Staring at a great climb
Before the Coronavirus disease gripped India in March, the NSO revealed that India's economy grew at a slower pace of 4.7 per cent during the third quarter of 2019-20. Economic Survey 2020 drew the GDP growth rate in the now-ended fiscal to a modest 5 per cent — lowest in 11 years, optimistically pegging a recovery for the Indian economy in FY21 when it can rise to 6-6.5 per cent. However, the Economic Survey, in all its optimism, failed to take note of the spreading virus that has now swept the world, plummeting the global economy into an effective recession as put forward by none other than the International Monetary Fund. Confirming the IMF's view, the United Nations Conference on Trade and Development (UNCTAD) analysed that the pandemic would predictably cause a loss of trillions of dollars to the global economy — with developing nations facing the brunt. Clearly, global organisations re-recognised a year of slow growth as a year of nadir for the world economy in recent times. That cannot be good news for any nation, let alone India which has already posted grim figures in the last fiscal. The global rating agency, Moody's Investors Service slashed India's GDP growth projection for 2020 from 5.3 per cent down to 2.5 per cent on March 27 in the wake of the 21-day national lockdown announced by Prime Minister Modi. While it did not believe that India would slide into recession compared to the US or Europe that have stronger trade ties with China, the dismal growth rate would in itself be no less than a catastrophe for the country which has 45.36 crore internal migrants — part of its unorganised sector. With a majority of those being daily wage workers, a 1.7 trillion rupees virus relief package announced by the finance minister may have to be grossly increased later on. But even as the economic package, primarily earmarked for poor, comes into play, India's budget estimates are in for a nasty drop with the beginning of a new financial year from yesterday. The economic relief package — subject to further increase — as well as patchy tax collections owing to the prolonged slowdown in the last fiscal will be a likely burden on government's revenues. Collectively, India's fiscal deficit is set to rise tremendously. Even modestly put, it can reach up to 5 per cent from current 3.7 per cent.
What should be more worrying for India since the onset of the pandemic is the way it estimated the recovery prior to it. As the virus enforced a national lockdown, non-essential production and consumption have been brought to a halt in order to double those of essential items. While administratively that is commendable, economically, it is woeful. Unlike China, India's main driver in its GDP is private consumption which accounts to as much as 63 per cent of the total share besides government spending, gross investments and net exports — negative for decades. The economy's reliance on private consumption substantiates Moody's revised GDP growth projection of 2.5 per cent. Of course, human life takes precedence over the economy but even the latter is a live machine that requires constant monitoring and as per trends is set to be on life support for this fiscal. In such circumstances, the government has to take hard calls — not of selling off Air India or BPCL as aviation and oil industry have taken a hit, making them unattractive in the current scene. India has to better utilise all available resources and draw out potential reserves from the top corporations of the country not counting generous external donations. Extraordinary times require extraordinary measures and 2020 shall see that being put to test in order to bounce back stronger. India stares at a great climb ahead of it.