Economic Highlights
New Delhi, 23 March 2020
Beyond The Pandemic
WORLD HEADS FOR PANIC RECESSION
By Shivaji Sarkar
Pandemic to panic stalls the world. Markets
everywhere slump. Corona or not it has hit Asian corporate and State
governments in India hard. The debt of world corporate is burgeoning. Note, the
coronavirus has just arrived, but the rest have been building up over the years.
The pandemic has only exposed these and if it continues, it can lead to a sharp
down morphing into a financial crisis and may trigger a chain of defaults.
Politically it may act as a cover up for many
dodgy decisions of any Donald Trump, Xi Jinping, or Emmanuel Macron. It may
usher in new politics, business or trade norms and can even bring to surface
many conflicts. There are apprehensions of distributional issues that might
arise out of the economic fall-out of this pandemic. Possibilities and
hypothesis abound.
On ground are stark realities. India’s growth
forecast has again been lowered. This time it is by S&P Global ratings. It
has reduced growth to 5.2 per cent on March 18 against its earlier forecast of
5.7 per cent for 2020. Earlier, Moody’s too had cut it last week.
In her first
speech as International Monetary Fund Managing Director Kristalina Georgieva in
October 2019 said 90 per cent of the world is likely to have slower growth in
2019, and India along with Brazil is to be worst-hit. Asia-Pacific growth
is projected to halve to 3 per cent following “an enormous first-quarter shock
in China, shutdown in the US and Europe and deep recession across Asia-Pacific
amid virus transmission.”
Director, Biotechnology department, Dr RK
Sharma of Mangalayatan University in Aligarh, Uttar Pradesh, says that it is
not a new virus. In the present state, the virus forms fibroids in lungs
affecting respiration and may lead to multi-organ failure in acute cases. The
scare is a bit hyped up, he avers.
The big question is: Can the plunge of Sensex
to a three-year low on March 19 to 28,288 almost close to 27,019 it touched on
September 2, 2014 be ascribed to the virus? The Sensex increased 14 times from
1991 till 2014 and gained about 2000 points since late May 2014 polls and early
September 2014. Market believes this is possibly the real level than the hyped 42,059
on January 2016.
Apparently, conditions of State government
budgets support this. A newspaper study of 17 State budgets reveals a shortfall
of close to Rs 3 lakh crore in the fiscal 2019-2020, with Bihar alone having a
deficit of Rs 25,400 crore. Actually, the budgets are presented in a hyped
manner. Actual revenue realisations i.e. total taxes collected by the Centre, a
fraction of which is shared with the States, are falling due to stymied
economic activity. Most States have made meager increases over toned down
revised estimates.
States together reduced Rs 1.05 lakh crore expenses
in their revised budgets fiscal year-end. This almost tallies with the Rs
112,660-crore difference mentioned in the Central budget 2020-21. The pattern
is comparable to 2017-18 and even of the UPA regime. Karnataka Chief Minister
BS Yediyurappa recently said that his State lost Rs 11,887 crore revenues from
the Centre due to lower tax transfers and compensation against GST collection
shortfalls.
The Central budget 2019-20 presented last
July expected tax revenues of Rs 19.6 lakh crore and disinvestment receipts of
Rs 1.05 lakh crore. The revised estimates in the 2020-21 Budget on February 1
put it at Rs 18.5 lakh crore, shortfall of Rs 1.1 lakh crore. Divestment gains
were about Rs 40,000 crore. Total 2019-20 fiscal deficit may rise to Rs 2.24
lakh crore, Rs 24 lakh crore more than original estimates!
Indeed, revenue targets are often kept at an unrealistic
high. The Centre had to take a tough measure of curtailing last quarter
expenditures since December 2019. In many cases, salary payments and project
allocations were delayed. A significant gain was Rs 2.01 lakh crore by the States
from VAT on petro-products. The Centre gained Rs 2.14 lakh crore, as per
Petroleum Planning and Analysis Cell. So, despite crude prices touching over
20-year low of $30 a barrel, the Centre announced a rise of Rs 3 per litre of
fuel – about Rs 40,000 crore a year. It thus gained over Rs 2.6 lakh crore from
petro-cess of Rs 10 per litre too.
The latest virus scare has put the spotlight
on health. Shockingly, States spend no more than five per cent on it. While Assam,
Kerala and Chhattisgarh spent more than the national average, Punjab and
Haryana spent far below it. And therefore, it is no surprise that India is put
at 129 of 186 countries in UNDP’s Human Development Index (HDI)!
Budgets are also guided by populism. Six States
– Assam, Bihar, West Bengal, Tamil Nadu and Kerala -- are scheduled to go to
polls in 2020-21. Sops and freebies pep up Assam budget. So are the budgets of
other States except Bihar, which is facing severe crunch. In 2018-19, Assam
gave tea garden workers Rs 5,000 per head to over 7 lakh tea garden workers, an
important voter segment. They would again get Rs 3,000 each in 2020-21. West
Bengal has doled out, a la Delhi, free electricity, Tamil Nadu regularises
unauthorised colonies and Kerala enhances pensions. All promise job increases
as jobless youth form large segments in Assam (27%), Kerala (36%) and West
Bengal (13% except Bihar (22%).
So much is happening beyond the virus world
over. Corporate debt is surpassing the 2008 sub-prime crisis level. One set is
called “zombies” i.e. companies which earn too little to be able to pay even
interest payments. These are said to survive by issuing new debts. Central
banks around the world are worried as cash crunch could enmesh in severe
financial crisis.
The IMF says that one-tenth of the Chinese
corporate debt of $20 trillion is in zombie firms. The latest Donald Trump
incentives, paid sick leave and federal funds for Medicaid along with shutdown to
fight the virus may lead to deep trouble. Realising this, Prime Minister
Narendra Modi has announced setting up of an ‘Economic Task Force’ to formulate
a revamp plan even as he announces March 22 ‘Janata Curfew’ to combat the coronavirus.
Travel bans, sporting events cancelled, mass
gatherings prohibited, deserted shopping malls et al add to the slowdown. Airlines,
hospitality, transport, tour operators and daily wagers are majorly hit. The world
needs a way out. India is looking towards Modi for a solution. It can be
achieved only through opening up social and economic activities to spur growth
and not succumbing to the scare.---INFA
(Copyright, India
News & Feature Alliance)
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