By Arun Srivastava
Irrespective of the sneers and abuses being hurled by the BJP leaders and Narendra Modi on Dr Manmohan Singh, the former prime minister has proved to be prophetic in his observation that Modi would be a “disaster” as Prime Minister and the country would face the spectre of a dreary economy.
The gross domestic product or GDP contracted 23.9 per cent in the April-June period; the worst incidence of negative growth for the economy since 1996, when India began publishing quarterly figures, and also the worst among major Asian economies. An insight into this trend would reveal that India is only a couple of steps away from bankruptcy.
Of course COVID-19 played a significant role in accentuating the economic crisis, but Modi has to share the blame for dragging India to such a precarious stage. He gives the impression of being expert in every art of governance but the reality is otherwise. Indian economy is on the verge of collapse only for his wrong handling.
GDP has gone negative earlier too. But the situation has not been so alarming as it is today. The magnitude of the crisis could be realised from the passive silence of all those people who had formed the habit of barking even at the fall of a leaf. In fact the data marks the likely onset of India’s deepest recession. In that backdrop India will witness further deepening of the crisis and the negative GDP acquiring a bigger dimension. Recession is defined as two consecutive quarters of decreasing GDP.
Financial services – the biggest component of the country’s services sector, shrank 5.3 per cent compared to the corresponding period a year ago. Manufacturing and construction shrank 39.3 per cent and 50.3 percent respectively. Agriculture bucked the trend, with an expansion of 3.4 per cent.
The country is not simply a victim of the havoc wrought by the pandemic. It is suffering due to the averseness of Modi to salvage the situation. It is beyond comprehension why he is unwilling to salvage the situation. He has been simply selling the assets of the public sector to get more funds to take care of government expenses. What is worse is his financial experts and economic advisers are intellectually bankrupt. Even after this harrowing development Modi’s adviser with tongue in cheek said that the situation is yet to deteriorate.
Ironically Modi’s plan to raise the economic contribution of manufacturing from 15 per cent to 25 percent of GDP is not making much progress. The flagship Make in India initiative, which aims to attract more manufacturing contracts from foreign companies, has fallen flat. He was aware of the impending danger. But he was so busy with his Hindutva agenda that he had no time to retrieve the financial situation.
The IMF, World Bank and OECD all had sounded the alarm in October after the Reserve Bank of India trimmed the country’s projected growth rate to 6.1 per cent for 2019-20. This was on the back of a sharp decline in private consumption and weakening growth in industry and services. Despite numerous cuts to interest rates in 2019, the central bank again cut its forecast in December, this time to 5 per cent. Yet Modi did not try to apply his mind to find out; what is going wrong, and where does India go from here?
It has been a widely known fact that India’s economy is heading for a meltdown. Nearly 78 of the largest companies in the country are facing dissolution under the Indian Bankruptcy Code. Of them, 20 have already been declared insolvent and sent to the National Company Law Tribunal for dissolution. The sickness has spread to the private financial sector.
In the wake of the pandemic while other countries came forward to help the livelihood needs of their people, the central government did not bother about the workers of the unorganised sector which is most vulnerable, The present crisis owes much to the neglect of the needs to streamline the survival of the unorganised sector than the organised. If Modi had paid attention to Dr Singh’s suggestion to “ensure people’s livelihoods are protected and they have spending power through a significant direct cash assistance”, this situation could have been avoided to a large extent.
The fact is India’s economy was already in the throes of a slowdown before the beginning of the pandemic – GDP grew at 4.2 per cent in the 2019-20, its slowest pace in nearly a decade. Economists have since warned that India’s GDP for the 2020-21 financial year is likely to contract sharply, leading to the worst technical recession since the 1970s. This is going to be a “deep and prolonged economic slowdown”.
Many countries have decided to print money to fund government spending to tide over the ongoing economic crises, and some prominent economists have suggested the same for India. But Modi also ignored it on the plea that excess supply of money would lead to inflation. A good ruler foresees the situation knocking at the door. The current phase of slowdown has been pinned on drastic fall in consumption, due to slowdown first followed by covid-19.
The comment of the CEA to the Government of India, KV Subramanian; “Covid-19 pandemic has led to the worst global economic crisis since 1870 but power consumption, e-way bills indicate Indian economy on path to revival,” lacks conviction. It is difficult to find a simple correlation of GDP’s contraction of 23.9 percent, with Covid. Even if one subscribes to his version, it is absolutely clear that the erratic and incongruous handling of the pandemic has aggravated the situation which was already looming large. Subramanian must accept that except the UK where the contraction rate is around 22 percent, all other countries have less than 10 per cent negative GDP. It is not clear how long he would be hiding behind Covid-19. (IPA Service)