QUESTION : Examine the steps taken by the Govt.of India to revive Indian economy and its  challenges as well during covid-19 pandemic.



  • Impact of covid-19 on Indian economy and taken steps to revive it.


  • The former Prime Minister Dr Manmohan Singh discusses the economic impact of the COVID-19 pandemic and suggests a few policy measures to address this challenge.


  • slowing growth, rising unemployment and a strained financial system. The epidemic has made it more painful.
  • Global economy is expected to experience one of its worst years in history and the Indian economy is expected to contract significantly for the first time in many decades.
  • COVID-19 pandemic and the subsequent regulations have had adverse impacts on livelihoods and the larger economy. The economic impact of COVID-19 is expected to be bigger than the health impact itself.
  • contracting economy can adversely impact our ability to feed and educate our children owing to a shortage of financial resources.
  • A significant number among the weaker sections of our society may slip back into poverty, a rare occurrence for a developing nation.
  • Many enterprises may shut down. An entire generation may be lost due to severe unemployment.
  • A contracting economy can adversely impact our ability to feed and educate our children owing to a shortage of financial resources.



  • At a time when agriculture activity has been robust, data show that just in the month of June, 62 million people demanded work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
  • This is thrice the usual number and 10 times more than the total number employed by the entire listed corporate sector.
  • It is evident that most of them are displaced non-agricultural workers, struggling to make ends meet.
  • Such is the scale and enormity of despair in our labour force.
  • Fortuitously, the MGNREGA programme has proved to be a support of support in such times but it is not enough.
  • A meaningful cash transfer can restore confidence in these families.
  • Money in the hands of people can provide an immediate sense of security and confidence, which is the cornerstone to restoring economic normalcy.
  • India is perhaps the only large democracy that has not provided direct cash assistance of a significant amount during the COVID-19 crisis.
  • There seems to be a misplaced sense of apprehension that providing large cash assistance may prevent people from returning to the workforce when needed and starve industry of labour.
  • While it is inordinately late, it is still prudent to provide a significant sum as direct cash assistance to the poor which can inject confidence in them to weather this COVID-19 storm



  • In urban areas, it is absolutely essential to revive the Micro, Small and Medium Enterprises (MSMEs).
  • Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out.
  • The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed.
  • Urban local bodies must take charge of this programme and would need to be revamped for this purpose.
  • “Permissible” work under this programme should include, for the present, work in the MSMEs.
  • This would ensure labour supply for the MSMEs and also cover their wage bills at the central government’s expense until they re-acquire robustness.
  • It should imaginatively also include care work, including of old, disabled and ailing persons, educational activities, and ensuring public services in slums.



  • The immediate need is to provide free food and cash transfers to those rendered incomeless.
  • Providing every household with ₹7,000 per month for a period of three months and every individual with 10 kg of free foodgrains per month for a period of six months is likely to cost around 3% of our GDP (assuming 20% voluntary dropout).
  • This could be financed immediately through larger borrowing by the Centre from the Reserve Bank of India.
  • The required cash and food have to be handed over to State governments to make the actual transfers, along with outstanding Goods and Services Tax compensation.
  • Putting money in the hands of the poor is the best stimulus to economic revival, as it creates effective demand and in local markets.
  • Hence, an immediate programme of food and cash transfers must command the highest priorities.


  • The pandemic has underscored the extreme importance of a public health-care system, and the folly of privatisation of essential services.
  • The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor.
  • Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness.
  • We must improve their status, treat them as regular government employees and give them proper remuneration and associated benefits.
  • But in the medium term, public revenues must be increased.
  • This is not because there is a shortage of real resources which, therefore, has to taken from other existing uses through taxation.
  • Since much underutilized capacity exists in the economy, the shortage is not of real resources; the government has to just get command over them.

 Problems Facing Indian ECONOMY :

  • Since 1991, the Indian economy has pursued free market liberalisation, greater openness in trade and increase investment in infrastructure. This helped the Indian economy to achieve a rapid rate of economic growth and economic development. However, the economy still faces various problems and challenges, such as corruption, lack of infrastructure, poverty in rural areas and poor tax collection rates.
  1. Unemployment :
  • Despite rapid economic growth, unemployment is still an issue in both rural and urban areas. The fast rate of economic growth has left unskilled workers behind, and they have struggled to find work in growing industries.
  1. Poor educational standard :
  • Although India has benefited from a high % of English speakers, (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate. This limits economic development and a more skilled workforce.
  1. Poor Infrastructure :
  • Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy.
  1. Balance of Payments deterioration :
  • Although India has built up large amounts of foreign currency reserves, the high rates of economic growth have been at the cost of a persistent current account deficit
  1. High levels of private debt :
  • Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However, there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore, if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future
  1. Inequality has risen rather than decreased :
  • It is hoped that economic growth would help drag the Indian poor above the poverty line.
  1. Large Budget Deficit :
  • India has one of the largest budget deficits in the developing world. Excluding subsidies, it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.
  1. Rigid labour Laws :
  • As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws.
  1. Inefficient agriculture :
  • Agriculture produces 17.4% of economic output but, over 51% of the work force are employed in agriculture. This is the most inefficient sector of the economy and reform has proved slow.
  1. Poor tax collection rates :
  • According to the Economist, India has one of the poorest tax to GDP rates in the whole world. India’s tax revenue as a % of GDP is just 12%.
  1. Business difficulties :
  • According to the World Bank, the ease of doing business in India is poor. India ranks 130/190. Big issues for companies include
  • Ease of enforcing contracts
  • Dealing with construction contracts
  • Paying taxes
  • Trading across border
  1. Inequality within regions :
  • India’s economic growth has benefitted some regions more than others. Technological hubs, such as Delhi and Mumbai have attracted higher-paying jobs. This has attracted an inflow of most mobile and skilled workers; this has created congestion in these super-cities but failed to address the poverty of rural areas, especially in the northeast


  • It is important to enlarge one’s diagnosis of India’s economic woes from mere GDP numbers to the underlying sentiments of fear, uncertainty and insecurity prevalent in people, firms and institutions.
  • Restoring confidence in people through direct cash assistance and other welfare programmes can help them live their lives and spend.
  • Restoring confidence among bankers through autonomy of institutions and processes will help them lend.
  • Restoring confidence among businesses with greater access to capital will help them invest and create jobs.
  • Restoring confidence among international organisations by re-establishing the credibility of our institutions will help get funding assistance and objective sovereign ratings.
  • Ensuring financial resources:
  • Improving capital adequacy of banks and providing credit guarantee schemes for corporates would require significant financial resources.
  • Given that the government is facing a major shortfall in revenues and that new avenues for tax revenues are not feasible in the short term, higher borrowing by the government is inevitable.
  • Deficit monetisation by the RBI, which involves printing money, must only be used as the last resort when all other options are exhausted.


  • The path to India’s sustained economic revival is through the philosophical pursuits of improving confidence and sentiments of all in our society, using the economic tools of fiscal and monetary policies.

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