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New Delhi, 9 September 2020
Economy Revival
MID-TERM PLAN
VITAL
By Dhurjati Mukherjee
The pandemic has triggered a slump in
consumer spending, hit private investment and a sharp decline in exports with
unimaginable dimensions. Though unparalleled, such an emerging situation could
have been better dealt by government planners and economists, and remedial
actions taken in allowing economic activities much earlier.
The surging problem of unemployment and
consumer prices, the bleakness of an economy wilfully mismanaged, the inspired
erosion of social security added to the corona pandemic has aggravated hunger,
scarcity, homelessness and dislocation with uncertainties over today and
cascading angst tomorrow. In fact, the perils of this deathly epidemic have
shaken the lives of the economically weaker sections not to speak of the poor.
Recently, as per the National Statistical
Office (NSO), the Indian economy shrank by 23.9 per cent in the first quarter,
signalling that the road ahead would be more arduous than projected by most
economists. It marks the steepest decline since the NSO started quarterly
measurement of GDP in 1966. But the decline has been a record low in the global
context with only Peru and Macau having recorded lower GDP growth numbers or
the period, Care Ratings stated in a research report.
Meanwhile projections of real GDP had been
expected to contract in the current fiscal from IMF’s -4.9 per cent slide to
OECD’s worst case estimate -7.3 per cent. Some economists have, however, come
out with more depressing forecasts but are taking a more balanced view i.e. it’s
believed that the contraction may not exceed 6 to 7 per cent. Now with the
current data from NSO, the GDP contraction may reach around 9 per cent.
The last time the Indian economy contracted
by over 5 per cent was in 1979 when the country was faced by a severe drought
and floods in some regions. In the present scenario, the IMF said the total
stimulus package for G20 countries averaged 12.1 per cent of GDP, many times
more than Global Financial Crisis (GFC). India also announced a stimulus
package which it claimed to be 10 per cent of GDP but independent analysts
found it to be around 4 per cent or even less.
Delving into the past, while the country’s
exports were on the decline, the developed markets were seen to lowering their
demand for goods produced by emerging markets and increasing their share of
domestically produced services. With exports floundering, investment growth
decelerated, and has contracted in the last three quarters.
Meanwhile though private consumption grew by
7 per cent in the past six years, financed by sharp decline in household
savings and large jump in indebtedness, this situation changed since the last
quarter of 2019-20. With incomes failing and easy credit coming to an end due
to rising bad debt of banks and non-banks, private consumption considerably
slowed down in the first two quarters of the current fiscal.
However, in such a critical situation, while
private investment slowed down, government spending too has been grossly
inadequate. Experts believe that at such a time the government should have been
aggressive in spending. At least, there should have been strong investments in
the health sector by the Centre. But whatever investments came during the past 4-5
months were those from debt-prone States. Thus, it can safely be said that the
quantum of measures falls short of what is needed given the size of the
economic shock.
The economy has become increasingly centralised
but the spending of the Centre has not kept pace with this centralisation. Had
the Centre made available more financial resources to the States for
development as also disaster mitigation activities, the situation would have
been vastly different? Moreover, the long spells of lockdown could have
continued but economic activities should have been allowed much earlier.
Resources have obviously been a constraint
for the country. As India’s external debt is quite low, attempts should be made
to garner external financing for development of infrastructure and other
manufacturing areas. Though differences may occur, India’s labour is
sufficiently skilled and relatively low-cost. This advantage has to be explored
by most States, some of whom have already made some headway in this
direction.
However, the most affected has been small
business, whether in manufacturing or services sector. The lack of demand and
financial constraints has impeded their earnings to a great extent, thereby
affecting those working in such units. Moreover, the Central government showed
total apathy towards migrants, who were not only affected by the sudden
announcement of lockdown but did not have incomes for a considerable period.
All this had a telling effect on a large section of the population.
The recent report of the Department of Economic
Affairs observed that a V-shaped recovery is under way. As India emerges from
the crisis situation, it would be imperative to reorient the country’s policy
matrix towards a calibrated reconstruction of the economy and building
resilience. The report also found sectors such as power, steel, auto and
capital inflows and exports witnessing recovery while areas that need attention
include infrastructure, health care, skilling and start-ups.
One may refer to McKinsey Global Institute’s
report last month which rightly predicted that the country would need ‘best of
the best’ growth to ensure annual job growth of 1.5 per cent similar to the
2000s and productivity growth of 6.4-7 per cent similar to the 2010s. Stressing
the need for reforms, and supporting privatisation, it called for measures to
channel more household savings to capital market instruments, reducing the cost
of credit by 3.5 percentage points and streamlining finances to generate 1.7
per cent of GDP annually for growth-oriented investments.
Experts believe that both a mid and long term
strategy is urgently needed for a transition to a sustainable economy, may be
by the middle of 2021-22. The current economic crisis offers a lifetime
opportunity to roll out a mid-term strategy along with stimulus packages in core
sectors.
Some of these could include: a) More focus on
the agricultural sector which has shown good progress so that income livelihood
to over 50 per cent of the population is assured; b) Building resilient
infrastructure and allocating more resources towards construction of roads,
buildings etc. in backward districts as part of a stimulus package; c) concentrating
on deforestation and desertification and enhancing soil, wetlands and forests
to enhance environmental protection; d) Supporting local and small businesses for
development of efficient and green business; and with stimulus and R&D,
building new energy architecture based on renewable electricity, battery
storage and smart grids as also reforming power distribution.
At any cost the future economic situation has
to be improved for India to emerge as a global power. For things to change,
targeted investment need to be an important component of the revival approach. Once
government resources are directed to the right areas, these will inject the much-needed
money in the economy at least for sheer revival.---INFA
(Copyright,
India News & Feature Alliance)
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