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Four-fifths of income losses during 1st wave incurred by pvt sector: Report

Almost 80% of all income losses during the first wave of the pandemic in 2020 were incurred by the private sector in India, while in many other countries the entire loss was on respective governments

While the Centre had announced a Rs 21 lakh crore COVID-19 relief package, comprising 10 per cent of the GDP, the actual financial support was only about 2 per cent of GDP, as the rest was all credit-driven.

"Almost four-fifths of all income losses during the pandemic in 2020 were incurred by the private sector in the country, while the government sector bore only about a fifth of the losses.

"This is in stark contrast to Australia, Canada, and the US, where the government sector incurred all the losses and eventually ended up transferring net resources to the private sector," Motilal Oswal Financial Services analysts Nikhil Gupta and Yaswi Agarwal said in the report.

However, the private sector faced losses between 20 per cent and 60 per cent in France, Germany, Italy, Spain, and Britain, they added.

The income losses incurred by the Indian government by far were the least at only about 20 per cent, while it was 100 per cent in the US and Canada. In Australia, the public sector loss according to the report was 200 per cent.

Within the private sector, while the fiscal support made up for more than lost household (disposable) income in Australia, Canada and the US, households in India and South Africa incurred 61-68 per cent of economic losses during the year.

The corporate sector suffered higher-income losses in France and Spain to the tune of 30-35 per cent and gained massively in Australia and South Africa due to the fiscal support. The corporate sector in other nations, including India, saw moderate losses in the range of 12-16 per cent, while it was broadly balanced in Germany.

"This clearly reveals that due to extremely low fiscal support in India, the income losses for the private sector (especially households) were much higher compared to other major nations. And with India's private sector bearing such a large share of income losses, we are skeptical of a strong rebound in growth, as and when it happens," it said.

The report further noted that with the country reeling under a much more severe second wave of the pandemic, the major lesson for the government is to loosen its purse strings and support the household sector directly via income transfer/employment guarantee.

"Without a strong household sector, the Indian economy may find it difficult to achieve a strong revival on a durable basis in a post-pandemic era," it said.


Courtesy: Business Standard | May 19 2021

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