Economic recovery after the pandemic requires recovery in the domestic economy as well as in the international trade sector. In a piece for Mint, Dr Niranjan Rajadhyaksha, Executive Director, Artha Global, domestic demand may not be able to sustain the momentum, and weakening external trade is also likely to lead to a current account deficit.

Excerpts below:

“This is a good time to take a closer look at the three drivers of domestic demand: households, companies and the government. These three groups also share the national income pie in terms of wages, profits and taxes respectively. This column had earlier flagged on two separate occasions (December 2020 and June 2021) that early signs were indicating how India’s economic recovery from the pandemic was being led by profits rather than wages. There is now even more reason to believe so.” 

“The Indian economy had barely crossed its pre-pandemic level by the first quarter of this fiscal year (see second chart). A sustained recovery requires a robust increase in capital spending by the private sector, which has till now been more focused on deleveraging rather than expanding capacity.”

Read the full article here.