write six points on the topic "major challenges and issue before indian economy in 2020"
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through a turbulent period with key indicators hinting at a prolonged slowdown. The coronavirus pandemic has all sectors of the Indian economy since April and a recovery seems unlikely this year.
From contraction in growth to rising inflation and unemployment, challenges are aplenty. The sharply surging coronavirus cases make the case for recovery worse.
India’s GDP growth is expected to remain in negative zone for the entire year and projections for June quarter signal how adversely Covid-19 has disrupted the livelihood, particularly of the poor.
Also Read | Covid invasion halts India’s rural recovery, longer economic slowdown on cards
A recent SBI Ecowrap report said the national GDP may contract by 16.5 per cent in the first quarter of the current fiscal. The report also mentioned that India’s economic recovery could take much longer than expected.
The annual GDP is forecast to sink over 5.1 per cent. This will mark the weakest GDP growth rate in over four decades.
While some green shoots emerged in July, economists now say that they could be temporary in nature and the challenging Covid-19 scenario could prolong the economic crisis in India.
Here are five major challenges that Indian economy faces:
Weak demand
Stagnated demand seems to be the biggest challenge for the economy at the moment. Demand for key goods and commodities like fuel, food, consumer goods and electricity has fallen over the last few months.
While India’s demand woes began in 2019, the coronavirus pandemic only worsened the scenario. India’s consumer demand is declining due to drop in household incomes in the wake of major job losses in the wake of a raging pandemic that has forced closures of factories and businesses.
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Also Read | India’s economic recovery unlikely this year as pandemic rages on
Ballooning unemployment
The latest unemployment figures, released by the Centre for Monitoring Indian Economy (CMIE), are another evidence of economic weakness. The CMIE data show that nearly five million or 50 lakh salaried jobs were lost in July, taking the total number of layoffs in the formal sector to over 1.8 crore.
While some businesses in the informal sector have reopened post-lockdown relaxations, they are struggling to survive due to lack of demand, and constrained by the lack of available workforce.
Also Read | Over 1.8 crore salaried jobs lost since April, nearly 50 lakh in July: CMIE
Experts say most informal businesses depend on the cash flowing from the formal economy i.e. salaried jobs. The economic situation could worsen further if more salaried jobs are lost.
Lack of fiscal stimulus
Many noted economists have made it clear that India needs another round of fiscal stimulus to support growth. While the government, at the start of the pandemic, announced a fiscal stimulus package of nearly Rs 21 lakh crore, most of it was focused on bank credit for businesses.
Experts said the government’s inability to provide direct fiscal stimulus, like many other countries, is due to India’s stretched fiscal deficit. The fiscal deficit has already hit a record $88.5 billion over April to June, which is over 83 per cent of the target for the current financial year.
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Lower tax collections and front-loaded spending are some of the reasons pushing the fiscal deficit higher. Finance Minister Nirmala Sitharaman has, however, promised to take some steps for businesses that have been hurt most — travel, tourism, hospitality — once they are allowed to completely reopen.
Rising inflation
Rising inflation has complicated the economic situation further. In July, retail inflation rose to 6.93 per cent, way above the RBI’s medium-term target of 4 per cent.
Economists say it is an unusual situation where prices of food items like vegetables, pulses, meat and fish are on the rise despite weak demand.
Also Read | Retail inflation rises to 6.93 per cent in July on higher food prices
The July inflation figure at 6.93 per cent is worrisome when compared to the 3.15 per cent on the consumer price index (CPI) in July 2019. This reduces the possibility of a rate cut by the RBI in near future. It also means that demand for loans could remain lower due to elevated interest rates. Low demand for loans means lesser new business activities, and fewer new employment opportunities.
Rising coronavirus cases
There is an emerging view that it will not be possible for India to tackle the economic crisis unless it manages to bring the alarming Covid-19 situation under control in the country. India went for a strict lockdown on March 25 and decided to gradually reopen.
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Homorning. Cases have been rising at an average of 60,000 per day in India,