Whilst India was initially praised for their response to the Covid-19 crisis by organising a mass lockdown that effectively took 1.3 billion people off the streets, the subsequent effect on their economy will be severe.

According to a report by the investment bank Goldman Sachs, India, the fifth largest economy in the world, is likely to experience negative growth of 5% this year.

Whilst we are expecting economies all over the world to shrink in size, this is particularly striking for India as the last time the country’s economy shrank over the course of a year was in 1979.

The Indian people have already paid a heavy price for the stringent response to Covid-19, with an estimated 140 million workers thought to have lost their jobs in March alone.

The unemployment rate has been hovering between 20-30% for the last month, and with Covid-19 still spreading throughout the country and many businesses forced into permanent closure, joblessness could remain rife for a long time to come.

Although India has been one of the fastest growing economies in recent years, there are still hundreds of millions of people living in poverty. The worry is that the Indian government simply doesn’t have the fiscal ability to support an economy with such high levels of poverty, unemployment, and the unfortunate rise of Covid-19 cases despite an early containment.

THINK LIKE AN ECONOMIST!

Q1. What is meant by the term negative economic growth?

Q2. Explain why a stringent lockdown policy has been the cause of high levels of unemployment in India.

Q3. Discuss the reasons why a strong fiscal ability is needed for a government to combat the economic problems associated with the current crisis.

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TheCuriousEconomist

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