Covid Blues: A second wave could jolt the economy

Although the balance sheets of firms in the organised sector will be marginally impacted, lakhs of small businesses in the informal sector will be in deep trouble, and many will go out of business. Many people are opting for Gold loans in order to meet their expenses. NBFIs face renewed asset quality risks amid second COVID wave: Fitch Ratings

The second wave of Covid-19 pandemic is estimated to cause more jolt to the economy than expected. Some sectors highly affected by the First wave-like retail, hospitality, tourism and aviation, would be more badly bruised in the second wave. Two-thirds of the country have imposed partial lockdowns or curfews in the states or union territories. Karnataka state has imposed a complete lockdown for the following 14 days that other states may follow in the wake of increasing cases. 

This time, far more well-to-do households – nearly 250 million in all – have been affected, which will momentarily dampen consumption demand. Furthermore, the second wave has impacted rural areas, resulting in demand remaining depressed for a few months. The economy is currently stagnant, with growth in the services sector declining in particular. Still, demand for both goods and services should pick up around September when the holiday season starts. Savings are increasing, at least in the form of bank deposits, reflecting either an aversion to investment or extreme caution.

Although the balance sheets of firms in the organised sector will be marginally impacted, lakhs of small businesses in the informal sector will be in deep trouble, and many will go out of business. The dichotomy is seen in the recovery since the first wave would be amplified, and even more low-income families are likely to be affected.

Joblessness is now at an all-time high; according to CMIE statistics, unemployment has reached 8%, with ten million salaried workers out of work. Furthermore, researchers at Azim Premji University discovered that, although many employees did find jobs again after being laid off in the first round, the pay was significantly lower. The monthly per capita income for a typical four-person household in October 2020 was Rs4,979, a fifth less than it was in January 2020. Because of joblessness and lower wages, labour’s share of GDP has fallen from 32.5% in Q2FY20 to 27%  in Q2FY21. The demand for employment under MG-NREGS was the highest in April, both at the household and person levels, compared to any other month. Under these circumstances, CAPEX is unlikely to be a big measure for a few years, a dampener on job creation.

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