratoriums of interest on

working capital facilities and many more. An increased money supply should boost the

aggregate demand in the economy and enable firms to sustain their ventures.

On the fiscal side, the Finance Minister announced the implementation of a stimulus package of

more than INR 11 lakh crores. This package included an increased government spending on the

MSME sector, which witnessed a drastic negative impact due to inadequate access to finance,

poor infrastructure and inflexibilities in labour markets. The package also included financial relief

to low-income groups and farmers. The government, in addition, increased its spending on

provisions of affordable housing for migrant rural workers. While this policy was

budget-constrained by the Indian government, it really helped in healing the COVID-19 damage

on the less-affluent sections of the economy and reducing the income inequality.

While these policies prove to alleviate the economy in the short-run, the government must

initiate long-run supply-side policies to ensure that the economy recuperates completely and is

able to tackle a similar catastrophe in the future.

Firstly, the government must invest in the provision of more efficient, qualified healthcare

services. It is important to devote enough resources to Research and Development of modern

vaccinations and mass treatments to ensure that the quality of human capital is not

compromised. Healthcare promises a productivity boost by the young workforce since they are

less likely to terminate employment due to sickness.

Secondly, it is important to bring about a technological shift in the economy. R&D in technology

has massive positive externalities, especially as the global economy battles COVID-19.

Technologically-apt workers can easily adapt to the new work-from-home employment

opportunities without being made redundant. Technology allows firms to connect to a larger

customer-base globally and locally. Thus, while lockdown constricts business operations, firms

can respond to consumer demand through online portals. This could also benefit workers from

the unorganized sector as they can get admitted to an online platform to sell their services to a

broader market. For example, cleaners booked through an online portal, Urban-Clap India, are

still able to supply their services to households, whilst maintaining appropriate sanitization and

social distancing at their arrival.

In the light of these drawn conclusions, it can be deduced that closely analysing the influence of

COVID-19 crisis on social communities, sectors and economies is crucial to assess the rate of

recovery and the possible solutions, whilst ensuring nobody is left apart in these efforts. That

said, the Indian economy is in a severe need of implementing the above policies to pave a

roadmap to its recovery.

-Name

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