India is facing its worst economic crisis since 1991. It is in now in the 37th month of relentless regression in GDP growth. The fourth consecutive year of decline so far. The country is officially in a recession with the economy having contracted by 7.5 per cent in the second quarter. It was down by 23.9 per cent in the first quarter of the current fiscal.
Much before Covid-19, a Chinese export, ravaged the world, the Indian economy was already in a downward spiral. The ill-conceived demonetisation on November 8, 2016, rocked the economy off its haunches. It was followed by a shoddily implemented Goods and Service Tax (GST) regime The four fundamentals, namely, savings, consumption, investment and employment were already under stress. Nothing evidences it more than the fact that, in the first six months of the 2019-20 fiscal (H-1), financial flows to the commercial sector were down by a whopping 88 per cent. According to RBI data flow of funds from banks and non-banks to the commercial sector was Rs 90,995 crore between April and September 2019-20 as against Rs 7,36,087 for the corresponding period in the preceding year.
Then came the ill-conceived lockdown of March 23, 2020. All that it succeeded in doing was further flattening the economy rather than the disease curve. The total number of Covid-19 infections in India today stands at 10.7 million out of 101 million worldwide. That translates into 10.59 per cent of the total infections globally. While it is correct that the infection rate is on the decline in India so is it in a large number of other Asian geographies that did not subject their populations to the draconian lockdown imposed by the NDA/BJP government.
However, if the Economic Survey tabled by the finance minister on January 29 in Parliament is anything to go by, the government strategy seems to be “blame all the economic ills on the damn Covid” and then pat yourself on the back claiming that we are the white knights in shining armour who have prevented millions of deaths from taking place. This simply is not true. If India has survived through the horrific once-in-a-century pandemic, it is primarily because the immunity of Indians generally seems to be more robust than their western counterparts. Why so? The jury remains out on that.
The 11 per cent GDP growth prediction for the next fiscal in the Economic Survey is also misleading. From a low base of -7.7 per cent this year it would really translate into a GDP growth rate of only 3.3 per cent next year.
The government’s much touted stimulus package has simply not worked. The monetary part of the 20 lakh-crore package was about 3.5 lakh crores that works out to 1.75 per cent of the GDP only. Going by publicly available figures, revenues of the Union government decreased by about 18 per cent or Rs 1,81,372 crore between the April and November of 2020 over the corresponding period the previous year. This was because of the virtual cessation of economic activity on account of the lockdown and its aftermath. What is, however, bewildering is that the total spend of the Union government went up by a paltry Rs 86,301 crore. A marginal 4.6 per cent increase barely keeping up with inflation. What this translates into is that the NDA/BJP dispensation reduced its expenditure in real terms during the most critical phase of the health and economic pandemic.
With the government abstaining from delivering significant income support to business establishments, livelihoods were hit with MSME earnings taking the hardest knock. The third quarter of fiscal 2020-21 is anticipated to finish with job numbers at 395 million a 2.5 per cent drop from the 405 million employed in the corresponding quarter of the previous year as per CMIE data. MSME units account for 45 per cent of the total manufacturing in the country.
There is widespread rural distress in the country as revealed by the 38.79 per cent jump in demand for employment figures under MNREGA (Mahatma Gandhi Rural Employment Guarantee Act between April and September 2020 over the corresponding figure last year. The employment demand by persons between April 1 to September 12, 2020, was 22,49,07,004 as compared to 16,20,38,372 for the same period in 2019. These figures were given in a written response to the Lok Sabha by the Union agriculture minister on September 15 last year. Close to 12 crore people have sought work under MNREGA in 2020-21 till now, the optimum level since the Act was promulgated. In the preceding two months alone 3.5 crore people have sought work under this programme. What V shaped recovery is the government talking about?
Where does India go from here. It needs a “New Deal” just like the one President Roosevelt crafted to get the United States out of the great depression in 1929-1939. The American New Deal was a series of massive federally-funded infrastructure and upgradation projects across the US targeted at creating fresh employment avenues for people and earnings for small and large business establishments.
Our new deal must push demand by both putting money both into the economy and directly into the hands of the people.
However, there are certain essential pre-requisites for any new initiative to succeed. There can be no substantive economic recovery without restoring social cohesion. For money is a coward and goes to the safest harbour and not where there is planned and orchestrated social strife with the anti-conversion laws being its latest manifestation. This is a non-sequitor if India needs to attract any degree of foreign investment, especially in long-term infrastructure projects. The government must repeal the farm laws to restore tranquility in the countryside for it is bad optics to have lakhs of farmers camping out in the cold braving Covid-19 and protesting for months to an end against the government. Incidentally, agriculture was the only sector that held up in the past year. A tribute to the resilience of our farmers.
Resuscitating the economy sustainably in the short term would require enhanced government outlays especially for developing additional public goods coupled with a sustainable plan for robust employment generation. For India can ill afford a nine per cent plus unemployment rate that it is currently experiencing. For that the FRBM limits must be stretched. This not the time for fiscal conservativeness. Finally, the government must transfer cash directly to the deprived and vulnerable at the base of the economic pyramid. This would not only help in keeping their body and soul together but also boost demand. If there was ever a time to think out of the box, it is now.
