Our economy has shrunk by 24%! The numbers released by the National Statistical Office two weeks’ back quantify the grim reality of our economy. This has been the worst contraction since India became India – i.e. 1947. When we add high unemployment rates, increasing NPAs, continued lack of credit penetration to SMEs, limited monetary relief to those worst affected by the pandemic and border tensions, we have before us a perfect recipe for disaster. We should undoubtedly be worried.
I ask three questions & attempt to answer them from what I’ve read so far.
The answer is that our economy was poorly prepared before the pandemic hit us. India’s GDP was falling quarter on quarter since the high of 8.2%, 9 quarters back in Q4 2017-18. When the lockdown was first announced, our quarterly GDP growth was already at its lowest ebb (3.1% Q4, 2019-20)
Some believe that this was the result of demonetisation; others pin the blame on the unstable indirect tax regime, GST. In hindsight, these two decisions and the manner in which they were implemented have done more harm than good. However, what concerns me just as much is the lack of faith that the administration has in experts. They are either not consulted or their advice is ignored. These experts often speak anonymously fearing retribution; some prefer silence and some have resigned. A system that cannibalise its well-wishers cannot be healthy for long.
Slogans haven’t helped us either. ‘Minimum Government, Maximum Governance’ sounds good so long as those at the helm know how to manoeuvre through difficult situations. The concepts of ‘Smart City’ and ‘Make In India’, though well-intentioned, have lost steam. It re-emphasises the old adage that while Indians are good ‘ideators’, we are poor at implementation. The fact remains that India would have truly been ‘Aatmanirbhar’ if ‘Make In India’ was implemented properly. We need razor sharp focus on one or two ideas – we do not need a new slogan every 6 months.
The government believes that we will make full recovery soon. The aspirations of ‘1.3 Billion people to achieve the 5 Trillion GDP mark’, is supposedly still considered reasonable. The government believes we will bounce back in the coming quarter itself. In fact, Piyush Goyal in July said that India will be a $10 trillion economy by 2030. Who know, if it were not for any act of God, he might as well be proved right. I am not as optimistic as the very Honourable Minister of Railways and Commerce though (& I am by no means an anti-national if I’m a realist!).
The reality is that we are in a pit. Where from here? There are different possibilities expressed using the English Alphabet.
The Government believes we will witness a ‘V shaped’ recovery, i.e. the economic activity quickly plummets but rebounds immediately, and just as quickly. Thus, we should be back to the pre-Covid levels soon.Contrast this with a ‘U shaped’ recovery, i.e. the economy will be in a slump for a long period of time before it rebounds. During the time it stays below normal, we could witness lay-offs, credit defaults and bankruptcy / liquidations. This would be a painful situation indeed.
It is believed however, that India would witness a ‘K shaped’ recovery. This means that the economic situation of some will improve faster than the others. In a country like ours, this also means it will widen the already large gap between the privileged few and the downtrodden mass. The rich, will get richer, faster and the poor will get poorer, equally soon.
We are witnessing this in action. Reliance has raised over Rs. 150,000 Crore in the last few months and forms the bulk of the investment flowing into India during the lockdown. On the other hand, many small businesses are shutting shop. It is pertinent to note here that the government’s decision to raise the limit under the Insolvency Bankruptcy Code from Rs. 1 Lakh to Rs. 1 Crore has had an inadvertent effect that prevents bankrupt business from applying for closure. The business owner unfortunately continues to pay to keep the comatose entity ‘alive’.
We may also witness the rule of the jungle – big eats small – playing out soon, with larger corporates purchasing start-ups or small ventures. Our Foreign Direct Investment norms have thus been tweaked to prevent our enthusiastic neighbours from cashing in. But I have my doubts that we will be able to prevent these take overs happening within our borders.
There are different answers to this question. One of the ways to improve our GDP is to increase spending. The entity that’s most capable of spending in this situation, is the government. Thus, the government should take up new infrastructure projects across the country, hire labour, especially in rural India and put money into their hands. The expectation is that the beneficiaries of these projects will begin consuming more & in turn pump that money back into the sluggish economy.
The obvious question here is, does the government have money to invest? You know the answer as well as I do – the latest fiasco involving GST compensation highlights this point. But there are ways to overcome this problem. The government can print money (called ‘deficit financing’, and is not liked by many), borrow more from the market (this would impact our fiscal deficit and our credit rating, but these issues can, for the short term, be ignored to solve the bigger problem we face) and lastly, route the transactions through generous private players and execute these projects on credit. We need to see which of these options (there could be others too, of course), the government would choose.
In addition to what expert economists say, there is something you & I can do. We need to start questioning our administrators. We will be able to do this once we’ve expunged every other trivial news that we are force fed on daily basis. We need to manoeuver past the diversions placed before us and attack the most important problem that we as a nation face – How do we get our economy back on its feet? If we fail to do this now, we will become poorer than we ever were. And as Chetan Bhagat says in his latest article, a poor country can never command respect.
United Kingdom (UK) is the second worst performer when measured for GDP growth, standing at (-) 20%. It is an irony that India finds herself juxtaposed with her erstwhile colonial rulers. The British, of that era, were masters of diversionary policies and to the fullest extent possible, exploited the differences that existed between us. Even to this day, we are constantly reminded of the differences that exist amongst us. Even to this day, these ‘demons of vapour’ are conjured to distract us from the real evil that plagues us. In many ways, even to this day, many of us continue to be exploited.
The only way we will come out of the pit we find ourselves in, is by defeating these diversionary obstacles. Our goal should be clear – we cannot afford to be poor any more. We cannot lose our focus.
Remember this – we’ve made a tryst with destiny. We have to redeem our pledge, not wholly or in full measure, but very substantially (& I can safely say that the originator of these words had little to do with the GDP debacle we see today)