{"id":72709,"date":"2020-12-15T17:12:53","date_gmt":"2020-12-15T11:42:53","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=72709"},"modified":"2021-03-11T14:51:55","modified_gmt":"2021-03-11T09:21:55","slug":"income-support-to-mitigate-income-losses","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/income-support-to-mitigate-income-losses\/","title":{"rendered":"Income support to mitigate income losses"},"content":{"rendered":"<p><strong>Context- <\/strong>The government\u2019s unusual reluctance in providing adequate support to the economy has purportedly been because of the lack of fiscal space.<\/p>\n<p><strong>Is India in a technical recession?<\/strong><\/p>\n<p><strong>Technical recession<\/strong>&#8211; The National Bureau of Economic Research (NBER) in the US defines a technical recession to be in progress when real GDP has declined for at least two consecutive quarters.<\/p>\n<ul>\n<li>However, the growth rate is measured on a quarter-over-quarter, not year-ago, basis.<\/li>\n<\/ul>\n<p><strong>According to JP Morgan\u2019s estimates<\/strong> \u2013 On quarterly basis, India\u2019s GDP India\u2019s GDP plunged 25 per cent in 2Q20 and recovered by 21 per cent in 3Q20.<\/p>\n<ul>\n<li>This implies that India did not suffer two consecutive quarters of negative growth.<\/li>\n<li>Therefore, India is not in a technical recession.<\/li>\n<\/ul>\n<p><strong>What is RBI\u2019s survey suggests to real GDP growth?<\/strong><\/p>\n<p>RBI latest survey of professional forecasters (SPF) has forecast that real GDP is expected to recover in FY22 to 12 percent from -9 percent in FY21.<\/p>\n<ul>\n<li>This implies that six quarters from now it will still be about 7 per cent below the pre-pandemic\u00a0path, or $300-billion-a-year of <strong>income losses<\/strong> across two years.<\/li>\n<li><strong>Concern-<\/strong> This can cause great damage to household and SME balance sheets, to income inequality, to poverty, and to women\u2019s employment<\/li>\n<\/ul>\n<p><strong>What are the issues with government policy?<\/strong><\/p>\n<ol>\n<li><strong>No income support<\/strong>&#8211; The income loss could have been mitigated by budgetary income support. However, the government chose not to provide this.<\/li>\n<\/ol>\n<ul>\n<li>Government consumption declined 22 per cent on a quarterly basis in 3Q.<\/li>\n<\/ul>\n<ol start=\"2\">\n<li><strong>Limited support to the domestic economy <\/strong>&#8211; Despite the apparent lack of fiscal space at home, the RBI has been funding other countries\u2019 fiscal deficits.<\/li>\n<\/ol>\n<ul>\n<li>RBI invested almost 3 per cent of GDP in foreign assets just in the first half of this fiscal year.<\/li>\n<\/ul>\n<ol start=\"3\">\n<li><strong>India\u2019s huge current account surplus is a bane<\/strong>&#8211; This reflected not economic strength but an economy imploding so much faster than others that India\u2019s demand for imports fell faster than foreign demand for Indian exports.<\/li>\n<li><strong>Ongoing recovery led by capital than wages &#8211; <\/strong>Indian companies reported a decline in sales. However, operating profits growth was in the double digits. Net profits grew even faster. Large firms achieved this by slashing costs.<\/li>\n<\/ol>\n<ul>\n<li>A recovery led by profits will not lead to higher investment demand as long as there is significant excess capacity in many parts of the Indian economy.<\/li>\n<li>As far as the labour market goes, unemployment has dropped below pre-covid levels, but that is partly because of a decrease in the labour participation rate.<\/li>\n<\/ul>\n<p><strong>What is the way forward?<\/strong><\/p>\n<p>Government needs to provide extensive income support to mitigate the income losses due to pandemic.<\/p>\n<ul>\n<li>Government needs to be ensured that the recovery is not hamstrung by damaged household and SME balance sheets because of the extended loss of wages and incomes.<\/li>\n<li>Infrastructure spending and reforms are critical to sustain medium-term growth, neither can boost near-term demand.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Context- The government\u2019s unusual reluctance in providing adequate support to the economy has purportedly been because of the lack of fiscal space. Is India in a technical recession? Technical recession&#8211; The National Bureau of Economic Research (NBER) in the US defines a technical recession to be in progress when real GDP has declined for at&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/income-support-to-mitigate-income-losses\/\">Continue reading <span class=\"screen-reader-text\">Income support to mitigate income losses<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":72722,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,1351,1310,9],"tags":[1284],"class_list":["post-72709","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-9-pm-daily-articles","category-daily-news","category-daily-news-updates","category-public","tag-eco_2","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2020\/12\/Income-support-to-mitigate-income-losses.jpg?fit=1280%2C720&ssl=1","views":{"total":31,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/72709","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=72709"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/72709\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/72722"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=72709"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=72709"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=72709"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}