2.3 % Grew in China’s Economy

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  China’s economy recovered to pre-pandemic growth rates in the fourth quarter, propelling it to a stronger than expected full-year expansion of 2.3% and making it the only major one to avoid contraction.  Gross domestic product climbed 6.5% in the final quarter from a year earlier, fueled by stronger-than-expected industrial output, the statistics bureau said Monday.   Covid-19, which has ravaged the world economy, first emerged in central China in late 2019. But the world's second-largest economy also became the first to bounce back after imposing strict lockdowns and virus control measures. It is expected to be the only major world economy clocking positive 2020 growth. In the last three months of 2020, China's economic rebound continued with a better-than-expected 6.5 percent growth on-year, a sustained improvement since the second quarter. This brings it back to a pre-pandemic trajectory, although full-year 2020 growth is still its worst performance since 1976, when the ec

Desperate for Growth

The spread of COVID-19 and the lockdowns imposed throughout the world caused a major decline in many economic activities such as trade and commerce, this led to the decline of growth and consumer demand due to lack of available resources caused by the shutting down of industries and the prohibition of movement between nations and inside nations from one place to another, now the effect of coronavirus was varying from country to country and between different regions, India became one of the worst hit countries during this time which could be seen in the 23.9% decline of GDP and the IMF report which showed that in the 5 major socio-economic measures in the world which are included during the calculation of HDI, India could slide to 4th position in the Indian subcontinent only being above Pakistan due to Bangladesh’s GDP per capita expected to be greater than India’s. Such a state of economic slump will need effective and important steps from the government to recover from.  
One thing we know for sure about coronavirus is that it is going to have a long lasting impact on World economy. Governments across the globe are taking unprecedented measures to keep money moving. Indian government is also taking steps but they are not enough. Economic crisis demands a series of calculated measures that can fetch positive results. The Finance Ministry came up with a set of measures that they chose to refer to as a fiscal stimulus package. The only thing worth welcoming about this was the acknowledgement that consumer demand is perhaps at an all-time low and deserves attention. 

This is the second fiscal stimulus package that the Finance Minister has announced ever since economic activities came to an abrupt halt due to COVID-19. The natural effect of such an economic closure was on jobs. With 2.1 crore people losing jobs and millions of others insecure about job losses or pay cuts, it is evident that consumer demand will fall.  

Currently, the first way to raise falling demands is to provide loans to the peoples. So that they can create demand through that income. At first glance it looks right, but the reality is that by borrowing- only the immediate demand increases and later the total consumption declines. 

Suppose you borrowed ₹ 100 and will pay interest of ₹10 on it. Earlier ₹ 100 was available for your expenses which will now be reduced to ₹90. So increasing consumption by giving loans can be immediate relief but it is not the solution to the problem.Especially because Covid-19 is expected to remain.  

Another way to generate demand is to transfer some amount to the accounts of the people by the government. In this direction, the government has offered its employees, LTC Cash Voucher Scheme, where employees may get cash in lieu of LTC by spending 3 times the travel fare as per the permitted slab and get the fare reimbursed along with leave encashment.But to create higher demand, the government has decided that the spending should be 3 times the permitted fares on non-essential goods having higher GST. 

“The scheme is applicable only on satisfaction of certain conditions which requires the employees to buy goods or services which would be three times the fare and one time leave encashment. Moreover, such purchases need to be made via digital mode only on or before March 31, 2021 only from a registered vendor and the goods and services, which are to be purchased should be subjected to a GST of 12 per cent or more. Thus, this may pose a
hurdle as the consumer is expected to spend 3 times the fare and one time leave encashment.  

This is the right step, but government employees will rarely generate demand. If the rich gets an extra of ₹ 100, then he consumes ₹ 40 and saves ₹ 60. On the other hand if a poor gets an extra of ₹ 100, he consumes ₹ 90 and saves only ₹ 10. Therefore, it is said that the consumption tendency of the poor is more powerful than the rich. 

Finally, the government should transfer the money to the poor's account, But the problem before the government is from where such a huge amount will come? Currently the economy is sluggish, the government's income is low. There is also a way to transfer money into public accounts, by printing notes. However, this will not be effective as inflation will increase soon after printing the note. 

The only remedy in this drastic situation is for the government to increase import duty drastically. The government gets revenue of about 170 thousand crores rupees from import duty in 1 year. If it is increased by 50%, there may be an additional inflow of 85 thousand crores rupees , in which 130 crore people of the country can be transferred ₹ 700 per person or ₹ 3500per family per year. 

Goods will be purchased by poor with this amount, because their tendency to consume is high, so there will be demand for goods in the market. The second benefit of increasing the import duty will be that the prices of goods from abroad will be increased, accordingly the domestic production will increase. Increased domestic production will provide employment to the common man.  

The WTO had established two dispute settlement panels on the complaints of Japan and Taiwan which had targeted India’s imposition of high import duties on Information and Communication Technology or ICT products which also included mobiles. India had increased it’s import duty from 10% to 15% in 2017 and it was further increased to 20%. 

This move was opposed by many of the WTO members and losing this dispute would make China the main beneficiary as India had imported goods worth 15.7 billion dollars.

  Author - रचित
Co-author - Mayank Mishra 

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