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Target to restart India economy

Target to restart India economy
NEW DELHI, SEP 1 (AGENCIES) | Publish Date: 9/1/2020 12:47:34 PM IST

India’s GDP needs to rise annually at 8-8.5 per cent to create opportunities in the post COVID-19 era, and the country risks a decade of stagnating incomes and quality of life if urgent steps are not taken to spur growth, says a report.

According to the report by McKinsey Global Institute (MGI), the country will have to undertake a slew of reform measures over the next 12-18 months with the aim of increasing productivity and creating jobs. Given the increasing urbanisation and population trends, there will be 90 million additional workers in search of non-farm jobs by 2030 and India will have to triple job creation to 12 million gainful non-farm jobs per year from the 4 million achieved between 2013 to 2018, it said.

The report warns that lower growth of between 5.5 to 6 percent would help the economy absorb only about six million new workers, marking a decade of lost opportunity. The coronavirus pandemic and the resulting lockdown combined with an already slowing pre-COVID economy, has dealt a brutal blow to the economy resulting in a 24 percent contraction in GDP in the April to June quarter, the sharpest fall ever recorded.

The report highlights the need to boost the manufacturing and construction sectors and focus on trends like digitization, automation and sustainability to create about $2.5 trillion in economic value by 2030, and support 112 million jobs.

The co-authors of the report, Gautam Kumra, managing director at McKinsey India, Shirish Sankhe, senior partner at McKinsey and Anu Madgavkar, partner at the McKinsey Global Institute spoke to CNBC-TV18 about the report.

India’s economy witnessed its worst slump since the country started releasing quarterly data in 1996. Experts fear that India is staring at a recession- that will happen only if it reports contraction in the next quarter as well, which experts say is likely.

A country is considered to be in recession if it reports contraction for two successive quarters. India was last in recession in 1980, its fourth one since independence.

Workers in cities in the age group of 18 to 25 years were already much less likely to be in formal jobs and more likely to be employed informally and paid less, wrote Shania Bhalotia, Swati Dhingra and Fjolla Kondirolli, the authors of the report ‘City of dreams no more: The impact of Covid-19 on urban workers in India.’ “The youngest workers were much more likely to want a job guarantee, primarily for the livelihood security that they provide in these hard times,” they wrote.

From hotels to trade, electricity generation, manufacturing and construction, almost every segment of the Indian economy showed a sharp contraction during the first three months of the financial year. The only sector that posted positive growth was agriculture, at 3.4%.

By all accounts, a quick recovery is unlikely in India, and it is only in the last three months of the year that growth is expected to return to positive territory. Cases continue to spike and lockdowns are ongoing in several areas. As a result, consumer demand, which determines 60% of GDP, is unlikely to return in a hurry as most people are stepping out only to buy essentials.

India’s economy was already faltering when Covid-19 struck. Last year, unemployment touched a 45-year high and growth dipped to 4.7%, the lowest in six years. Output was shrinking as demand fell and banks were burdened by a mountain of debt.

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