Why economic recovery is important?

To understand this we need to understand the economic crisis of the consequences of the economic crisis, this can be analysed through past and even current situation as entire world went through it. Job losses could be experienced, unorganized sectors completely shattered and business cycle was broken and the graph was moving downwards 

Economic recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity. Normally, during an economic recovery, gross domestic product (GDP) grows, incomes rise, and unemployment falls and as the economy rebounds

During a recovery, the economy undergoes a process of economic adaptation and adjustment to new conditions, including the factors that triggered the recession in the first place and the new policies and rules rolled out by governments and central banks in response to the recession. The labor, capital goods, and other productive resources that were tied up in business that failed and went under during the recession are re-employed in new activities as unemployed workers find new jobs and failed firms are bought up or divided up by others. A recovery is the economy healing itself from the damage done, and it sets the stage for a new expansion. 

When the pandemic continues, what factors raise hopes of recovery?

Active cases are coming down despite normalisation of economic activities. A vaccine breakthrough seems to be on the horizon. Lower oil, gold and Chinese goods imports have made India current account-surplus. Foreign exchange reserves are about to exceed foreign exchange debt. Global firms are opening up their purses for direct as well as portfolio investment. Agriculture reforms will materially benefit a large rural population. Labour reforms and postal life insurance schemes are steps in the right direction for India becoming a manufacturing hub, although a lot more needs to be done on the ground.

The September 20 quarterly results are by and large ahead of street expectations. Margins have expanded across sectors due to deep cost cuts. In sectors like auto and consumer durables, volumes are ahead of expectations. Many attribute it to pent-up demand. Demand, pent up or otherwise, has recovered due to steps taken in the past. However, it needs to be sustained in the future by further measures.

Where is policy focus needed?

There are mainly two sets of policies that affect the economy via different mechanisms.Monetary policy refers to central bank activities that are directed toward influencing the quantity of money and credit in an economy. By contrast, fiscal policy refers to the government's decisions about taxation and spending. 

The monetary policy is accommodative but credit transmission needs to improve further. Policy rates are at lifetime low levels but the cost of borrowing needs to be lowered for below-AA rated borrowers. Fiscal stimulus has supported growth at the bottom of the pyramid but sectors like travel, tourism, hotel, retailing, aviation, infrastructure etc require more support. The path of fiscal prudence is important but it needs to be achieved by raising non-tax resources like proceeds from strategic divestment and monetisation of assets, unlocking capital stuck in gold lying in tijori etc.

In the Asia-Pacific region, several countries have already adopted financing plans in three key areas. They aim to address the challenge of diminished fiscal space and debt vulnerability; to ensure sustainable recovery, consistent with the ambitions of the Paris Agreement and the 2030 Agenda; and to harness the potential of regional cooperation in support of financing for development.

Ease of doing business has improved but rule of law needs to be improved. Despite good intentions, commercial disputes are getting addressed like the never-ending trial of the 1992 security scam rather than the quick, everyone-wins solution of Satyam. Our laws are being made for the lowest common denominator as crooks escape without adequate punishment. This increases the cost of compliance for the rest. Investment cannot pick up sustainably unless rule of law is experienced by investors. Big has become bigger in these challenging times, but eventually small and medium firms need to become competitive and prosper.

Who are the key players?

No country can take this agenda forward alone. Regionally coordinated financing policies can restart trade, reorganise supply chains and revitalise sustainable tourism in a safe manner. Across Asia and the Pacific, governments must pool financial resources to create regional investment funds. Strengthening regional cooperation platforms to ensure that all countries receive an equitable number of doses of the vaccine on short notice to everyone everywhere is particularly essential.

Through ESCAP, we can scale these efforts across the region, working closely with our member states, the private sector and innovators to build a collective financing response to mobilise the necessary additional resources. Together, we can chart financing strategies of Asia and the Pacific which can enhance societal well being and economic resilience of future pandemics and crises.

How will economic recovery be beneficial to India?

Firstly, it would lead to improved tax revenues. After suffering from the slump in tax receipts during the financial crisis, the government have already benefited from a recovery in taxes on bank bonuses. This growth would lead to improved income tax  receipts.

Growth  would help to create employment, and unemployment could start to fall quicker than expected. It is hard to know how much employment will be effected because the rise in unemployment was muted given the scale of recession. It may be that firms have tried hard to avoid redundancy, and this may make them slower to take on new workers when the recovery comes. But, strong growth will only improve the employment situation and further help the government finances (less needs to be spent on unemployment benefits)

A strong economic recovery would reassure markets about the India's ability to pay off it’s record debt levels.