Already unsteady before the pandemic, the Indian economy is now threatening to buckle under the added stress, necessitating the Government to take heed of the experts
With sharply falling GDP figures and steeply rising Coronavirus cases dampening the hopes of recovery of our economy in the near future, the Government can no longer afford to rely on illusions and skirting of real issues. It is time to heed to the advice of experts.
Although the GDP growth has been shown as 8, 8.26, 7.01, 6.12, and 5.0 per cent for the 2015 – '19 period as per a new method of estimates, experts vehemently debunked this deceptive calculation to say that the actual figures were much lower, and that, for 2019-20, it was only 1.5 per cent. Had the figures of the Government been truthful, many millions of jobs should have been created, which was not the case, and instead, lakhs of small businesses closed down, MSMEs became sick, and there was a slowdown in every economic activity. Thus, there was a downhill slide of GDP in several successive quarters, despite the best of monsoons and low international prices of crude oil. Since a slide in two successive quarters implies recession, as per experts, our economy was in deep recession. This was when a country-wide lockdown to tackle the pandemic brought every activity to a halt.
Then, the Government announced a stimulus package equivalent to 10 per cent of GDP. RBI also reduced the key interest rates by 1.15 percentage point. But, consumer demand and manufacturing have not recovered, the reason being that much of the package was already budgeted for and very little included new spending, as per experts. Now, as the Government is strategically removing lockdown restrictions, the gravity of the devastation of our economy is unfolding.
Gross Domestic Product has plummeted to Minus 23.9 per cent in the April-June quarter, marking the worst incidence of negative growth ever. India fared the worst among major Asian economies and G20 countries. If the informal sector and the Government spending, which have not been counted so far, are also taken into account, experts say, the contraction is over a whopping 40 per cent.
Manufacturing and construction shrank by 39.3 per cent and 50.3 per cent respectively. Industries are uncomfortable with higher taxation; Toyota has already shelved its plans of expansion. Trade, hotels, etc., have seen a fall of 47 per cent, while the services sector, including financial services, shrank by 26 per cent. In the absence of relief reaching them, out of the 6.3 crore MSMEs, only one-fourth are working at half their capacity. The rest have either closed down or are on the verge of closing down. Only agriculture bucked the trend, with an expansion of 3.4 per cent.
Goldman Sachs revised their earlier estimate of minus 11.8 per cent to a new low of minus 14.8 per cent for this financial year. Our own SBI puts it at Minus 11 per cent. So are others. While the figures are likely to worsen when reviewed in the second quarter, the rapid increase in COVID cases amid stretched public finances and soaring inflation would dampen the demand further, making economic recovery very difficult for long.
Furthermore, with the banking sector in crisis in the past 3 to 4 years, banks have been risk-averse, and have been parking the depositors' money with the RBI for safety, even after the repo rate has been reduced. When new lending is not taking off, and whatever has been lent is ending up as NPAs, and when the finances of the Government are such that it is unable even to pay up the dues of GST compensation to states and asked them to borrow, people are sceptical about the safety of their money in banks.
Already, the interest rate on savings accounts has come down to 2.75 per cent, while FDs fetch around 4 to 4.5 per cent. The average annual income of people, which was Rs 1.35 lakh earlier, would see a fall of Rs 15,000 if the 11 per cent negative figure of GDP continues while inflation has already gone up to 7 per cent. If the GDP worsens in revision, the fall of income would be still higher. In the meanwhile, they are clutching every straw possible for sustenance; 94.4 lakh depositors withdrew over Rs 65,000 crores from provident funds; people are even withdrawing from mutual funds.
CMIE figures state that about 13 crore people, including about two crore salaried employees, have lost their jobs during the lockdown. Even after unlocking began, the loss of jobs of salaried employees was 48 lakh in July and 33 lakh in August. While the private sector is in bad shape, the Government too put a moratorium. Even the processes initiated for filling vacancies long ago after collecting fees and asking the youth to get ready for examinations have been put on hold; in several cases even after the selection process was completed, appointment orders have been kept in abeyance for months. There are over four lakh vacancies in the Central Government. States have vacancies of two lakh posts in government hospitals, 10 lakh teachers, 5.5 lakh policemen, 14 lakh state government posts, etc. When they are finding it difficult to pay salaries to their present employees, one cannot foresee the filling of vacant posts for long.
COVID has hit the engine of our economy, the middle-class consumers, hard. Even fast-moving consumer goods, like shampoos, are not going off the shelf. There is a sharp fall of 74 per cent in the sales of gold against the global average of 53 per cent. Forget about the purchase of houses and vehicles, they may have to sell those bought on EMIs. Although there was a moratorium for a while, they now need to pay the EMIs along with interest for six months, which further reduces their take-home pay amid rising inflation.
Under these circumstances, households are starving for money. About 40 crore people are being pushed below the poverty line, as per ILO. At the same time, agri-politics over the Government's soft corner for private players is causing a crisis in the COVID-unaffected agricultural sector; farmers are up in arms. And, the COVID vaccine is still a long way from providing immunity. We are only getting immune to COVID statistics that are racing to surpass America to reach the top.
In the meanwhile, clouds of war with China are looming large despite the friendly relations of the PM with the Chinese President. It is thus time for real action.
As the IMF stated, there is a need for fresh stimulus, notably investments on health, food and income support for vulnerable households, and support for enterprises. At the same time, the interest component of EMIs has to be taken care of by the Government, as it waives huge NPAs and frauds of corporate friends, to bring relief to the consumers. Also, providing incentives for purchases, and tax rebates would help. Instead of extending the omnibus provision of BPL to lakhs of people, it is prudent to provide a financial package to a limited number of poorest of the poor to meet all their daily needs. This would save substantial public funds since most of the food grains supplied through PDS are being sold out by undeserving receivers. Also, adopting austerity measures becomes essential to soar our kitty.
Ultimately, reliance on the wisdom of experts, instead of quacks, or lamenting about the 'Act of God', only would fix our economy in these hard times.
The writer is a retired IPS officer and a former Member of Public Grievances Commission, Delhi. Views expressed are personal