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Economics Assignment
Economics Assignment
Economics Assignment
Acknowledgement
Varsha
2001122
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Table of Contents
Introduction…………………………………………………………………………………4
What are Macroeconomic Variables? ………………………………………………………4
Indian Economy in Pre Covid-19 period……………………………………………………6
How has Covid-19 affected India’s economy? ……………………………………………..7
What do the main macroeconomic indicators tell us about India’s economy
during the pandemic? ………………………………………………………………………..8
Impact on income, consumption, poverty and unemployment after Covid-19 in India……...9
Global Inflation………………………………………………………………………………10
Domestic Inflation……………………………………………………………………………11
Steps taken by Government to ameliorate impact of pandemic on Indian economy………..12
Conclusion……………………………………………………………………………………17
Bibliography………………………………………………………………………………….18
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Introduction
The performance and behavior of the economy can be shown and analyzed by different
economic variables and these are known as macroeconomics variables. Thus macroeconomic
variables are indicators or pointers that exhibit the situation and trends of the entire economy or
show the pattern of the economic status of the country. Macroeconomic variables are crucial to
diagnose the health of every economy as well as to compare one economy with another. An
economy is thus accurately checked by observing its different macroeconomic variables.
Observation of macroeconomic variables also guides a country to draw a roadmap to become
developed from an underdeveloped and developing economy.
There was huge impact on macroeconomic variables after the huge pandemic of covid-19. The
economy of the country was widely impacted and there was a severe change in growth and
development of the economy all over the world.
Here, In this project I will discuss about the effects on the economic variables after the global
pandemic of Covid-19. We will discuss all the terms above briefly.
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Gross Domestic Product- The Gross Domestic Product is the monetary value of final goods and
services produced by an economy in a given period of time, usually one year. The Gross
Domestic Product is usually used as a measurement of a nation’s economic activity. If the GDP
grows, it means that the economy increased its output.
Inflation- Inflation is the proportional variation of the Consumer Price Index over a period of
time. Inflation is an important macroeconomic variable because it has a close relationship with
other variables. For instance, high economic growth with low unemployment imply a risk to high
inflation. High inflation rates are undesirable for an economy, because inflation doesn’t affect all
prices equally. High inflation rates produce changes in relative prices and affect economic
growth.
A negative (lower than zero) inflation rate is usually not a good sign, specially if unemployment
is high. When inflation is negative, it’s called deflation.Deflation combined with unemployment
is a dangerous situation because economic agents have incentives to hold domestic currency as a
way of savings. In this case, expansionary monetary policy can have little effect to increase the
GDP.
Interest Rate- The Interest Rate is the cost of borrowing money. The monetary authority (in the
US, the FED, in other countries, Central Banks) play a key role in the interest rates, using
regulation and intervention in monetary markets.
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Interest rates influence macroeconomics through several channels. For instance, a high interest
rate can be associated with lower inflation, because people will buy more bonds and bank
investments, and this will result in less monetary expansion.
Exchange Rates- Exchange Rates play an important role in macroeconomics. All economy
sectors that produce goods or services that can be exported or imported are heavily influenced by
the exchange rate.
There are two types of exchange rates:
Nominal Exchange Rate: The number of units of the domestic currency that are needed to
purchase a unit of a given foreign currency.
Real Exchange Rate: the ratio of a foreign price level and the domestic price level,
multiplied by the nominal exchange rate. It measures the price of foreign goods relative
to the price of domestic goods.
The nominal exchange rate influence the flow of capital, the price of financial assets and interest
rates in the short term. The real exchange rate influence the competitiveness of different
economic sectors of a country.
The shock is playing out in almost a similar manner in all countries of the world in terms of
demand and supply disruptions and the consequent economic slowdown. In case of India
however the problem might be more acute and longer lasting owing to the state the economy was
in, in the pre-Covid-19 period. By the time the first Covid-19 case was reported in India, the
economy had deteriorated significantly after years of feeble performance. GDP (gross domestic
product) growth rate has been on a downward trajectory since 2015-16. According to the official
statistics, GDP growth slowed down to 4.2% in 2019-20, the lowest level since 2002-03.
Industry, which accounts for 30% of GDP, shrank by 0.58% in Q4, 2019-20.
Unemployment reached a 45-year high. A major driver of growth in any economy is investment
by the private corporate sector. In the pre-Covid19 period, nominal values of private sector
investment have been declining.
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The total outstanding investment projects between 2015-16 and 2019-20 declined by 2.4%,
whereas new projects announced fell by 4%, as per data from the CMIE (Centre for Monitoring
Indian Economy). Consumption expenditure had also been falling, for the first time in several
decades. High frequency indicators (figure 4) of urban consumption demand show that sales of
passenger vehicles as well as consumer durables growth contracted in February 2020. Overall,
urban consumption appears to have lost steam in Q4. Among the indicators of rural consumption,
motorcycle sales and the consumer nondurable segment remained in contraction in February
2020, reflecting weak rural demand. The lock-down would have dampened any chance of revival
of consumption demand and private investment.
While economies worldwide have been hit hard, India has suffered one of the largest
contractions. During the 2020/21 financial year, the rates of decline in GDP for the world were
3.3% and 2.2% for emerging market and developing economies. Table 1 summarises
macroeconomic indicators for India, along with a reference group of comparable countries and
the world. The fact that India’s growth rate in 2019 was among the highest makes the drop due to
Covid-19 even more noticeable.
Comparing national unemployment rates in 2020, India’s rate of 7.1% indicates that it has
performed relatively poorly – both in terms of the world average and compared with a set of
reference group economies with similar per capita incomes. Unemployment rates were more
muted within the reference group economies and were also kept low by generous labour market
policies to keep people in work.
Despite the scale of the pandemic, additional budgetary allocation to various social safety
measures has been relatively low in India compared with other countries. Although the country
might look comparable to the reference group in non-health sector measures, the additional
health sector fiscal measures are less than half those in the reference group.
More worryingly, the Indian government's announced allocation in the 2021 budget for such
measures does not show an increase, once inflation is taken into account.
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While the macroeconomic statistics provide a snapshot of India’s economic position, they hide
the large and unequal effects on households and workers within the country.
Both wealth and income inequality has been on the rise in India (Ghatak, 2021). Estimates
suggest that in 2020, the top 1% of the population held 42.5% of the total wealth, while the
bottom 50% had only 2.5% of the total wealth (Oxfam, 2020). Post-pandemic, the number of
poor in India is projected to have more than doubled and the number of people in the middle
class to have fallen by a third (Kochhar, 2021).
During India’s first stringent national lockdown between April and May 2020, individual income
dropped by approximately 40%. The bottom decile of households lost three months’ worth of
income (Azim Premji University, 2021; Beyer et al, 2021).
Microdata from the largest private survey in India, CMIE’s ‘Consumer Pyramids Household
Survey’ (CPHS), show that per capita consumption spending dropped by more than GDP, and
did not return to pre-lockdown levels during periods of reduced social distancing. Average per
capita consumption spending continued to be over 20% lower after the first lockdown (in August
2020 compared with August 2019), and remained 15% lower year-on-year by the end of 2020.
Official poverty data are unavailable, and the CPHS data come with a caveat of ‘top’ and
‘bottom exclusions’. For example, official statistics show a rural headcount ratio of 35% in
2017/18 (Subramanian, 2019). But the CPHS data estimate it at 25%, which suggests exclusions
at the lower end of the consumption distribution (Dreze and Somanchi, 2021).
Despite these statistical concerns, the CPHS does provide consumption numbers for a large
sample of individuals, which can provide insights into changes in consumption levels arising
from the pandemic.
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Based on the latest CPHS data, rural poverty increased by 9.3 percentage points and urban
poverty by over 11.7 percentage year-on-year from December 2019 to December 2020. Earlier
months of the CPHS show that rural poverty increased by 14.2 percentage points and urban
poverty by 18.1 percentage points. Yet the actual increase in poverty due to Covid-19 is likely to
be higher than what the CPHS data suggest, as indicated by other surveys.
Global Inflation
In 2021, inflation picked up globally as economic activity revived with opening-up of
economies. COVID-19 related stimulus spending, mainly in the form of discretionary handouts
to households in major economies, along with pent up demand fueling consumer spending,
pushed inflation up in both advanced and emerging economies. In the advanced economies,
inflation has increased from 0.7 per cent in 2020 to around 3.1 per cent in 2021 (Figure 1) (IMF,
2022). The surge in energy, food, non-food commodities, and input prices, supply constraints,
disruption of global supply chains, and rising freight costs across the globe stoked global
inflation during the year. Crude oil prices also witnessed an upswing during the year on the back
of increased demand from recovering economies and supply cuts by the Organization of the
Petroleum Exporting Countries and its allies (OPEC+).
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However, in comparison to many Emerging Markets and Developing Economies (EMDEs) and
advanced economies, consumer price inflation in India remained range bound in the recent
months, touching 4.9 per cent in November 2021 and 5.6 per cent in December 2021, owing to
the proactive steps taken by the Government for effective supply management. As against this,
inflation in USA touched 7.0 per cent in December 2021, the highest since 1982, driven largely
by second hand vehicles and energy. While in the UK it hit a nearly 30 years high of 5.4 per cent
in December 2021 mainly on account of rising food prices. Among emerging markets, Brazil
witnessed high and rising inflation during 2021 which touched 10.1 per cent in December
2021(Figure 2). Inflation in Turkey has been in double digits, reaching 36.1 per cent in
December 2021. Argentina has witnessed inflation rates above 50 per cent during the last six
months.
Domestic Inflation
Retail inflation, as measured by Consumer Price Index-Combined (CPI-C) inflation, in India,
which was slightly above 6 per cent in 2020-21 owing to supply chain disruptions caused by
COVID-19 restrictions, lockdowns, and night curfews, moderated during the current financial
year. Retail inflation during 2021-22 (April-December) stood at 5.2 per cent (Table 1).
Wholesale inflation, based on Wholesale Price Index (WPI), after remaining benign during the
previous financial years, saw a sharp uptick during 2021-22 (April-December).
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A part of the observed rise in wholesale inflation could be attributed to the low base in the
previous year. However, rising input costs and global commodity prices also contributed to the
rise in wholesale prices.
As per the Estimates of Gross Domestic Product (GDP) for the First Quarter (Q1) of 2020-21
released by the National Statistical Office (NSO), Ministry of Statistics & Program
Implementation (MoSPI), the real GDP in India contracted by 23.9 per cent during the first
quarter of 2020-21 (as against 5.2 per cent growth in Q1 of 2019-20). India’s GDP growth rose
to (-) 7.5 percent YoY in Q2 (as against 4.4 per cent growth in Q2 of 2019-20), a sharp rebound
from the pandemic induced decline in Q1.
This was stated by Shri Anurag Singh Thakur, Union Minister of State for Finance & Corporate
Affairs in a written reply to a question in Lok Sabha today.
Giving more details, the Minister stated that as per the First advance estimates of GDP released
by NSO, GDP growth is estimated to contract by 7.7 percent in 2020- 21. Agriculture and allied
sector is estimated to grow at 3.4 percent in 2020-21. This sector is set to cushion the shock of
the COVID-19 pandemic on the Indian economy in 2020-21 that has contributed positively to the
overall Gross Value Added (GVA). Industry and Services sector are estimated to contract by 9.6
per cent and 8.8 per cent respectively during the year 2020-21.
Within Industry, Mining is estimated to contract by 12.4 per cent, Manufacturing by 9.4 percent
and construction by 12.6 per cent. The utilities sector has shown a sharp recovery and is set to
register a positive growth of 2.7 per cent in 2020- 21. Within Services Sector, contact sensitive
sectors like trade, hotels, transport & communication are estimated to contract by 21.4 per cent.
Citing RBI data, the Minister said that India’s GDP growth is estimated to contract by 7.5
percent in 2020-21 and grow by 10.5 percent in 2021-22.
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The fundamentals of the economy remain strong as gradual scaling back of lockdowns, along
with the astute support of AtmaNirbhar Bharat Mission has placed the economy firmly on the
path of recovery. Net payroll data of Employees' Provident Fund Organisation (EPFO) as on
20th January, 2021 shows a net increase of new subscribers in EPFO of 78.58 lakh in 2019-20 as
compared to 61.1 lakh in 2018-19. These estimates are net of the members newly enrolled, exited
and re-joined during the year as per records of the EPFO. During FY 2020-21 (AprilNovember),
the net new EPF subscribers stood at 45.29 lakh. (d) In FY 2020-21,
Giving more details about the schemes launched by the Government, the Minister said that the
Government announced a special economic and comprehensive package under AtmaNirbhar
Bharat including measures taken by RBI amounting to about Rs. 27.1 lakh crore – more than 13
per cent of India’s GDP– to combat the impact of the COVID-19 pandemic and to revive
economic growth. The package included, among others, in-kind and cash transfer relief measures
for households, employment provision measures under Pradhan Mantri Garib Kalyan Rojgar
Abhiyaan and increased allocation under MGNREGS, credit guarantee and equity infusion-based
relief measures for MSMEs and NBFCs and regulatory and compliance measures. Structural
reforms were also announced as part of the AtmaNirbhar Bharat Package which, inter alia,
included deregulation of the agricultural sector, change in definition of MSMEs, new PSU
policy, commercialization of coal mining, higher FDI limits in defence and space sector,
development of Industrial Land/ Land Bank and Industrial Information System, revamp of
Viability Gap Funding scheme for social infrastructure, new power tariff policy and
incentivizing States to undertake sector reforms.
The implementation of the package is reviewed and monitored regularly. Some of the salient
achievements include:
Under Pradhan Mantri Garib Kalyan Package valued at Rs. 2.76 lakh crore, free food
grain for 80 crore people, free cooking gas for 8 crore families, and direct cash transfer to
over 40 crore farmers, women, elderly, the poor and the needy were provided.
As on 3rd February, 2021, a total of 323.19 crore person-days have been generated in the
current FY 2020-21 under MGNREGS.
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Under Pradhan Mantri Garib Kalyan Rojgar Abhiyan, 50.78 crore person-days of
employment was generated incurring an expenditure of Rs. 39,293 crore.
Rs. 3 lakh crore Collateral-free Automatic Loans for Businesses, including MSMEs:
Under Emergency Credit Line Guarantee Scheme (ECLGS) 1.0, Rs. 2.14 lakh crore has
been sanctioned to 90.57 lakh borrowers of which Rs 1.65 lakh crore has been disbursed
to 42.46 lakh borrowers as on 8th January, 2021. Additionally, ECLGS has been
extended to 26 stressed sectors identified by the Kamath Committee and the healthcare
sector till March, 2021 with operational guidelines issued on 26th November for
maintaining the momentum of credit disbursements to close to 45 lakh business units. As
on 8th January 2021, additional credit amounting to Rs. 15,571 crore has been sanctioned
to 2,772 borrowers under ECLGS 2.0, of which Rs. 3,344 crore has been disbursed to
1,188 borrowers.
Rs. 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs are being provided.
Purchase of portfolio of Rs. 27,794 crore has been approved by PSBs and Rs. 1400 crore
are currently in process of approval/negotiations as on 4th December, 2020.
Rs. 30,000 crore Additional Emergency Working Capital Funding for farmers through
NABARD is being provided. Rs. 25,000 crore has been disbursed so far as on 4th
December, 2020. Under balance Rs. 5000 crore Special Liquidity Facility for smaller
NBFCs and MFIs, Rs. 130 crore has been disbursed as on 4th December, 2020.
Centre had enhanced the borrowing limit for the States from 3% to 5% of GSDP for
FY2020-21. Under the Special Window provided by Central Government to borrow the
shortfall arising out of GST implementation on behalf of States, Government of India has
borrowed an amount of Rs. 78,000 crores in 13 instalments, at an average interest rate of
4.75 per cent, and passed it on to the States and UTs as on 25th January, 2021.
Rs. 50,000 crore liquidity through TDS/TCS rate reduction has been effected.
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The Union Budget 2021-22 has also announced a number of measures to support broad-based
and inclusive economic development under six pillars listed as under:
Conclusion
India and all the World had a huge impact on its economy due to Covid-19 pandemic. The
government of the countries are working towards the re-strengthening of its economy. This
project dealt with the impact of the Covid-19 pandemic on the Indian economy. The health crisis has been
accompanied by an unprecedented economic crisis, where demand and supply have fallen autonomously
and concurrently, even as they depress each other in feedback loops. The intensity of this crisis was
worsen by the fact that the Indian economy was slowing down over a decade prior to the pandemic.
As a result, India’s capacity to deal with the pandemic stood seriously diminished in March 2020.
The pandemic-induced economic crisis after March 2020 affected all economic sectors. In
industry, micro and small enterprises were the most acutely affected. Surveys showed that about
35% of all MSMEs were likely to shut down permanently. The crisis also led to a major loss of
employment; at least 13 million people disappeared from the labour force between February and
October 2020.
Based on four scenarios of losses centered on workdays lost, we estimated that India’s GDP
growth rate in 2020-2021 may range from -6% to -21%.
The government’s economic response till August 2020 was supply-centered, and seriously
deficient on the demand side. The extent of short-run and long-run employment losses demanded
that the package focussed on the generation of employment and raising aggregate demand. Yet,
the financial allocation for employment generation was raised only marginally. In fact, on a year-
on-year basis, the expenditure of the Union government declined by 0.6% between April and
September 2020; the corresponding figure for April-September 2019 was +14.1%. The
government was hesitant to expand budgetary spending because it feared a rise in fiscal deficit.
Such fiscal conservatism is not new under India’s neoliberal regime. However, India has
remained steadfast in its adherence to fiscal conservatism even as advanced capitalist economies
have shed the dogma of austerity while responding to the pandemic. We believe this is
illustrative of a certain ideological orthodoxy that marks the present right-wing dispensation in
India. Given this conjuncture, the chances of an early revival in the Indian economy appear
dismal.
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