Economy in current fiscal expected to contract by 7.7%
Srinagar, Jan 29: India’s real GDP to record a growth of 11% in 2021-22 and nominal GDP by 15.4% -the highest since independence, according to Economic Survey 2020-21 tabled by the Union Finance Minister Sitharaman in the Parliament on the first day of the budget session.
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector and prospects for robust growth in consumption and investment, it said.
The Economic Survey 2020-21 states that the rebound will be led by the low base and continued normalization in economic activities as the rollout of COVID-19 vaccines gathers traction.
The fundamentals of the economy remain strong as gradual scaling back of lockdowns along with the astute support of Atmanirbhar Bharat Mission have placed the economy firmly on the path of revival.
This path would entail a growth in real GDP by 2.4% over the absolute level of 2019-20-implying that the economy would take two years to reach and go past the pre-pandemic level. These projections are in line with IMF estimate of real GDP growth of 11.5% in 2021-22 for India and 6.8% in 2022-23. India is expected to emerge as the fastest growing economy in the next two years as per IMF.
The Survey says, India’s mature policy response to this “once-in-a-century” crisis provides important lessons for democracies to avoid myopic policymaking and demonstrates the significant benefits of focusing on long-term gains.
India adopted a unique four-pillar strategy of containment, fiscal, financial, and long-term structural reforms. Calibrated fiscal and monetary support was provided given the evolving economic situation, cushioning the vulnerable in the lockdown and boosting consumption and investment while unlocking, mindful of fiscal repercussions and entailing debt sustainability. A favourable monetary policy ensured abundant liquidity and immediate relief to debtors via temporary moratoria, while unclogging monetary policy transmission.
The Survey says, India’s GDP is estimated to contract by 7.7% in FY2020-21, composed of a sharp 15.7% decline in the first half and a modest 0.1% fall in the second half. Sector-wise, agriculture has remained the silver lining while contact-based services, manufacturing, construction were hit hardest, and have been recovering steadily. Government consumption and net exports have cushioned the growth from diving further down.
As anticipated, while the lockdown resulted in a 23.9% contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5% decline in Q2 and the recovery across all key economic indicators. Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in Q2 after the sharp decline in Q1.
As India’s mobility and pandemic trends aligned and improved concomitantly, indicators like E-way bills, rail freight, GST collections and power consumption not only reached pre-pandemic levels but also surpassed previous year levels, it said.
The reignited inter and intrastate movement and record-high monthly GST collections have marked the unlocking of industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow.
Agriculture Green Shoots
Dwelling on the sectoral trends, the Survey says that the year also saw the manufacturing sector’s resilience, rural demand cushioning overall economic activity and structural consumption shifts in booming digital transactions.
It adds that Agriculture is set to cushion the shock of the COVID-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4% in both Q1 and Q2.
A series of progressive reforms undertaken by the government have contributed to nourishing a vibrant agricultural sector, which remains a silver lining to India’s growth story of FY 2020-21.
A palpable V-shaped recovery in industrial production was observed over the year. Manufacturing rebounded and industrial value started to normalize. Indian services sector sustained its recovery from the pandemic driven declines with PMI Services output and new business rising for the third straight month in December.
Bank credit remained subdued in FY 2020-21 amid risk aversion and muted credit appetite. However, credit growth to agriculture and allied activities accelerated to 7.4% in October 2020 from 7.1% in October 2019.
October 2020 saw resilient credit flows to sectors such as construction, trade and hospitality, while bank credit remained muted to the manufacturing sector. Credit growth to the services sector accelerated to 9.5% in October 2020 from 6.5% in October 2019.
High food prices remained a major driver of inflation in 2020. However, inflation in December 2020 fell back into the RBI’s target range of 4+/-2% to reach 4.6% to reach 4.6% year-on-year as compared to 6.9% in November. This was driven by a step fall in food prices, particularly of vegetables, cereals, and protein products and favourable base effects.
The external sector provided an effective cushion to growth with India recording a current account surplus of 3.1% of GDP in the first half of the year, largely supported by strong services exports, and weak demand leading to a sharper contraction in imports (with merchandise imports contracting by 39.7%) than exports (with merchandise exports contracting by 21.2%). Consequently, the Foreign exchange reserves rose to cover 18 months of imports in December 2020.
External debt as a ratio to GDP rose marginally to 21.6% at end-September 2020 from 20.6% at end-March 2020. However, the ratio of foreign exchange reserves to total and short-term debt (original and residual) improved because of the sizable accretion in reserves.
India remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies. Net FPI inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020, as investors’ risk appetite returned, with a renewed search for yield, and US dollar weakened amid global monetary easing and fiscal stimulus packages. India was the only country among emerging markets to receive equity FII inflows in 2020.
Buoyant Sensex and NIFTY resulted in India’s market-capitalisation to Gross Domestic Product (GDP) ratio crossing 100% for the first time since October 2010. This, however, raises concerns on the disconnect between the financial markets and real sector.
Exports are expected to decline by 5.8% and imports by 11.3% in the second half of the year. India is expected to have a Current Account Surplus of 2% of GDP in FY21, a historic high after 17 years.
Gross Value Added growth
On the supply side, Gross Value Added (GVA) growth is pegged at -7.2% in 2020-21 as against 3.9% in FY:2019-20. Agriculture is set to cushion the shock of the Covid-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4%, while industry and services are estimated to contract by 9.6% and 8.8% during the year.
The Survey underlines that the year 2020 was dominated by the COVID-19 pandemic and the ensuing global economic downturn, the most severe one since the Global Financial Crisis. The lockdowns and social distancing norms brought the already slowing global economy to a standstill. Global economic output is estimated to fall by 3.5% in 2020 (IMF January 2021 estimates). In view of this, Governments and central banks across the world deployed a range of policy tools to support their economies such as lowering key policy rates, quantitative easing measures, loan guarantees, cash transfers and fiscal stimulus measures.
India recognized the disruptive impact of the pandemic and charted its own unique path amidst dismal projections by several international institutions of the spread in the country given its huge population, high population density and overburdened health infrastructure.
The Survey observes that the intense lockdown implemented at the start of the pandemic – when India had only a 100 confirmed cases – characterized India’s unique response in several ways. First, the policy response was driven by the findings from both epidemiological and economic research.
Specifically, faced with enormous uncertainty about the potential spread of the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent (2001) that recommends a policy focussed on minimising losses in a worst-case scenario. Faced with an unprecedented pandemic, loss of scores of human lives captured this worst-case scenario.
Moreover, epidemiological research highlighted the importance of an initial, stringent lockdown especially in a country where high population density posed difficulties with respect to social distancing. Therefore, India’s policy humane response that focused on saving human lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-term gains both in the lives saved and in the pace of the economic recovery. The scores of lives that have been saved and the V-shaped economic recovery that is being witnessed bear testimony to India’s boldness in taking short-term pain for long-term gain.
Second, India recognised that the pandemic impacts both supply and demand in the economy. The slew of reforms – again unique amidst all major economies – were implemented to ensure that the supply-side disruptions, which were inevitable during the lockdown, are minimized in the medium to long-run.
The demand side policy reflected the understanding that aggregate demand, especially that for non-essential items, reflects precautionary motives to save, which inevitably remains high when overall uncertainty is high. Therefore, during the initial months of the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India did not waste precious fiscal resources in trying to pump up discretionary consumption.
Global eCommerce boom and local traders of Kashmir
A Structural Shift in the Market Preferences
Dhaar Mehak M
Tabeen J Wali
The global eCommerce market was expected to be worth a total of $5.7 trillion by the end of 2022. That figure is estimated to grow over the next few years; exhibiting the fact that borderless eCommerce is becoming a profitable option for online retailers. It is giving a market space to one and all with a potential or product to sell. Only two years ago, 17.8% of sales globally were made from online purchases. That number is again expected to reach 20.8% by the end of 2023; a 2 percentage point increase in eCommerce market share. This growth is expected to continue, reaching 23% by 2025, translating to an increase of 5.2 percentage points in just five years.
Economic projections and forecasts predict the global retail sales growth to rise even further and take up more retail market share. According to research completed by eMarketer and Statista, online retail sales will reach $6.51 trillion by 2023, with eCommerce websites taking up 22.3% of total retail sales. Although retail has had it tough since 2020, every national market covered by eMarketer saw double-digit eCommerce growth. The trend continues globally: Latin America (including Peru, Brazil, Argentina, Chile, Colombia, and Mexico) saw $104 billion in eCommerce sales in 2022, up 22.4% from $85 billion in 2021. The UK is forecasted to continuously increase by $85.7 billion (+42.88%) within the next years.
China continues to lead the global eCommerce market, accounting for 46.3% of all retail eCommerce sales worldwide, with total online sales just over the $2.8 trillion mark in 2022. It also has the world’s most digital buyers, 842.1 million, representing 39.4% of the global total. The US eCommerce market is forecasted to reach more than $904.9 billion in 2022, a little over a third of China’s. After China and the US, the third-largest eCommerce market is the United Kingdom, taking up 4.8% of the retail eCommerce sales share. The UK is followed by Japan (3%) and South Korea (2.5%). The top five eCommerce markets haven’t changed since 2018. Trends from eMarketer suggest that these markets will stay in the top five until 2025.
While the whole world has been witnessing the structural transformation and shift in terms of market transformations from retailing to online shopping, the Indian economy has been a part of the process. In light of the same, the Jammu and Kashmir economy has had an equal and equally growing participation in the same. The advent of the internet and the arrival of eCommerce technology in the lives of average Kashmiris have changed the shopping preferences and experiences of the locals. People no longer have to battle issues like vehicular traffic on the roads or wait in queues for long hours. Accredited to the growth of eCommerce technology, locals have been empowered to shop anywhere-anytime just at the click of a button.
However, in the recent past, there was no (or very limited) concept of eCommerce in Kashmir. Smartphone availability to the general public was rare. The masses were barely aware about the internet facilities and global communication channels. There was no idea of online shopping, online transactions, etc. With time and the availability of the internet along with the growing mobile phone penetration, eCommerce made its presence felt in the valley. However, due to slower internet connection issues like 2G and lack of awareness, people initially had apprehensions and thus were afraid of buying things online.
Tracing the roots and history of online shopping awareness in J&K, it dates back to the year 2008 when the mobile internet was making its headway into the valley. People were gaining affordable and available access to wireless internet. It was around the same time that after bearing a lot of hardships with sorting out the supply chains Flipkart became operational and function in the region. the initial years were tough and hard but the company stood steadfast. It took some time for Flipkart to cut through lots of hurdles alone and get to success. Being the only player in the online market in the region for quite some time it was a big deal to keep surviving and floating. But the outcomes were a success.
Steadily as people gain access to quality internet services and advanced smartphone technology the word spread. It was observed that doorstep delivery was actually a reality. At the same time, the quality of the delivery matched the promises of the website. The trust factor got built. Witnessing optimism within the J&K market, other companies like Amazon, SnapDeal, and other local online stores, etc., started jumping in to tap into the growing eCommerce market. The consumers got the opportunity of choosing from a wide range of products. Not only that, discounts and sales from time to time offer big benefits to consumers.
All these factors have been contributing towards a structural market shift. People from across J&K have been moving from in-person retail shopping to online shopping. While the consumers in the region have surely benefitted both in terms of utility/satisfaction and profit maximization, the retailers have been losing.
The J&K economy is predominantly characterized as a consumer economy. The characteristics of being a producer and self-sufficient economy have been limited and rather absent for a long time. It is the retailer of J&K, who has been at the losing end on account of the growth of the online markets. Retailing has been one of the most common business ventures of people across the region of J&K. Setting up of the shops and selling various items has been a known venture. People for generations have been relying on this activity. Lately, the structural change is challenging this segment of J&K businessmen and the immediate solution visible is evolution. These businessmen, particularly retailers, need to adjust to the changing market and make themselves competitive enough to compete with global online sellers. The only other option is to let the business supper, deteriorate and shut down.
Women shaping informal sector in Kashmir
The informal sector is defined as the unregistered part of an economy. In a traditional economy, it is assumed that every business entity is formally registered with the government. A proper registration of a business unit is associated with a number of economic, political and social factors. All the registered units to begin with are enumerated in the industrial census. It keeps the government and policy makers informed about the number and nature of the units. The economic and industrial policies are made and shaped in light of these numbers. Social welfare is decided based on the outcomes coming from these registered units. And the long run industrial and economic planning is carried systematically based on information and evidence from the ground.
Quite contrary to this established smooth channel of economic growth and transition, the developing and under-developed parts of the world have been reflecting self-curated unique trends. First of all, the formal sector has not been able to expand as expected. This has led to limited employment opportunities coming from this sector to the ever-increasing populations and youth bulges. As an instinct to survive, people are forced to find some or other kind of employment. This has led to the creation of and the growth of the informal sector across these pockets of the world. The case of India is one of the fundamental ones. The Indian economy is characterized as having one of the most unique and large informal sectors across the world. 80% to 85% Indian population is estimated to be employed directly and indirectly in the informal sector.
Empirics show that Jammu and Kashmir has reflected growth in the informal sector over time. On the eve of the creation of the welfare state in the region headed by Sheikh M Abdullah, a socialistic model of development was brought into practice. It was called, ‘The Naya Kashmir Manifesto’. Among other things, one of the main agendas of the manifesto was to set in place a public sector-led industrialization process in J&K. As such, all the industries established under the Naya Kashmir Manifesto are a-priori classified as the formal sector firms. The political instability and fragility in the region kept on increasing and the focus of the government as predicted by theory and validated by practice shifted to peace restoration activities. This gave a back-lash to the public sector lead industrialization process in the region.
Steadily people began to look for alternative means of livelihood and subsistence. This set in place the informal sector across all the pockets of the region. The instability during the decades of 1990s, followed by various political and natural shocks during the 2000s made people realize that each person must be skilful and must practice the same in order to keep on bringing in sustenance money. The Kashmir division is particularly known to be diversified in various types of craft. From Ari work, through Tilla designing, people have bene utilising their skills to cash in some money. The wood-carving, Pashmina making and many distinct skills indigenous to Kashmir have been practiced in the informal sector by both men and women over time.
Of late there has been an Information Technology boom. The 2000 AD has seen a drastic revolutionising of the world through the spread of the World Wide Web. Mobile phone penetration has made the world an accessible global village. The social media applications of Facebook, Instagram and WhatsApp have empowered people in a number of ways. People started off with sharing their pictures and highlighting their skills online on social media platforms. On receiving appreciation their confidence rose and soon people started to ask if some of their skills could be shared or used.
These platforms have greatly affected the economic well-being of the women located across various regions of Kashmir. Initially, women from different ages and social backgrounds strolled these platforms. Some of them enhanced their existing skills or learnt new ones online. This was followed by trying a hand at the commercialisation of the same, which in many cases has yielded a positive response. There are a number of examples that can be quoted as brief case studies in the present article.
The Instagram page by the handle of @makeupshakeupbynidanazir evolved over time. Nida has always been fond of make-up and lipsticks. As a child she always bought makeup and accessories from her pocket money. Applied the same on her dolls, herself, her cousins and her mother and grandmother occasionally. Over time she mastered the skill. From turning pages of magazines to learning online through YouTube etc. her skills enhanced steadily. It was her friend’s engagement and Nida offered to do her make-up. The outcomes were really appreciable. The friends decided to open up on online platform to display her make-up skills. The bookings soon followed and today Nida is a known name in the local make-up industry.
Saba married a doctor who lived in Saudi Arabia. Soon after her marriage, she moved to KSA with her husband. She always liked chocolates and began exploring the chocolates of KSA. Later in 2016, she shifted back to Kashmir with her kids. The kids and herself started missing the unique chocolates of KSA. One day Saba decided to curate her own. The chocolates turned out to be good. She shared the same with her sister and cousins. She was influenced to upload the same on Instagram. Steadily, the popularity of her chocolates grew and orders started to flow in. Today Saba is an established name in the curated and customized local chocolate industry.
There are innumerable other success stories which will be discussed steadily. But the underlying point of the present article is that the informal sector in Kashmir has been growing ever since the formal industrial set-up took a back-set during 1950s. Initially it was hidden and the returns were menial or limited. However, with the growth of the internet boom the women in the region have been able to harness the benefits and the informal sector has been growing steadily and sustainably. In Kashmir, this sector can be directly related to women’s empowerment and is expected to increase steadily over time.
The author teaches at the Department of Economics, Islamic University of Science and Technology, J&K and can be reached at firstname.lastname@example.org
Rural mart inaugurated under NABARD scheme
Shopian, Sept 20: National Bank for Agriculture & Rural Development (NABARD) has collaborated with National Rural Livelihood Mission (NRLM) for extending the grant support to SHGs promoted by NRLM for setting up rural marts. These marts aim to promote and provide a platform for women’s self-help groups to market their handmade products.
The rural mart was inaugurated on 20 Sept 2022, at Shopian
Dr AK Sood, CGM NABARD J&K, SSP Shopian Tanushree, NRLM Reyaz Ahmad, and ADDC Shopian, Manzoor Hussain were present for the inauguration ceremony.
The mart will give numerous SHGs an opportunity to sell their homemade goods, including apparel, handloom and handicraft products, homemade food items, dry fruits, and more.
For a period of three years, NABARD has agreed to commit Rs 4.79 lakh as financial support for each rural market. NABARD will pay for the components, such as shop rent, salesman salaries, marketing costs, and other miscellaneous expenses.
Dr Sood, CGM NABARD, urged the female SHG members to use the mart as an opportunity for economic growth and to guarantee the continuity, quality, and quantity of local goods for both locals and tourists.
Additional Mission Director NRLM commended SHGs for taking such a unique initiative in the district.
“Rural mart to be run by female SHGs is the first step towards women empowerment in the district,” said Tanushree, SSP Shopian
Members of various SHGs from the district attended the event. Deputy General Manager NABARD Surinder Singh, District Development Manager NABARD Rouf Zargar, DPMs NRLM Uzma Mehraj and Irfan were also present on the occasion.
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