Now that we have arrived at a stage where economic breakdown looks almost inevitable, we must take a cue and start planning for our future
In November 2008, on her visit to the London School of Economics (LSE), Queen Elizabeth II while referring to 2007/08 financial crisis asked why no one saw the financial crisis coming. Caught in a pickle, six months later British economists wrote a letter of apology to the Crown admitting to the guilt of “wishful thinking combined with hubris”. 2008 financial crisis was dubbed to be principally a failure of the collective imagination of world economists.
But unlike 2008 crisis, 2020 economic depression appeared to be imminent, triggered on the whole by Covid-19 pandemic. Before any forecasting model could emerge, it gripped the whole world as soon as the Corona-virus marched on from one global end to another.
Though Pandemic arrived late in India, the Covid induced economic shock could be felt as Indian economy contracted by a record 23.9% in the first quarter of April-June 2020 as per National Statistical Office data. Agriculture is the only sector which recorded relatively satisfactory growth of 3.4% on year terms. Other major sectors such as construction, manufacturing and transport are the hardest hit. Despite construction sector being fast growing in current Indian economic scenario, its fall is also the steepest as it shows 50% contraction. There is a 47% fall in trade, hotels, transport and communication. Manufacturing sector shows a contraction of more than 39%, while mining and quarrying was squeezed by 23%. Other than the growth or the contraction of above mentioned sectors, we also look at the expenditures made in the economy to get a sense of how sick the economy is. On the expenditure scale, private consumption has gone down by 26.7%. Gross fixed capital formation which is an indicator for gauging investment has gone down by 47%. Exports have also contracted by about 20% which could prove to be a strain on the balance of payments.
The pandemic has caused the GDP to shrink all around the global economies. The strain on India’s GDP is more complicated due to the presence of informal employment on large scale. As per ILO’s 2018 estimates, 80-90% workers in India are informally employed. These include rickshaw drivers, tailors and labourers. However, even before the onset of COVID-19 pandemic across the world and in India, the Indian economy was slowing down with a real GDP growth rate of 4.7% in 3QFY20.
Another issue that ails various national economies is sudden disappearance of foreign investment in Asia. Right from the onset of the effects of the pandemic, the International Monetary Fund (IMF) approximated that more than $100 billion foreign capital was cut off from many developing economies in Asian countries. Besides, to the chagrin of economists of IMF, about $2.5 trillion is required to steer developing economies on the path of revival. It is in this context the World Bank in its South Asia Economic Focus report estimated India’s GDP to contract by 9.6 per cent in 2020-21.
Bumpy Road Ahead
“The Indian economy may have some growth spurts that look like a fast recovery but it would take until the September quarter of 2023 for the country and the world to be back to pre-Covid-19 levels, said Kevin Sneader, Global Managing Partner, McKinsey & Company”(Economic Times)
As a remedial measure, the Government of India announced a stimulus package of Rs 20 lakh crores which was too meagre. Many experts attributed the failure of the package to the fact that middle-class population was ignored. As a result of this, the middle-class population suffered exponentially in income and employment leading to a skimpy spending/consumption. Current economic recession will surely devolve into an erratic economic weather if middle class is taken for a ride. A more comprehensive stimulus package is the need of the hour.
Additionally, the Pradhan Mantri Garib Kalyan Yojana that was announced to provide direct debit transfer of Rs 500 every month for three months, couldn’t measure up to its own estimation. According to Indus Action survey, nearly 40% of Jan Dhan account holders were not able to access this scheme. The operational issues need an immediate redressal with pumping of huge cash into the lives of economically weak to revive an ailing economy.
The big challenge for Indian economy is to tackle the supply and demand distortions. The demand side distortions majorly include the financial sector services. It also includes the impact on trade, sports, transport, travel, tourism and entertainment. The supply side distortions are mainly because India has substantial trade relations with countries like China, South Korea, Italy, Spain, France, UK, Germany and USA. These nations have drastically slowed down their supply to India.
India as a country needs to strategise its social overhead capital for healthcare most efficiently. It requires expanded primary healthcare facilities and multi-functional infrastructure for efficient usage of the healthcare. It should be made convenient and affordable for the entire population. This requires a long term strategic planning.
Now that we have arrived at a stage where economic breakdown looks almost inevitable, we must take a cue and start planning for our future. We must not neglect certain important areas which otherwise should have been prioritized without a pandemic outbreak. These areas include a better urban planning design. Most of us were unaware of the vastness of unorganised labour in urban areas and it took a pandemic to reveal the unorganised urban planning design at the hands of the authorities.
In an agrarian economy like India, it becomes of utmost importance that we strengthen our rural infrastructure to promote industries related to agriculture. We must make efficient use of the available labour and create jobs for unemployed youth in agricultural sector. This also needs strengthening and broadening the agricultural base. Agriculture needs more openness to trade corridors.
In 2008, economists could seamlessly apologise to the Crown for being caught unaware of the looming economic downturn. But if we continue to be hubristic even now in the same pattern, pandemics and not economics will drive the society. Pride goes before destruction, a haughty spirit before a fall.
(Author is Assistant Professor, School of Business Studies, Central University of Jammu)