9. The Recovery

In this chapter we bring out the performance of the economy over the crisis period and its subsequent recovery. Since the decline over the initial quarter of the COVID crisis was steep being in the range of 20–30%, growth over subsequent quarters or months in relation to the very low levels appear high. To overcome this “base effect” which would affect normal YoY estimates of the growth, we have variously used rolling moving averages and current month or quarter over previous pre-COVID month or quarter. In this chapter we bring out the performance of the economy over the crisis period and its subsequent recovery. We consider first the performance of the stock market which is seemingly out of line with the performance of the economy. We explain that there is no anomaly here, since h the discount rates (both foreign and domestic) had fallen considerably owing to the fall in the interest rates over various maturities. Additionally, costs such as interest, and tax (corporate) besides labor had fallen. The effect of the crisis was quite severe on the manufacturing sector, and not all segments have recovered. Capital goods and durables have yet to reach their pre-COVID levels. Employment recovery has been most problematic. We bring out the trends in employment, credit, portfolio, and direct investments, and also review the monetary developments. Employment recovery has been particularly problematic and there are large employment losses in the manufacturing sector, and recovery in employment is well below the pre-COVID levels. It is unlikely that without the revival of the investment cycle there would be job creation. A significant part of the job losses in the manufacturing sector seems to be “structural”. We consider in detail the effects of the initiatives of the RBI on the financial sector and show that the RBI was able to bring down the low end rates quite sharply and marginally the 10-year bond yields, so that the uncertainties with regard to the future rates continue. This is a doubt due to the continuing belief of the capital market that the RBI would respond to CPI inflation given its stated target of inflation (CPI rather than Core CPI) targeting. We conclude that the recovery has barely taken the economy back to the pre-COVID levels. And employment recovery in industry and manufacturing has yet to take place. There have been massive job losses which are in part being hidden by the return to agriculture (with its disguised employment) and fall in the labor force participation rates.