Gist of EPW September Week 1, 2020

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective.

We will keep on updating this page with more articles for the week, so keep checking this page every day!

Gist of EPW September Week 1, 2020:- Download PDF Here


1. Time for a Massive Fiscal Stimulus

Time for a Massive Fiscal Stimulus


In the first quarter of 2020-21, Indian Gross Domestic Product (GDP) has declined by 23.9%.

State of the Indian economy during Pandemic:

  • The decline in GDP was primarily due to lockdown which was imposed by the government amidst COVID-19. With this, the Indian economy has become one of the worst sufferers of COVID pandemic.
  • Moreover, it can also be stated that the quantum of decline in GDP is underestimated. This is due to the fact that the GDP related data does not take into account the informal sector of the economy.
    • The share of the informal sector is around 50% in India’s GDP and in recent years.
    • Additionally, the sector has been facing several growth-related constraints.
  • Apart from agriculture which has shown a growth of 3.4%, there has been a contraction in all other segments of the Indian economy.
  • The sectors which have registered the highest reduction include manufacturing, construction, and trade, hotels, transport, and communication.
    • These sectors employ approximately three-fourth of the total workers outside of agriculture.
    • Severe reductions in output have led to millions of job losses.
  • Akin to this, both consumption and investment have declined to lead to a reduction in overall expenditure. There is a one-third decline in private consumption (which is the biggest factor) and almost 50% reduction in gross fixed capital formation.
  • The only relieving factor here is that there has been an increase in the government consumption expenditure which has acted as a driving force for the economy.
  • Another positive factor is that the fall in imports of the country is just double the reduction in exports, which will help in boosting the external sector.

The Economic Crisis:

  • The reduction that happened in the first quarter is alarming because the economy was already facing the crisis even before the pandemic.
  • In the last three years, the growth in GDP has slowed down to a low of 4.2% in 2019-20, due to the structural constraints. In addition to this, the quarterly growth rate of GDP has also declined for eight consecutive quarters and stood at 3.1 % in the fourth quarter of 2019-20 from 8.1% in the last quarter of 2017-18.
  • Furthermore, the current trends imply that there will be a considerable contraction in the GDP in the fiscal year 2020-21, and this contraction maybe even by double digits.
  • Since the 1950s, there has been a contraction in GDP four times. The decline in GDP in 1979-80 by 5.2% was the most recent and sharpest one.
  • However, the current decline has surpassed all the previous ones and is more severe and extensive.
  • The impact of this recent contraction has not only been limited to the two biggest segments of the economy, but its effects can be seen on domestic and external demand and due to this, the two fundamental factors of growth will be cast out.
  • In a similar way, there is also a decline in gross fixed capital formation and gross capital formation, which are the major drivers of investment by the one-fifth amount as compared to their previous levels.
  • Looking at the current scenario of simultaneous reductions in investments, consumption, and exports, we can only say that the growth can only be restored to the double digits by the effective and rational intervention of the government.

Government’s response to slowdown:

  • Despite the severe effects of the pandemic on both employment and business, and the poor plight of the migrants who were running back to their villages for safety, there was a delay in any kind of relief by the government.
  • However, the fiscal stimulus of Rs 20 lakh crore introduced by the government was very large (accounting for approx. 10% of GDP) but it was majorly focused on monetary policy interventions rather than the fiscal assistance which was merely 1% of the GDP.

Role of RBI in managing the slowdown:

  • Due to fiscal orthodoxy shown by the central government, the whole burden to recover the economy was shifted on the shoulders of the Central bank, which resorted to rate cuts to increase the flow of credit in the productive sectors.
  • But, when the inflation exceeded the targets of the central bank, because of high tax rates on fuel and disruptions in the supply chain, the central bank took the pause in cutting the rates.
  • The efforts to enhance production in the economy also suffered due to lack of demand for credit reluctance of banks to lend amid concerns of rising non-performing assets.

Issue of health and social security:

  • Various shortcomings of the economy have been exposed by the pandemic especially those prevalent in the health and security network.
  • According to the recent Universal Health Coverage Index, the score of India is 47 in comparison with the score of Japan which has scored 96, the highest among all.
  • In the same way, very few informal workers, who constitute 92.4 per cent of the total labour force, have any kind of benefits of social security such as paid leave or non-wage benefits, which can act as a support to them in overcoming the crisis.

Recommendations to arrest the slowdown:

  • In order to deal with these issues, the government should come up with rolling out programmes to boost up the coverage of medical facilities across the country and to provide better protection in case of any future pandemics.
  • Along with this, an efficient social security network should also be built for the protection of all the workers from economic instabilities.
  • A programme to strengthen the social and economic infrastructure will lead to the expansion of demand and it will also eliminate the supply constraints in the medium term.
  • Undoubtedly, it totally depends on the government to introduce a fiscal stimulus package for a speedy recovery.


  • The efforts of the government for relief provision and revival of the economy have led to nothing further and in order to ensure the quick recovery, it is necessary to start afresh with a more efficient and essential fiscal stimulus package.
  • For this, the first step of the government should be the transfer of 2.35 lakh crore to the states which have demanded the amount as Goods & Service Tax Compensation to accelerate counter-cyclical spending in the regions and to assist them in tackling the pandemic.

For more EPW articles, read “Gist of EPW”.

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