The government is optimistic about the Indian economy’s trajectory of recovery and expects a V-shaped recovery, said TV Somanathan, expenditure secretary, during a recent online conference. “I must tell you that we are somewhat optimistic that among the various shapes of recovery...We are expecting something like a V-shaped recovery. This year being at the bottom of the V and the next year being closer to the top of the V,” Somanathan said. The statement came amid initial improvements in various indicators from rising goods and services tax collections to falling unemployment, showing a gradual pick-up in economic activity since May.
However, Gita Gopinath, chief economist with the International Monetary Fund (IMF), cautioned that an initial spike may not lead to a 'V' shaped recovery. “My fear is that the beginning of the recovery will show a spike initially, and then going forward, I think we could end up with something much more flat,” Gopinath told UK’s House of Commons Treasury Committee. “It’s a little too early at this point to project what the rest of that path would look like.”
Globally, this will likely be a prolonged recovery, with activity levels below pre-crisis levels even by the end of 2021. There are still upside risks, she said. Gopinath also reminded lawmakers that the impact of the pandemic in poor countries is much worse. “The UK having negative growth of 10% is very different to a low-income country having a negative growth rate of 10%,” she said. The projections for poverty in such countries are “really sad”. The sectors worst affected by the pandemic are job intensive, and low-skilled workers, the young, women and minorities have taken a disproportionate hit, Gopinath said.
Many economists and analysts in India are not as optimistic as the government is for a V-shaped recovery. Private Final Consumption Expenditure is the prime driver of Indian economy with about 60 per cent share in GDP. Without a demand stimulus, a V-shaped recovery is not plausible. Bogged down by job losses, pay cuts and dwindling business income, private consumption is limited to only 'essential consumption'. Discretionary consumption and credit-led consumption are a strict 'No' right now, particularly in urban India. The stimulus package announced by the government does not have a large fiscal stimulus component to boost private consumption.
