Economic Recovery post-covid19: a Layman’s Viewpoints

Economic Recovery post-covid19: a Layman’s Viewpoints

: Dr. Manoj Kumar Patel :

Economy and Economics:

An economy encompasses all activity related to production, consumption, and trade of goods and services in an area. An economy applies to everyone from individuals to entities such as corporations and governments. A region's economy is connected with things like how many goods and services are produced and how much money people can spend on these things.

The economy is measured by the Gross Domestic Product or GDP. When the GDP growth rate turns negative, the economy enters a recession.

The most important part of the economy is consumer spending. So, as a rule of thumb, more the transactions and spending by the consumers better is the economy of that country. Thus money should be available in the hands of the consumers. The other three components are business expenditures, government spending, and net exports.

Economics is a social science that deals with the production, distribution, and consumption of goods and services. There are three distinct components of economics and these are consumption, production, and distribution. Consumption is the process of using goods for satisfying human needs; production is the process of increasing the utility of a commodity, and distribution is the process of the distribution of the national income arising from the GDP.

            Activities in five different sectors drive an economy. These are:

The Primary Sector:

This sector involves activities associated with primary economic activity like agriculture, mining, forestry, grazing, hunting, fishing, and mining. The packaging and processing of raw materials are also considered to be part of this sector.

The agriculture sector provides jobs to around 53% population of India. But, currently, it contributes only 17% of the Indian GDP at current prices. 

The Secondary Sector:

The secondary sector of the economy produces finished goods from the raw materials extracted by the primary economy. All manufacturing, processing, and construction jobs lie within this sector. Activities associated with the secondary sector include metalworking and smelting, automobile production, textile production, the chemical and engineering industries, aerospace manufacturing, energy utilities, breweries and bottlers, construction, and shipbuilding. 

The Tertiary Sector:

The tertiary sector of the economy is also known as the service industry. This sector sells the goods produced by the secondary sector and provides commercial services to both the general population and to businesses in all five economic sectors.

Activities associated with this sector include retail and wholesale sales, transportation and distribution, restaurants, clerical services, media, tourism, insurance, banking, health care, and law.

In most developed and developing countries, a growing proportion of workers is devoted to the tertiary sector.

The Quarternary Sector:

This sector consists of intellectual activities often associated with technological innovation. It is sometimes called the knowledge economy. 

Activities associated with this sector include government, culture, libraries, scientific research, education, and information technology. These intellectual services and activities are what drives technological advancement, which can have a huge impact on short- and long-term economic growth.

The Quinary Sector:

This sector includes top executives or officials in such fields as government, science, universities, nonprofits, health care, culture, and the media. It also includes police and fire departments, which are public services as opposed to for-profit enterprises. Duties performed by family members also come under this sector. These activities are typically not measured by monetary amounts but contribute to the economy by providing services for free that would otherwise be paid for.

Indian economy is however classified into three major sectors namely, Agriculture & Allied Sector, Industry Sector, and Services Sector.

Agriculture sector provides jobs to around 53% population of India and it contributes only 17% of Indian GDP and its Gross value added (GVA) is around Rs. 23.82 lakh crore at the current prices in the FY 2016-17.

The industry sector that includes mining contributes around 29.6% of the GDP with GVA of Rs. 39.90 lakh crore.

The service sector includes 'Financial, real estate & professional services, Public Administration, defense and other services, trade, hotels, transport, communication, and services related to broadcasting. Currently, this sector is the backbone of the Indian economy and contributing around 54.3% of the Indian GDP in 2018-19. The services sector is the largest sector in India. Gross Value Added (GVA) at current prices for the Services sector is estimated at 73.79 lakh crore INR in 2016-17. The services sector accounts for 53.66% of total India's GVA of 137.51 lakh crore Indian rupees.

The industrial sector contributes 29.02% with GVA of Rs. 39.90 lakh crore. While Primary Sector of the economy i.e. Agriculture and the allied sector contributes 17.32% and its GVA is around Rs. 23.82 lakh crore at the current prices in the FY 2016-17.

Let's have a look at all three sectors of the Indian economy in the FY 2017-18 at the current price. The share of various sectors in Gross Value Added (GVA) during the last three years is given in the table below. (Updated up to Dec. 2018): source:-PIB

The above table shows that the service sector is the backbone of the Indian economy; contributing the most in Indian GDP followed by the industrial sector. But the declining percentage of agriculture and allied sector in the Indian GDP is the cause of concern for the policymakers because this sector still provides livelihood to around 53% population of the country but its contribution to the economy is declining year by year.

Indian Economy Post Covid19:

Ø  Sectors like public administration, defence, and communications services like broadcasting are doing well.

Ø  All other sectors have suffered sustenance and growth.

Ø  Industries in the organized sectors like PSUs, large and mega mines, power generating industries are doing reasonably well.

Ø  Industries of the small and medium types have suffered. This class of industries will suffer for a longer period because of their dependency on manual labors. Manual laborers have fled from the places of work because of reasons like (a) loss of jobs, (b) nil income, (c) lack of food and shelter. The pain and challenges that the labor class has experienced during their migration in exodus are not going to go away quickly. Industries that did not take care of their manpower during their difficult days will be deterrent in resuming smooth production processes in these industries.

Ø  Hotels and restaurants and tourism industries will face a pooh-pooh from the consumers for some period like 6 months to 12 months.

Ø  There will be millions of numbers of the potent workforce in the idle stage. These people have lost the minimum life-sustaining requirements which they were getting, even though as non-permanent workforce, before March 2020. Lack of jobs will lead to many disturbing activities as these unemployed but capable people will pass through need and depressions.

Ø  A faster job market recovery will speed up economic healing and reduce the risk of income inequality and social stress.

Ø  Policymakers will need to inject confidence back into wary consumers.

The ways and means to strike a balance will be difficult because of differences in opinions between the decision-makers and policymakers in different states. It is imperatives for all to be guided by the Government in the Center because the covid19 pandemic is a national problem.

            A complete paradigm shift in the thinking process and precise foci in the revival of all sectors is required. The paradigm shift has to be equally powerful and with good intent from each and every citizen who is capable to contribute to the economic revival of the country.

            The factors that will determine the shape of economic recovery will include the length of the pandemic, the effect on jobs and household incomes, and the extent of fiscal the stimulus provided by the government.

            According to a detailed analysis by Pronab Sen, former Chief Statistician of India that was published in Ideas for India over the weekend, India’s economy will contract not just this year but also in 2021-22.

The table shows how India’s absolute GDP (in Rs Trillion, which is the same as Rs Lakh Crore) is likely to struggle to even come back to the 2019-20 level by 2023-24, which is the last year of this government’s current term.

It is of importance to know how our Indian economy will recover from the present recession arising out of the covid19 pandemic.

The economy recovers from a recession in different forms. According to economics, the recoveries of the economy from recessions are described in V, U, L, or Z shaped. These names are based on the shape seen on a chart of relevant economic data. Graphically these types appear as:

The V - shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics. The recoveries that followed the recessions of 1920-21 and 1953 in the U.S. are examples of V-shaped recoveries.

The U-shaped recovery is a type of economic recession and recovery that resembles a U shape when charted. This shape occurs when the economy experiences a sharp decline in these metrics without a clearly defined trough but instead a period of stagnation followed by a relatively healthy rise back to its previous peak. U-shaped recoveries happen when a recession occurs and the economy does not immediately bounce back but tumbles along the bottom for a few quarters. Examples of U-shaped recoveries are the 1973-75 Nixon recessions and the 1990-91 recessions following the S&L crisis.

The L-shaped recovery is characterized by a slow rate of recovery, with persistent unemployment and stagnant economic growth. L-shaped recoveries occur following an economic recession characterized by a more-or-less steep decline in the economy, but without a correspondingly steep recovery. When depicted as a line chart, graphs of major economic performance may visually resemble the shape of the letter “L” during this period. L-shaped recoveries are characterized by persistently high unemployment, a slow return of business investment activity, and a sluggish rate of growth in economic output, and are associated with some of the worst economic episodes through history. A common thread in L-shaped recoveries is a massive fiscal and monetary policy response to the preceding recession, which may slow down the economy’s recovery process. 

When referring to recessions and the periods of recovery that follow, economists often refer to the general shape that appears when charting relevant measures of economic health. For instance, employment rates, gross domestic product, and industrial output are indications of the current state of the economy. In an L-shaped recovery, there is a steep decline caused by plummeting economic growth followed by a shallower upward slope indicating a long period of stagnant growth. In an L-shaped recession, recovery can sometimes take several years.

Looking at the situations that is now prevailing with effect from 24^th of March 2020 it is very likely that recovery of economy back to its track will follow the U-shape in India. It will take quite a good period of about 12 to 24 months time for the Indian economy to be back on the track.

Painfully the sectors in terms of micro-economy scale that will experience the longest time to recover are (a) hospitality, (b) tourism, (c) start-ups, (d) entertainment, (e) shopping malls, (f) food and services, and (g) textile. The sectors that would see the least effects are (a) online services, (b) conventional agriculture (as it was pre-COVID and post-independence period), and (c) r&d. The workforce that constitutes non-permanent types and casual in nature will bear the brunt. People from this group will be the worst sufferers. The middle-class people who always make a tight rope walk with respect to revenues and self-esteem will be the next worst sufferers.  

            Tough time is ahead of us and time alone will tell how each one will cope and survive the economic stress. India will make the recovery very likely in the U-shape form.

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