The sharp fall of 23.9 percent in GDP for the first three months of the current financial year ending March 2021, is worse than expected. But it was on the lines that many were expecting since for more than two months most of the economic activity of the country was shut down in the strictest of the lockdowns anywhere in the world.
The lockdown was necessary, to gain time to install and ready the health infrastructure to cope with the problem the pandemic was bringing in its wake. At least on that count, in the war against the pandemic, so far, India has performed better than anticipated with the mortality rate amongst the lowest in the world.
If for that the Modi government deserves fulsome praise, on the economic front the situation arising out of the lockdown and subsequent graded re-opening of economic activities, albeit uneven, is causing peculiar problems and hurting the economy and thereby the masses in a manner that was not easy to fathom earlier.
Restarting a cold economy is not something very simple. It would take its own time for all systems and engines to start working in order and in perfect tandem to attain that optimal productivity level. For the present, the industry has not been able to use its full capacity of manufacturing abilities.
It falls on the Prime Minister Narendra Modi’s shoulders the unenviable task of coaxing all sectors of the economy to spur back to increased productivity and profitability and look after the weaker sections that were hit by the Covid19 induced all-round crisis.
It is no surprise that barring agriculture, no other sector of the economy posted growth during the first three months of the current financial year, and this negative growth is likely to continue for at least another three months. In the RBI assessment, this contraction in economy could continue through the financial year, which means that there is no easy way out of the situation and it would require all the might of the government, pubic and private sector to put the economy back on the rails.
Estimates wary, but 2020-2021 financial year would be a period of negative growth – which means loss of jobs, livelihood, and related assorted problems they would spark among the people. This in turn would mean lesser money with the people to spend, which means the manufacturing factories would not be able to sell what they are producing, and they would also be finding it difficult to revive.
Just consider the extent of the problem: Among sectors, construction was hit the hardest, contracting by 50.3%. Trade, hotel, transport, and communications, declined by 47 percent and manufacturing is down by 39.3 percent. Only the agriculture posted growth of 3.4 percent.
The larger companies may be able to withstand the shock of this fall in growth, but for the micro and small-scale industries it could mean the death warrant. Unless, the government comes out with concrete assistance, as MSMEs, are the biggest employers and major contributors to the country’s growth. If they, for any occasion, die, just imagine what would happen.
Which is why, the government is also focusing on the sector that is doing well, agriculture for instance and then attempting to help the MSMEs. But in agriculture, despite the good performance, the lot of the farming community may remain the same as they are not about to get adequate remuneration for their produce.
Is the government doing enough? The time to act is now and the government must spend its way out of trouble – is the general sentiment of the chambers and the common man alike.
If the government spending increases, which will in turn increase money in the hands of the people who will then start making purchases of goods and services, which would lead to companies selling more and the cycle continues, kicking off significant economic activity. Economists also want the government to start putting money into the hands of the poor, who have been hit the hardest due to the pandemic – for them it is a question of their survival. For the middle-class salaried section too, the pandemic has meant cut in earnings and or job losses, pushing them into a distressed group.
So, it is easy to see the mountains the government must climb to revive the economy. Another major impediment to full restoration of economic activity is the crippling of the supply lines and disruption in supply lines that are starving the manufacturing sector of raw materials and components.
As if rebuilding the economy from the aftermath, well continuing in fact, of Covid19 pandemic was not enough, we are faced with a belligerent China on the Eastern Ladakh border with its armies messed up and ready for a fight. Now, this only adds to the uncertainty as also increases costs of battle preparedness, and in another aspect impacts adversely the supply chains of components and parts for Indian manufacturing.
It is clear that the economy now needs direct government intervention and action : must increase direct cash transfers to the poor, and more importantly give increased financial stimulus for the revival of MSME, increase its own spending to spark off demand in the economy to encourage the private sector to step up its participation. For the present, even pre-Covid time in the recent past, the private sector had held back investments.
The reason was clear, even then there was a contraction in demand, for an assortment of reasons. Unemployment was at a 45year high. With lesser access to money they made no or little purchases, impacting demand and in such a situation the private sector held back investments in new capacities. For the simple reason, it already had idle capacities.
Another Covid19 impact is on the revenues of the central government. With a drastic shortfall in revenues, the central government is not able to disburse the GST claims of the state governments.
All these only point to the fact that the distress in the economy is real and the fear is that without money how the state governments would fulfil their obligations on people’s welfare.
The central government has noted the concerns, but is of the opinion that the worst is over, as far as the economy is concerned, and from here on the economy will be on the revival path.
Covid 19 has for the time being put a question mark over the ambitious $ 5 trillion economy by 2024, but the ambition should not be lost sight of. What is needed is a single-minded focus on the goal and a credible, working plan to revive and rejuvenate all engines of economic growth -- manufacturing, real estate, exports, agriculture, and services.
Lakshmana Venkat Kuchi is a senior journalist tracking social, economic, and political changes across the country.
He was associated with the Press Trust of India, The Hindu, Sunday Observer and Hindustan Times. He can be reached on [email protected]
and Twitter handle @kvlakshman