The economic stagnation has pre-coronavirus roots, hence lifting the lockdown will not be enough to get the economy back on track.
New Delhi: In his April 14, 2020 address to the nation, Prime Minister Narendra Modi revealed that his government planned to unwind the anti-coronavirus pandemic lockdown, but in stages.
India is the only G-20 country, which is simultaneously afflicted with Covid-19 sickness of its citizens, and also debilitated by falling growth rates in output, with rising unemployment and a tottering financial system. Thus our task, post-Covid-19, is gigantic.
As already known, by the time the coronavirus arrived in India in early February this year, the economic system of India had been in decline for over three years. But I expect that India will win the battle against the coronavirus pandemic. However, I also foresee that India may be badly defeated by the ongoing pre-pandemic war to reset the economy.
The problem, thus, for the nation is not that we cannot defeat the coronavirus, but that the already crisis-ridden economy will have been, by then, further battered by coronavirus and the consequent lockdowns.
When coronavirus enters the body of a human, which is already sick due to other reasons, the task to save such a sick human becomes hugely uphill. Similar is the case of fighting Covid-19 with an already weakened economy.
Thus by the time the government’s lockdown policy manages to contain the coronavirus, the economy may become so emaciated that there may be a situation of mass unrest in its people consequent on unemployment and rising poverty due the lockdown.
Thus the pressing possibility of an economic crash induced by the lockdown, should galvanize policymakers to honestly review the way we have governed and then to initiate wide ranging changes in economic policy—i.e., if those presently at the helm of economic affairs even know how to do this. These changes cannot be deciphered just by reading books and op-eds; but must come from qualifications fit for research, tested ideological convictions, and experience.
My suggestion is that as a first step, Prime Minister Modi should replace the present lockdown scheme by a more decentralized scheme and ensure that the MSME and daily wage workers in the agricultural and non-agricultural sectors are able to survive and the sectors revive soon.
As I have written in my earlier articles in The Sunday Guardian, the Modi government should formulate a new economic policy with a clear statement on objectives, priorities, strategy and viable schemes for resource mobilization with essential physical and financial infrastructure, and carry it out through experienced persons. At present there is no such policy. Instead the economy is being jerked from one ad hoc goal to another set of targets.
The bottom line in today’s India is that there are no trade-offs between containing Covid-19 and reviving the economy. Both have to go together in India at the present juncture because saving people from Covid-19 needs a growing economy to keep them healthy and vice versa.
At this stage, the new economic policy thus must first address the implications of the new hurdles and new opportunities, which the coronavirus pandemic has given rise to in India and the globe.
The first major hurdle to face is how to reverse the last four years’ trend of a “tailspin” in economic indicators such as in GDP growth rate [now the most realistic half per cent per year], rising unemployment [presently 30%], and near collapse of the banking system [the last being due to the huge and increasing Non-Performing Assets].
These may be attributed to a declining aggregate demand arising out of erroneous monetary and fiscal policies since 2012, especially in raising the interest rates of loans for investments and tax terrorism.
With the cost of capital rising as a consequence of rising interest rates during the last decade, many MSMEs folded up, thus causing huge unemployment amongst the semi-skilled and the self employed entrepreneurs. Adding to this the lowering of the rate of return on fixed term deposits, and the irrational incentive-hurting taxation rates with its collection method [particularly GST and Demonetization] requiring incredulous mental gymnastics and paperwork. This has reduced the rate of savings, both of households and corporates, and consequently lowered sharply the rate of investment as ratio of GDP.
The Finance Ministry, with senior personnel who appear clueless about practical macroeconomics, continued the UPA’s tax-terror methods for obscure reasons; thereby harassing the investor, innovators and business community in general, while allowing a few industrialists to flourish. Today the enthusiasm in the business community we saw in 2014 has progressively evaporated.
Today the coronavirus pandemic has enabled many of these industrialists to use the lockdown to trim their activities and also reduce their inventories. No wonder the pontification of the Reserve Bank Governor on banks easing the procedures to advance loans to industry has largely been ignored by entrepreneurs. Available data shows that credit growth during FY 20 has been a mere 6.1%, the lowest in 26 years, i.e., since 1993-94 when the Harshad Mehta scam had erupted.
Thus the hurdle today is that an economy-wide disruption of the lockdown has been so pervasive that if it is lifted, that by itself will not motivate industry to hum with activity, because the economic stagnation has pre-coronavirus causes and it is this stagnation that had caused psychic lethargy among stakeholders in the economy.
Today industrialists require to be inspired to take the audacious risk that is required to kick-start the economy. That inspiration can be induced by incentives (not hand me down sops), commercial consensus, and decision-making by concurrence obtained by stakeholders’ participation.
This cannot be achieved by a display of nonchalance by the Government particularly in economic affairs. That is why the Reverse Repo Turnover [viz., the funds that banks voluntarily deposit with the Reserve Bank to earn interest instead of lending the money to entrepreneurs], which on February 20 this year was only about Rs 40,000 crore, has, since then as of April 16, soared to a mind-boggling Rs 7 trillion [seven thousand billion].
In other words, the advice given earlier last month by the RBI Governor to banks to be “more active in lending” has been plain ignored.
No banker has confidence today that if he takes calculated and rational risks, he will be honoured even if he succeeds. On the contrary, if he fails he will be defamed and probed.
This climate of risk averseness is created because the Government has been revealed as devoid of economic measures designed to raise growth to the needed double digit level.
Those at the helm of affairs in government must know that importing talent for economic leadership is political suicide [as was seen to happen in the past few years with Raghuram Rajan and Arvind Subramanian, both of whom were grafted from abroad onto our economic institutions]. Both men, while in office, were loyal to their past patrons, who are in opposition to our present Government. Today, bereft of their cushy positions, they are day-in and day-out, openly blasting away the BJP government as if on a paid mission.
The steps taken by them include measures such as high interest rates, which killed the MSMEs, the GST, which confused everybody by its complexity, and the gold policy that drained resources by fraud—examples of what these persons are responsible while in office.
Another hurdle that has emerged is the fracture of Indian society by events happening pre-appearance of coronavirus in India. This has degenerated since the lockdown was imposed.
Anti-Hindutva, left wing, and Wahhabi militants, and foreign forces, with their counterparts in India are hostile to the emergence in India and acceptance by the masses, of a more natural and unifying concept of citizenry based on the common DNA of Hindus and of non-Hindus [common because we share the same ancient heritage and ancestry]. The identity of an Indian thus has got clarified as Hindus and those others whose ancestors are Hindus.
Hence through classic disinformation [referred to in KGB jargon as “active measures”], these forces use fake news, cut-and-splice videos, and impersonation techniques to seek to create a fear psychosis—that is unity through Hindutva unity means fascism and holocaust.
Furthermore, these forces have used such disinformation tactics to castigate certain BJP government actions, notably to legally restore the unity of Jammu & Kashmir including Ladakh with the rest of India [by scrapping the temporary Article 370 of the Constitution], legislate the rights in marriage of Muslim women invoking equality with the rights in marriage with Muslim men [i.e., Abolition of Triple Talaq], and the preferential grant of Indian citizenship for Hindus and other non-Muslim minorities, hailing from neighbouring theocratic Islamic nations, when such minority persons suffering religious persecution have entered India as undocumented migrants. Fortunately, these forces inimical to India have failed.
Since the above-referred anti-Indian forces tried to create an uprising but which fizzled out, the patriotic fervour of Indians has caused a consolidation of political opinion as never seen before.
The anti-Indian mobs referred to here constitute a minuscule proportion of India’s population. Thus after the coronavirus threat is over and lockdown is withdrawn, the BJP government led by PM Modi should feel empowered to implement radical new economic reforms to set the economy on the path of a 10% per year GDP growth, achieve full employment, and cut poverty to structural minimum. How this can be structured is elaborated in full detail in my recent book Reset.
Dr Subramanian Swamy is an MP nominated by the President for his eminence as an economist. He is a former Union Cabinet Minister for Commerce and Law & Justice.