Why economic recovery eludes India

The pandemonic scenario in our country -- indeed on our planet -- is stubbornly refusing to move out of dangerous territory.

The official Covid graph has crossed the peak. On the national scale it is now dipping staggeringly, even as in some states caseloads are rising. However, reliability of the data is extremely suspect, what with allegations of low testing, manipulation of caseload and death figures, non - recording of Covid-induced deaths and so on. Then there are concerns like the inevitable rise in infections during the festive season (think the major spike in Kerala following the Pongal festival) and  in North India, including the national capital, during the smoggy polluted winter, not to speak of other worries like chances of a second wave --already declared/alleged in Kerala and Karnataka -- in many parts of the country. It is also very clear that availability of the vaccine will be delayed and limited. All these worries implore us to prepare for a long and bitter battle against the invisible enemy, which would also entail a high economic cost.

Meanwhile, in spite of the government's refusal to publish the relevant data, it has been revealed by independent agencies like the Nomura Group, Tokyo, that the first flush of post- lockdown business activities seem to be petering out. One may expect another spurt during the festive season, but that also is destined to be temporary unless sustained with adequate doses of income support to the working people.

Why is this so important? Because economic recovery is predicated on normalisation and growth of effective demand, which in turn depends on the people’s purchasing power, which has taken a very big hit during the oppressive lockdown and in its aftermath. A vast majority of Indians are still suffering from job losses, wage cuts and fall in other incomes. Tens of lakhs of households that have had the misfortune of being visited by the unfriendly virus remain saddled with obligations to repay the loans they took for the costly treatment. The burden of debt weighs heavily on a much larger number of poor households which were compelled to borrow in order to cope with various medical and other exigencies or simply to make both ends meet. As if all these were not enough, overall inflation has risen from 6.69% in August to 7.34% in September, with an even higher 10.68% inflation in the food segment (vegetables running higher at 20.73%). In a word, people are, somehow , just eking out a living. They urgently need income support and loan waiver before they can provide the extra push for a gradual economic revival.

In the face of an unprecedented situation like this, other major economies in the world are implementing serious stimulus packages to come out of the recession. But the Indian Regime continues with its old game of statistical jugglery and mass deception. After Narendra Modi’s bombastic ‘Rs. 20 lakh crore package’ miserably failed to revive the sinking economy, Finance Miister Nirmala Sitharaman announced yet another ‘stimulus package’ on October 12. Basically, it has two components. First, a couple of schemes for central government employees. They can spend their tax-exempt travel concessions on goods and services attracting at least 12% GST (which means they are not allowed to spend the money on food and certain other essential items with zero or low GST.) Another program allows them to receive a part of their wages in advance to spend on festive shopping before the end of the current financial year. So, in ‘national interest’ perhaps, the government is now instructing its employees about when to spend their money, and on what goods and services.

The other component consists in an additional 25000 crore rupees for capital expenditure on roads, defense, water supply, urban development and domestically produced capital equipment; plus an an offer of 12000 crore rupees in long-term interest-free loans to state governments for infrastructure spending before March 31, 2021.

It is easy to see why all this is mere bakwash.The first tranche of the package clearly does not envisage any additional allocation. It only involves (a) diversion of an amount already earmarked for LTC (leave travel concession) to another kind of expenditure, i.e., purchase of high- GST goods and services and (b) an advance payment of wage -- something akin to an interest-free loan -- for festive shopping. To call it a stimulus is just a bad joke, the more so because it bypasses the overwhelming majority of Indians, particularly the poor, who have a greater marginal propensity to spend.

As for the second part of the package, there is every reason to suspect that the government would, as it frequently does, cut spending on other heads to fund these programs. It is also very doubtful as to what extent the state governments would be able to spend the loan amount offered to them within a short time frame.

Clearly the latest jumala is yet another shrewd attempt to disorient people with dazzling figures and bogus claims. It is so worthless that even bourgeois experts have branded it as grossly inadequate.

“Overall, the amount of demand stimulus is underwhelming,” said Sonal Varma at Nomura Global Markets Research soon after the package was announced. “With the previous rounds of budgetary fiscal support around 1% of GDP”, She added, “today’s demand stimulus measures take total fiscal support (on budget) to about 1.2% of GDP, which is small compared with the size of the growth hit, and reflects India’s weak fiscal starting position”.

According to Jahangir Aziz, head of emerging markets economics at JP Morgan, income support is urgently necessary so that when the infection becomes more manageable and restrictions are lifted, consumers and businesses would have the financial stability to borrow and invest. He believed “that is the only way India can avoid a scenario where damaged balance sheets and mounting bad debts will blunt the recovery. "…what you need right now is serious amount of income support and we've known countries who do, who've done that," he added, referring to Brazil as an example.

With the stupid, insensitive, anti people government in place, the immediate future looks bleak. Not surprisingly, in line with the various rating agencies, the World Bank in October revised its projection of India’s GDP contraction in 2020-21 from a previous estimate of 3.2% to 9.6%. Days later, the RBI itself came out with an estimate of 9.5% contraction.

The IMF’s estimate in October is a 10.3% contraction, compared to a 4.5% contraction predicted in June. According to Malhar Nabar, the Fund’s Division Chief, Research Department, the Iindian government needs to “tilt the composition of the fiscal support towards more of the direct spending and tax relief measures and to rely less on the liquidity support measures”. Gita Gopinath, Chief Economist of IMF, has also suggested that India needs to give direct support, and not loans, to low income households and MSMEs.

Is Narendra Modi listening? Presumably not, for he does not seem to have ears to hear.

Anyway, to view our economic prospects in perspective, we need to take a look at how, at this moment, India compares with her South Asian neighbours.

According to IMF’s World Economic Outlook October 2020, Bangladesh’s per capita GDP in dollar terms is expected to grow 4 per cent this year to $1,888. India’s per capita GDP, on the other hand, is expected to decline 10.5 per cent to $1,877 – the lowest in the last four years (the GDP figure for both countries is at current prices). This makes India the third poorest country in South Asia, with only Pakistan and Nepal reporting lower per capita GDP, while Bangladesh, Bhutan, Sri Lanka, and Maldives would be ahead of India.

Is Narendra Modi seeing in what direction the country is heading under his ‘care’? Presumably not, for he does not seem to have eyes to see.

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