As India moves to unlock 2, there is an air of uncertainty over whether the economy can rebound enough and quickly after it had been dealt a crippling blow by the nationwide lockdown since March 25,2020. Anyway, the Indian economy has not been doing too marvellously in the months preceding the lockdown but definitely the COVID-19 pandemic has not left it untouched. Even before the pandemic properly hit India, in the financial year ending in March, GDP only grew at 4.2%. The sequence of quarterly GDP growth numbers leading up to that point tells a clear story: 7% growth shrunk to 6.2%, then to 5.6%, 5.7%, 4.4% and finally 3.1% in the quarter that ended with the lockdown. Investment shrank by almost 3% over the year. The investment crisis and India’s large debt pile have the same cause: a government that thinks its own spending is what will fuel economic growth. According to official statistics, government spending increased by 12% last year, more than twice the growth rate of private consumption. Government spending was similarly higher than the other components of GDP in the previous year as well. As a consequence, the government last year – again, before the pandemic properly hit – had a fiscal deficit 4.6% higher than the one it inherited six years ago. This was an embarrassing revelation against the backdrop of claims that it has inherited everything bad from the previous Congress government. Such alibis cannot work for ever and certainly not with economists and analysts who understand the lies behind the jingoism. The big news and not necessarily the good news was brought by the International Monetary Fund(IMF) which stated that Indian GDP in the ongoing financial year, which began in March 2020, will contract by 4.5%. Just a few weeks ago, IMF had been predicting 2% growth for the year. A slowdown of this magnitude will have enormous human consequences. As it is the economy has been on slowdown pre-lockdown and by now, it is close to recession. The impact of coronavirus lockdown has led as many as 92 million urban Indians and 89 million rural Indians exhaust their savings within the first 21-day lockdown. By the end of June, 139 million urban Indians are anticipated to run out of their savings. An economic stimulus for business and, much more important, a relief package for the poorest and most vulnerable citizens is to be expected after a catastrophe such as Covid-19 and the lockdown. After several pleas since April by the opposition, notably the Congress and also noted economists, the Modi government finally launched an employment scheme with an outlay of Rs 50,000 crore for migrant workers who returned to their home states during the coronavirus-induced lockdown. Launching the scheme, Modi said during the nationwide lockdown, the talent from cities returned to villages and it will now give a boost to development of rural areas. By some estimates, the loss of three months’ income would leave nearly half of the country’s population mired in poverty, reversing all the gains made. Worse, the government’s finances are strained. Tax revenues are set to crash and India’s hitherto relatively stable debt-to-GDP ratio may spike up toward 90%. Controlling the spread of the pandemic will bleed state resources, leaving little for the welfare measures that will be essential in coming months.
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