ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Livelihood Vulnerability, Policy Response and Coping Strategies during COVID-19

This article examines the livelihood vulnerability experienced by the informal workers in Kerala in terms of employment and income shortfalls during the first three months of the COVID-19 crisis. A discussion on the policy response of the state is also attempted to understand its role in reducing the levels of livelihood vulnerability. Kerala’s policy intervention is a road map for other states to contain the pandemic and its consequences.

GDP Growth?

Slump in the manufacturing sector and slack consumption demand remain major concerns.

Yet Another Major Setback

The slump in foreign direct investments will further constrain the growth prospects.

Current Inflation in India

Following the standard percepts for dealing with supply shocks, monetary policy continued to be easy for an extended period, while simultaneously huge fiscal stimuli were applied. Even when a more restrictive monetary stance was taken, the measures were not strong enough to restrain inflationary expectations. A soft monetary policy with a sizeable fiscal deficit can harden inflationary expectations and a perpetuation of a new higher normal for inflation.

The ‘What,’ ‘Why,’ and ‘How’ of a Widening Current Account Deficit

The reason for the increase in the current account deficit during first quarter of fiscal year 2022–23 is analysed. One reason for the widening of CAD has to do with India’s growing dependence on fossil fuels. There is also an element of lack of price competitiveness that is hurting exports. India is exporting low-valued technology-intensive goods whereas importing high-valued technology-advanced goods. The Government of India and the Reserve Bank of India are taking adequate measures to control the widening trade deficit. While some of these measures are yielding results in reducing CAD, external factors such as geopolitical tensions and the United States Federal Reserve System’s move of quantitative tightening are making CAD difficult to control.

Heading towards a ‘W’-shaped Recovery?

A sustained economic recovery requires that the huge growth deficit in industry be reversed.

A Bonanza for Corporates

And a trickle-down approach to reinstating livelihoods will mean a K-shaped recovery.

 

Is Borrowing Relief Ending Too Soon?

The Reserve Bank of India’s loan repayment moratorium, announced at the end of March 2020 and extended to 31 August 2020, was conceptualised and implemented as a COVID-19 crisis-response measure. While the moratorium ended, the crisis has not. Findings from a survey of 1,452 rural microfinance clients in Maharashtra, conducted in July–August 2020, show that a critical majority of borrowers continue to experience significant income deficits, and will not be in a position to service their debts for the foreseeable future.

Fiscal Restraint Trumps Fiscal Stimulus

The 2020 Union Budget has failed to provide any fiscal stimulus based upon the assumption that there is no fiscal space for providing growth stimulus. In doing so, it missed out on the opportunity of leveraging an additional fiscal space of around 10% of the gross domestic product that could have been tapped through revenue and expenditure rationalisation measures.

 

Inclusive Fiscal Adjustment for Reviving Growth

Unrealistic revenue projections leading to strong expenditure compression is primarily responsible for India’s growth deceleration. Growth will decelerate further without a programme of deep fiscal adjustment. How a fiscal space, amounting to over 6% of the gross domestic product, can be freed through such an adjustment programme is demonstrated. This space can be potentially used for an inclusive public expenditure-led strategy for reviving growth.

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