- The Indian economic scenario is anything but heart-warming is stating the obvious. The indications of a slowing down of the economy were quite apparent even before the pandemic made its devastating presence last year. The economy was struggling to keep pace with the earlier benchmark needs no further elaboration as the experts from the field are relentlessly reporting the carnage. What else is in the news but for the pandemic causing havoc and the tottering economy failing to live up to the expectations of people battered by the double-whammy? Respite is definitely not in sight at least in the foreseeable future and hence, we all have to make do with difficult times without losing our bearings.
PC: Saurabh Sharma
- There is nothing much to cheer about as well since the second covid wave is bound to leave further destructions on the economy as well as people’s psyche. Make no mistake, there cannot be a more trying phase for economic policy-makers than one where the economy is stagnant with no signs of picking up along with steep rice in the prices. Keen observers on the fiscal front would have noticed what emerged this week after the wholesale price index (WPI) in April increased by 10.49%, the highest recorded in 11 years setting a frenzy amongst all the stakeholders. However, the headline doesn’t convey a clear picture of the underlying situation gnawing i.e. we are not yet in the midst of an overheating economy.
- The latest uptick in WPI is because of a rise in global energy and commodity prices that are benchmarked against a phase last year when they were witnessing free-fall owing to a variety of reasons courtesy, the pandemic. Further exploring the situation by going back to April 2020 would throw light on the Indian basket crude reaching a low of $19.90 a barrel as compared to the price rise to the tune of $63.40 in April 2021, an increase of 319% year on year. Similarly, the global price trends in key industrial commodities are also showing comparable patterns much to the chagrin of consumers. For instance, Iron Ore’s average price has seen a surge from $163.8 per dry metric ton in February to $179.8 per ton in April.
- No wonder, these two crucial commodities are feeding into prices across manufactured products leading to drastically muffled demands. Under normal circumstances, the standard procedure for the RBI’s inflation-fighting tools largely centered on squeezing demand to cool the economy. But there is an apparent demand shock largely owing to dissimilarities between the first and second covid waves. Unlike last time, rural India is witnessing catastrophic covid penetration without any recourse to assess the full impact which it could sustain in the first wave countervailing the urban impact of lockdowns. There are visible signs of weakness in demand persisting for a considerable amount of time.
- Further, the RBI’s published analysis of the financial results of 288 non-financial companies for the January-March quarter shows an increase in sales and net profits despite a rise in raw material costs. This is largely attributable to slower growth in salaries and other expenses. There will be a slackening of consumer demand that could be a more troublesome problem than inflation. Herein lies the prudence in adopting workable fiscal policies to offset the economic impact of the second wave. The economists and fiscal masters should be working overtime on the matter. Meanwhile, the people will clutch on to anything that will ease their pains.