Indian Economy was Quarantined much before Covid19 Outbreak

The Indian economy which has been smacked by COVID-19, is likely to report contraction in growth for FY21. As per the latest release of the ADB (Asian Development Bank), Indian economy is likely to report bleak growth of -4% during the current financial year.

The COVID-19 pandemic and subsequent lockdowns has shifted the already ailing economy on a downward spiral. Much before the outbreak of the pandemic, our economy was suffering from sharp dip in consumption and fragile demand. Not only consumption, even investment narrowed by almost 3% over the year. Indian economy had already been weakened by years of mismanagement and experiments before this pandemic struck. Despite facade operations with economic data and tenacious refutation before 2019 Lok Sabha elections; Modi 2.0 Government accepted the crises in Job market only in May 2019. According to CMIE data, the current unemployment rate above 9% (was +7% in Jan’20-before Covid-19) is the highest in almost five to six decades. Adding fuel to the fire, the latest information on CMIE states that in April 2020, more than 12 crore people lost their jobs while many dodged the bullet of steep salary cuts.

Even before this pandemic, India had been witnessing economic slowdown. Since FY19, India’s GDP growth rate is falling, from 8.18% in Q4 FY18 to 3.09% in Q4 FY20 (slowest growth in 2011-12 series). In January 2020 itself, well before India’s lockdown or reactions to the pandemic, the IMF (International Monetary Fund) reduced India’s GDP growth estimates for 2019 and also reduced the 2020 GDP forecast. The two main factors behind this sharp fall in growth rate and slump in consumption are attributed towards Demonetisation and a hasty implementation of GST full with glitches. The 2016 Demonetisation and GST enactment in 2017 led to severe back to back disruptions in the economy. That followed by series of corporate defaults and numerous banking crises such as the Infrastructure Leasing & Financial Services crisis which led to trust deficit and liquidity crisis in the system. Failures of much hyped Government policies such as ‘Make in India’ also played its part in this downfall. Despite so many funds spend on promoting ‘Make in India’ campaign by Niti Aayog, our exports remained flat at 2014 levels.

Most leading indicators such as PMI indexes, Auto sales etc pointing to a bleak outlook. Due to the unplanned lockdown restrictions, large numbers of migrant workers ended up walking back to their villages and many lost their lives in their journey. The dearth of migrant workers at high demand places is inevitable after the relaxation of unlock versions as majority of this workforce has departed to their native places with no signs of immediate return. This eliminates the chances of a meaningful “V shaped” recovery. Worse, the government’s finances are strained. Tax revenues are set to crash and the government has not done enough to reinvigorate the economy. Lately, the Govt’s biggest weapon — spending — has failed and there is little left in its armory, besides selling some of our cash rich PSUs at dirt valuation to meet its expenses.