- Pranav Jha
It’s the Economy, Stupid!
The fall of a quarter of Indian GDP came as a huge shocker. The COVID-19 pandemic’s gargantuan impact on the economy became crystal-clear after the quarterly figures of the GDP were released by NSO. The nation experienced a contraction in the GDP after four decades and the first time since annualised GDP figures had been introduced. The news of bad health of the Indian economy was competing for media attention with other news pieces. However, this news byte couldn’t find a prominent space in the newsrooms amidst widespread coverage of the Bollywood saga. The news wasn’t loud enough to be heard in high-decibel debates. Though, this is in stark contrast to the television coverages of Budget Days wherein television media appears to be the voice of the middle-class demanding reduction in taxes and other benefits. The announcement of the financial stimulus too received somewhat a good reception at TV studios. From the ceremonious celebration of implementation of Goods and Services Tax to non-stop coverage of demonetization, from speculations on the announcement of interest rates by the RBI to economic agenda, Indian media never fails to capture the economic pulse of the nation. So, is the contraction not that important a matter to gain a place in our public discourse. The absence of the economic situation from the public discourse is indeed surprising! It could be due to a multitude of reasons, which will be discussed later in this article. It is indeed surprising that in our country where high inflations might cause incumbents to lose elections, economic embezzlements are often brought out in discourse, jobs and formal employment are an essential part of social construct, stock markets are often part of general discussions, freebies are often a talking point in elections; a fall of a quarter of the national output has been if not wiped out, then somehow erased from public discourse. Can the widespread ignorance be attributed to the laissez-faire proponent? Inflation has remained fairly stable. The short-term consequences in fall of outputs seem to be of laissez-faire by the middle class. Despite the economic downturn, macroeconomic fundamentals have remained fairly stable- fiscal deficit, consumer price index inflation, current account deficit have remained stable. Forex reserves at an all-time high.
We could choose to ignore the bad news on the economic front on our peril. It is imperative that we take note of it, think about it or the information runs the risk of getting diluted in a melange of other attention-seeking news pieces. After all, it’s all about our livelihood, or jobs and our future. Stock markets have been tanking for a while and investors are losing money. Consumer sentiments have been bearish. The ‘act of God’ idiom seems to be a misfit here. Experts are expecting worse news on the economic front. The unorganized sector is generally not taken into account while calculating the figures. It is the same sector which is expected to bear the greatest brunt of lockdown. It is the largest employer in the Indian economy and job losses could be tremendous. CMIE had reported that 18.9 million salaried job losses since the lockdown came into effect. It would be important to note the fact that the GDP growth rate had been declining consecutively from the past seven quarters. It is also true, most economies across the globe have witnessed contractions. At the same time, India has witnessed major contraction amongst the G-20 nations, the largest economies of the world. Construction, manufacturing, mining and services have witnessed massive falls. Amongst this, the agricultural sector was a green shoot, primarily because of buoyant rainfall. The government restricted fiscal response is not doing any good either at a time when an increase in government spending becomes a requisite according to experts. The MSME sector, the lifeblood of our economy, is bleeding itself after the supply chains were grossly disrupted. All of this can have a vicious effect- debts piling up further stressing the already stressed banking sector. The loss of incomes means families couldn’t support the education of children meaning they’ll drop out, reduced spending on food will lead to greater health problems and reduced spending in health will further be disastrous for human resources. The strict public finances raise the question of the V-shaped recovery curve. According to many experts, we are in dire need of direct cash transfers to revive time. The effect of credit schemes in the revival of small businesses has not been visible on ground with mounting losses and high and rising employment figures. Without an iota of doubt, the government is working relentlessly and effectively to tread on the path of revival- it would be imperative for the government to help plug-in supply gaps and revive consumer demand.
Economics has more than often interspersed politics in India. The decision of devaluation of Indian currency had seen political rumblings forcing India to tread on the path of self-reliance in agricultural production i.e. Green Revolution. Double-digit inflation rates have been rare, with the highest of 34.7% coming in 1974 precipitating into an economic and finally a political crisis- The Emergency. It is true that post-liberalization, the labour market went under a seismic shift. After years of state control over the commanding heights of the economy, we have witnessed the steep decline of labour unionism. The grip of labour unions on state machinery through pressure movements has steadily declined under successive governments. Although sporadic protests by Kisan Sangathan, there has been no popular movement like MKSS for decades. The informal sector has remained informal as ever. The booming middle class and the associated consumerism steered the Indian economy post-1991 reforms. The flexibility in the job market can be attributed to this class. Post liberalization, successive governments have promoted disinvestment. Albeit, these governments have not shown much intent to tinker the Fabian socialist model. The proportion of the population below the designated poverty line and the humongous unorganized sector has made it imperative for governments to present their socialist credentials on the table. The current government, however, does not shy away from predicting the future roles of governments as enablers/facilitators rather than actual doers of the economic things (mostly businesses). The decisions of privatizing state-owned banks to do away with inefficient PSUs- the government has been upfront on its perceived role of the governments in our future economy. Another trend relating to the economy has emerged, millennials and the young middle class prefer instant consumption much more than savings. They perceive the current economic problem to be demand-driven, which can be corrected once the consumers pick on-demand. However, this remains to be seen whether consumer demand would pick up given the rising cases of COVID-19 and the fear of the spread of contagion. Amidst this crisis (the steepest fall in GDP post-Independence), one can remind the fragile state of the economy at the eve of Independence. Our first prime minister J.L Nehru very firmly established the socialistic model of economy which has more recently been derided by umpteen researchers. It will be impossible not to attach the benefits of free- markets here. But the inclusive model of growth as prescribed therein comes to use at this point than any time before. The spiralling out of the migrant crisis and the huge employment loss poses a question on the economic model we follow now. Advanced to advanced economies on the planet had to dole to unemployment allowances in numbers never seen before. In India, itself we saw the utility of MGNREGA coming handy at this point of time. But yes, the contraction in GDP couldn’t attract many eyeballs. The contraction, which could mean major losses of income for many and pushing back many to below poverty lines. So, does not this deserve a healthy discussion based on merit? Are we somewhere near the saturation point wherein AGM of companies would finetune the economic policies? Or will we see the role of the welfare state coming up more than ever before? At the same point, the narrative around local manufacturing does not fit in the picture because there never had been a systematic shift in changing proportions of contributions from agriculture to services. Manufacturing for most of the time had remained stagnant.
The path to revival seems to be more difficult. We’ve reached an inflection point in the economic history wherein we really don’t know what the future holds for us amidst the uncertainty. It is for sure that the economic happenings will impact us at micro and macro levels. We can’t really choose to live in bubbles of our own. Ignoring the economic news would be on our own peril, after all, we’re the consumers, we’re the ones paying taxes, we’ll be the ones to look at the jobs, we’re the public services utilisers. Yes, simply we can’t deny the existence of the poor health of our economy. It becomes imperative that the government should immediately look for paths to economic revival. Political parties often deploy economic agendas in their manifestos to win over masses. The masses have been affected by the downturn. However, we cannot let this economic moment go out of public discourse. Yes, it’s the economy, stupid!
By Pranav Jha email@example.com
The featured image was uploaded by Kaif on Unsplash.
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