Who killed the Indian economy?

By Dr. Santosh Kumar Mohapatra*

There has been a lot of controversy and debate surrounding Union Finance Minister Nirmala Sitharaman’s statement that the economy has been hit by the COVID-19 pandemic, which is an “Act of God”, and it will see a contraction in the current fiscal. Indirectly she wants to tell that the Indian economy was killed by the Corona pandemic which is an act of God.

This sounds illogical and ridiculous. Dwight D Eisenhower, an American army general who served as the 34th president of the United States from 1953 to 1961, once said, “The search for a scapegoat is the easiest of all hunting expeditions.” But now God has been made a scapegoat by the Finance minister for India’s crumbling, tumbling, and plummeting economy.

If failure is attributed to the actions of God, why any success or achievement is not attributed to God. Why does the government indulge in publicity blitzkrieg, gimmicks, and camouflage failures, hoodwink masses, and evokes the emotion of people for political dividends? If failures even any natural calamity will be ascribed to “Act of God”, then what for government is? What is the role of the state?
Why are there legislature, executives, bureaucracy, and judiciary? The government has got basic responsibilities in ensuring the wellbeing of its citizens and protecting them from any cataclysm like COVID-19. Attributing failures to an “Act of God” does not absolve a government from its basic responsibility and commitment to its citizens.

After the fallacious statement of Finance minister, chief Economic Advisor Krishnamurthy Subramanian in an article titled “On economy follow the evidence” published in Indian Express defends the contraction of the economy by attributing it to the pandemic.

But the question is: if the GDP decline in the April-June quarter (Q1) is primarily due to the pandemic – then why India witnessed the highest contraction among major economies? India has suffered the sharpest contraction in the April-June quarter since quarterly figures started being published in 1996.

In independent India’s history, four such years of negative GDP growth were registered but the present contraction is worst among all. India had seen a contraction of -1.2 per cent (1957-58), -3.66 per cent (1965-66), -0.32 per cent (1972-73) and -5.2 per cent (1979-80, but never seen such huge contraction in past.

Further, transparency of India’s GDP data is always questionable as former chief Economic Advisor Arvinda Subramaniyam had pointed out in a Harvard paper that India’s growth had been overestimated by 2.5 percentages. The informal sector accounts for 40 per cent of India’s GDP but data of the informal sector shrouded in haziness and obscurity.

While calculating GDP, the informal sector has not been properly encompassed. According to former Chief Statistician Pronab Sen, contraction may be somewhere around 30 to 32 per cent. Before the end of May, COVID-19 has so far hit India’s economy to the tune of over Rs 30 lakh crore. Now, loss to the Indian economy will be much bigger.

However, there is confusion about whether the US economy contracted/declined by 9.1 per cent or 32.90 per cent. In India, GDP growth for a quarter (April – June 2020, GDP value was Rs 26.90 lakh crore) is calculated by comparing to the same quarter the year before (April – June 2019, GDP value was Rs 35.35 lakh crore), a year on year (YoY) comparison, which puts India’s GDP contraction at 23.9 per cent for the June quarter.

In some methods, if US GDP is calculated, the contraction will be 9.1 per cent. The US does a quarter-on-quarter (QoQ) comparison and then annualizes the figure. GDP for a quarter (April-June 2020) is compared to the quarter before it (January – March 2020). which resulted in an estimated contraction of 32.9 per cent (revised to 31.7 per cent) for the US economy on an annualized basis. If in same method, GDP in India is calculated, the contraction will be 29.28 per cent as GDP value was Rs 38.04 lakh crore in January -March-2020.

One may argue that each crisis is likely to affect any economy, so the government should not be blamed. But a good ruler always trims down the quantum of the damage by effective policy and governance. During the global crisis (from December 2007 to June 2009), world GDP had declined 4 per cent (second-quarter of 2007 to the first quarter of 2009) with US GDP declining by 4.2 per cent from October 2007 to June 2009 (0.3 per cent in 2008, 2.8 per cent in 2009). But India had witnessed the growth of 9.3 per cent in 2007-08, 6.7 per cent in 2008- 09 and 8.4 per cent in 2009-10.

Apart from the global financial crisis, India had also experienced a currency crisis in 2013 marked by a rapid fall in the value of the rupee caused by persistent inflation of the past few years and the high current account deficit (CAD) of about $85 billion (4.5 per cent of GDP). But average growth achieved in UPA-I was 8.86 per cent and 7.39 per cent in UPA-II. In Modi-1.0, the growth rate achieved is 7.16 per cent and will further plummet in Modi-2.0 regime.
In reality, the recent economic crisis is the government’s own making. A mix of cronyism, ineptness, and nonchalance had destroyed the livelihoods and lives of people well before the pandemic afflicting the Indian economy. Blaming exogenous factors (pandemic) is merely an excuse and eyewash to divert the attention of people from the government’s ineptitude, failure, and foil significant debate.

Actually, the economy has been shattered and ravaged by economic misadventures such as harsh demonetization, defective GST, and some extraneous decision like dismantling the planning commission, indulging statue politics, triggering the Nehru vs Patel debate, giving priority to emotional issues, blaming predecessors, camouflaging failures by comparing with worse of the previous regimes or that of other countries while ignoring economic issues like poverty, hunger, unemployment, inequality especially living standards of people.

The pandemic and subsequent stringent, poorly planned lockdown has just exacerbated the already beleaguered economy. The pandemic has also exposed our broken system and how the Indian economy is brittle, ramshackle, and feeble and susceptible to any internal as well as external shocks.

For eight successive quarters in 2018-19 and 2019-20, GDP growth declined every quarter, from a high of 8.2 per cent (January- March 2018) to a low of 3.1 per cent (January- March 2020). In term of annual growth, the economic growth has declined from 8.2 per cent in 2015-16 to 7.1 per cent in 2016-17, 7 per cent in 2017-18 and 6.1 per cent in 2018-19 and finally landing into 11 years low of 4.2 per cent in 2019-20 against the government’s assumption of 8.5 per cent in the 2019-20 budget.

During 2019-20 -that contains only 7 days of lockdown, core sector that comprises steel production, petroleum refinery production, electricity, coal production, cement, and fertilizers, crude oil, natural gas recorded 0.6 per cent growth against 4.4 per cent in 2018-19.

According to figures released by the Automotive Component Manufacturers Association of India (ACMA), the turnover of the automotive component industry in India stood at Rs 3.49 lakh crore. This is a de-growth of 11.7 per cent during 2019-20 as compared to the previous financial year. The tax –GDP ratio (one of the lowest in the world) has declined from 11.72 per cent in 2017-18 to 10 years low of 9.8 per cent.

Before becoming Prime Minister, Narendra Modi had raised questions about the falling rupee (value of rupee declining vis-à-vis dollar). But it has declined more (27.83 per cent) during the last 6 years. On May 25, 2014, just before Modi assuming power, the value of 1 dollar was Rs 58.46. But as on August 15, 2020, it has declined to Rs 74.84.

Unemployment has touched 45 years high of 6.8 per cent in 2017-18, household consumption tumbled to four-decade lows, retail inflation had touched 40 months high of 5.5 per cent in November 2019 with food inflation –that affect poor and downtrodden more, had soared to a 71-month high to11.1 per cent in November 2019.

Total employment in India dwindled by 9 million between 2011-12 and 2017-18, a first in the country’s history, as per a paper published by Azim Premji University rural poverty increasing with 30 million people falling below India’s official poverty line and joined the ranks of the poor over the past six years. According to an analysis by Bengaluru-based Azim Premji University researchers- State of Working India 2019 (SWI 2019) report -five million men lost their jobs between 2016 and 2018 due to demonetization.

In India, due to faulty policies of government and reluctance of corporate sectors to create more jobs, salaried jobs have stagnated in recent times even before the lockdown. In 2017-18 they grew by 1.6 per cent then in 2018-19 they grew by a meagre 0.1 per cent before contracting by 1.8 per cent in 2019-20. As a result, salaried jobs in 2019-20, at 8.61 crores were lower than their level of 8.63 crores in 2016-17.

The external borrowing of India increased from $475 billion in 2014-15 to $543 billion last year. To put it simply, India’s budget is allocating more revenue (or our taxes) on repaying debts and interests than in previous years. This makes less money available for funding education, health, defence, infrastructure.

India’s debt to GDP ratio has increased gradually from Rs 58.8 lakh crore (67.4 per cent of GDP) in 2011-12 to Rs 146.9 lakh crore (72.2 per cent of GDP) in 2019-20. A higher level of borrowing this fiscal is likely to increase gross debt further to around Rs 170 lakh crore or 87.6 per cent of GDP.

Not only in 2018-19, in the past few years, the total expenditure as a percentage of GDP declining. Total central government expenditure in 2018-19 was 12.15 per cent of GDP, even lower than the 12.7 per cent registered previous fiscal and 15.82 per cent in 2009. This is abysmal and less than half of many countries when compared with other countries.

NPAs of banks grew exponentially. Banking frauds reported by banks of Rs 100,000 and above have increased manifold in value to Rs 113374 crore in the first 6 months of 2019-20 from Rs 19455 crore in 2014-15.

The above data clearly justify that economy was on verge of collapse well before coronavirus ravaging the economy. The bitter truth is that the world’s fastest-growing large economy had become now the fastest-shrinking one.

 

 

The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

 

 

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.

Also Read

Comments are closed.

close-link