Beyond the gloomy horizon
Beyond the economic and social wasteland that the current pandemic has created lies great opportunity for India to take centre stage in the global economy
People are anxiously waiting for COVID numbers to hit the plateau to escape from the lockdown since the emptiness confined at home is only generating preposterous thoughts! Apprehensions of what is in store beyond the gloomy horizon vis-a-vis images of a gloomy economic landscape gone by. And, scares of watching COVID-news on the screens 24X7 – positive cases and deaths, dying and assaulted doctors, migrant workers walking hundreds of miles, some of their dying just before reaching their villages, some sprayed with disinfectants, some hungry and tired men made to hop, someone commits suicides leaving his large family destitute, some foraging for rotten bananas from trash for food, some hungrily filling themselves with hand-cups of spilt-milk on roads, along with stray dogs; claims of surveys that 96 per cent of them are ill-fed, etc. Every soul-stirring image adds to the depression further, even to people whose pockets are almost empty. COVID-19 has hit our crippled economic persona, which was being made to masquerade as a global hero, very hard.
COVID-19 began breaking national barriers at a time when people in India were already disillusioned that the promised dreams of a $5 billion economy and 10 million jobs a year were again a mirage. The quixotic demonetisation had virtually wiped out the disorganised sector, the MSMEs and self-employed ventures.
Then, with household savings declining from 23.5 to 16.3 per cent, consumer demand slumped. This made every sector – manufacturing, agriculture, construction, etc. bleed, and displace people from jobs in millions. A slump in the manufacturing sector down to 0.6 per cent adversely affected the capital goods sector. Construction sector too slumped. Agricultural growth at 2.7 being half of the previous year, also hit the auto sector and ancillary industries, aggravating the already 46-year high unemployment rate of 7.9 per cent. Our GDP growth hit the rock bottom in years, to 1.5 per cent as, per Subrahmaniam Swamy. But, our crippled economic persona continued to be falsely glossed with the rosy colour of 7 per cent GDP growth and made to masquerade as a global hero. It is at this juncture that COVID has found its opportune moment to break the Indian economy's back.
The lockdown has literally frozen every economic activity. There is $348 million loss to India due to China trade disruption; $8.4 lakh crore in travel and tourism; imports of 69 per cent drugs, 67 per cent electronic components, 18 per cent auto components, 50 per cent of pesticides have also been affected. Similarly, 34 per cent of exports in petrochemicals are hit. Banks are exposed to affected sectors to the extent of Rs 11.8 lakh crores, with shares of Rs. 5.2 lakh crores in trade, Rs 4.7 lakh crores in MSMEs, Rs 1.4 lakh crores in transport, and Rs 50,000 crores in tourism and hospitality. Stocks have plummeted in a short span of time.
Surveys reveal that 136 million non-agricultural jobs across the manufacturing clusters of textiles, capital goods, cement, food products, metals, plastics, rubber and electronics, are at immediate risk. As many as 217 million informal workers, that is, 28 million in the manufacturing sector, 40 million in non-manufacturing sector and 59 per cent in services, are out of work. Such people in construction activities, auto-industry, aviation, textiles, leather industry, etc., are all affected. Similarly, the services sector, which is the largest employer, and covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction, including the most important retail sector, are displaced. They have no money to live with.
In the vicious cycle of the economy, without purchasing power, demand shrinks, affecting production and employment. Demand for services too gets affected, ultimately affecting the informal sector. IMF stated that if global earnings come down for months, unemployment increases. Recession is the result. If the recession becomes monumental, it will lead to depression.
With a one per cent dip, on the presumption that it would all end by May end, the world has entered a recession. If the presumption goes wrong, the world would enter a depression, similar to the Great Depression of the 1930s. So, as of now, the only way forward is to keep the demand-supply-production cycle resuscitated. This is what was done globally during the 2008-09 recession. This time too, advanced countries are pumping in billions of dollars to keep the life-line cycle alive.
We have surplus liquidity in the banking system because banks had been reluctant to lend for fear of losing it as NPAs, especially when the economy has cooled over the last few quarters and business activity has collapsed in recent weeks. They have parked more than Rs 6 lakh crores ($ 78.5 billion) with RBI under the reverse repo in recent days.
Now, with the aim to discourage banks to keep their money idle with the RBI, the Central bank has again cut its reverse repo rate by 2 bps to 3.75. Banks have been debarred from paying dividends to shareholders and promoter groups. Only the future would prove whether these remedies would work since even after a similar effort in the past to pump in money, there was no demand for loans. Fresh currency has now been pumped into ATMs for easy availability of cash. Although the printing of additional currency might increase the inflation, fortunately at this juncture it is low and is likely to fall below 4 per cent target set by mid-FY21.
The government has already announced a $22 billion package targeted at the poor as a relief measure and to ensure that demand does not slip; supply chains and production are maintained and help in spurring the economic activity once normalcy is restored. Infusing more liquidity is being done through direct cash transfers, advance payments to farmers to ease rural distress, free cooking gas to poor, free rations and increase of wages under MGNREA, etc., as part of the stimulus package. Some state governments are planning to purchase all the crop-outputs to protect rural economy. Overall, there is a need to protect the poor workers in every sector. All will be well only if COVID-19 recedes by May end.
Meanwhile, there is yet another timely decision on FDIs. While we are battling COVID-19 and economic activity is at a standstill, stocks are plummeting to record lows. Taking this opportunity, some cash-rich countries could attempt to take over companies through FDIs, so that they can exert their influence. Wary of it, thw European Union has legally restricted it, especially in strategic areas. India has now included China in the bracket of Pakistan and Bangladesh to take government's permission for such investments. As such China, with a forex reserve of $3 trillion, can completely alter the pattern of control and influence. They have already made a token entry through the purchase of 1 per cent shares in HDFC.
In spite of the gloom across the world, presuming that the COVID problem is short-lived, there is a glimmer of hope for India. It might survive the recession since its dependence on exports is only 11 per cent of its GDP. Further, experts say that at a possible 2.5 per cent GDP growth rate, compared to the 2.1 of China, and negative growth of other economic powerhouses, India could become the fastest-growing economy. But, firstly, COVID-19 has to go. And, we should act with caution.
But, unfortunately, quacks, sycophants, and astrologers are apparently relied on by this government. Discarding the advice of experts, quixotic decisions like demonetisation were taken and an otherwise healthy economy was crippled. Similarly, delayed and ad hoc action in the COVID-19 matter, in spite of sane voices, has led to a complex situation and disastrous economic consequences, along with untold misery to lakhs of migrant workers. For six years, the country has witnessed enough of false promises and theatrics of light and sound shows to conceal failures and enhance the popularity of leaders instead.
COVID-19 pandemic is too extraordinary an occasion to indulge in such theatrics. Such theatrics have only converted the pandemic into paranoia, which is evident in the assaults and abuses of doctors and healthcare workers. And now, disturbed about such incidents, and also in the system's failure to provide them proper PPEs etc., the frontline warriors have called for candle-light protests at an identical time of 9 pm. Similarly, it is not a time to display the usual authoritarian and discriminative streak of the government to cover up their delayed action.
It is time for the PM to 'Get Real', by leaving the theatrics of light and sound to abundantly available spiritual gurus and by bringing true experts together to fix country's future and plan for brightness beyond the gloomy horizon.
The writer is a retired IPS officer and a former Member of Public Grievances Commission, Delhi. Views expressed are strictly personal