New Delhi: As reported in a daily newspaper last week, at an SBI-organised conference of banks, the current Governor of the Reserve Bank of India, a bureaucrat and one who rose to this post through cronyism, and not because of his knowledge of macro finance theory, pontificated that it was “uncertain how long will it take for demand conditions to normalize”. Is this called confidence building by telling the truth or abandoning green shoots?

By “uncertain” he meant a string of uncertainties—from “supply chains, state of banks, demand, to the pandemic effects on future growth”. In simple English, he meant to say that the Government was clueless now. No surprise. Ministry of Finance was clueless when earlier this same RBI Governor was a civil servant in that Ministry, and remains clueless today.

Since 2015, I have written several times even while the GDP growth rate that year (on a statistically “upgraded” base year price index) had been at 8%, predicting that economic parameters showing a tailspin had begun. I had suggested an effective remedial economic policy for the MoF to pursue. I was proved right thereafter since under Arun Jaitely’s spin, the ailments were not addressed, and therefore year after year the GDP growth rate declined. Pre-corornavirus pandemic i.e., prior to the lockdown, the financial year 2019-20 which ended on 31 March 2020, the GDP growth rate had fallen to just 3%—even less than the 1950s rate of growth of 3.5%, which was referred to, mockingly, as the Hindu rate of growth [when Nehru and his socialists were proudly peddling the outdated 1930s Soviet economic planning model].

Many fawning columnists then wrote that the PM may be able to “cover up” the economic and financial downslide from 1 April 2015 to 31 March 2020 by blaming the coronavirus for the decline of GDP growth rate.

But that spin today is no more even passably credible. With the lockdown having to be diluted, the Finance Ministry has now begun propagating the “green shoots of growth” spin. Even the PM was persuaded to join in on that and repeat that in his broadcasts.

But the economic graphs do not show anything like that. Statistical evidence reveals that, if at all any shoot exists, it is brown in colour, and not green.

I am unable to understand why the Prime Minister should be persuaded to join in this kind of ridiculous spin.

Earlier in May 2019, BJP was re-elected to power on the Hindutva promise which I had made credible by introducing in the hearings the concept of fundamental right to pray and the protection of faith as being a part of the Basic Structure of the Constitution. It thus enabled the Ram temple narrative to shift away, from the messy laborious claim in a suit for property, to a fundamental right to pray where faith tells where Ram was born (much as the case for Christ being born in Bethlehem).

Upon victory in May 2019, our re-elected Prime Minister shifted to the “vikas” slogan, stating that India’s GDP would double by 2024 to $5 trillion from the prevailing estimate of GDP then of $2.5 trillion. Unfortunately, the PM was not told by MoF that doubling in five years meant that GDP will have to grow at 14.4% per year.

Sadly, in the very first year, 2019-20 or FY20—just before the coronavirus set in—of the renewed mandate for the BJP, the GDP growth rate further declined to 4.2%, well below the required 14.4% GDP growth rate. Now the required rate is 18.2% per year.

What miracle would the government now have to perform to make the now required GDP growth rate to rise immediately from 4.2% rate to 18.2% per year for the next four years, that is, keep up that feat every year for four continuous years till 2024?

More sadly, in July 2020 the picture looks even more gloomy.

The gloom thus deepens, so much so that even the MoF has “spun out of spin”, thereby publishing a report titled “Macroeconomic Report [June 2020]”, of course discreetly without the Finance Minister holding her usual media conference to release it. The Prime Minister could justifiably say: Et tu Brute.

The official MoF report concedes the declining growth rate in GDP since FY16 [on page 29, para 35], confirming my estimate that the GDP annual growth rate had declined to 4.2 in FY20 [i.e., 2019-20].

The report also admits that in the fourth quarter [Q4] of this financial year, which is January-March of 2020, that is before the coronavirus pandemic set in, the GDP growth rate on an annual basis had further declined to 3.1%.

Today, many who have been or are working in the present government, have started to go public and say more harshly what I have been gently telling our government: that is, the MoF has lost the plot—the past five years of decline in growth rates is due to the halal style killing of demand in the economy by inane measures in the Annual Budgets and its ancient tax and interest rate policies.

The so-called Rs 21 trillion “stimulus package” had just Rs 1.5 trillion for demand stimulus and the rest of the package was merely providing for the ease of getting loans or dilution of rules for repayment of past loans.

Former statistician of the government, Dr Pranab Sen told an SP JIMR seminar, as quoted by Financial Express of 15 July 2020, that: “Lockdown is lifted but the demand doesn’t exist. What you are going to see is a bloodbath among MSMEs.” His views have found support in findings on the labour situation published in a 16 July 2020 Business India article by Prasanna Mohanty.

Following are some of the heady Spins and bitter Truths in the said MoF’s Macroeconomics Report that completely vindicate what I said in a book I had authored last September titled Reset:

SPIN 1: Consumption of petroleum products increased by 47% from 99.37 lakh metric tonnes in April to 146.46 lakh metric tonnes in May, thus moderating its year-on-year (y-o-y) contraction from (-)45.8% to (-)23.2% across the two months.

SPIN 2: Latest data indicates Kharif sowing at a 104.3% higher than previous year’s acreage with Rabi procurement in full flow in respect of oilseeds, pulses and wheat, benefiting from the bumper harvest.

SPIN 3: Electricity consumption saw the lowering of the growth rates from (-)24% in April to (-)15.2% in May to (-)11.3% in June.

SPIN 4: Sustaining the momentum in economic activity, railway freight traffic improved by 26% in May (8.26 crore tonnes) over that in April 2020 (6.54 crore tonnes). Pray, freight carrying what?

SPIN 5: In support, India’s forex reserves at USD 505.6 billion as on 19 June, continued to provide a crucial cushion to external shocks on the back of higher FDI, portfolio flows and low oil prices. Was that our achievement by new policies? Actually FDI and portfolio in India are largely “round tripping” and the forex reserves rose because exports declined faster than imports.

SPIN 6: Government was able to correctly anticipate the economic downturn following the outbreak of the pandemic. Hilarious!

SPIN 7: Government of India on its part executed a “well laid out” strategy, wherein it imposed a lockdown to allow states to ramp up their health and testing infrastructure while implementing.

SPIN 8: The next step was to convert the pandemic situation into an opportunity of taking the economy to newer heights. These reforms will create a more competitive and vibrant agricultural sector, bringing prosperity to the majority of the population in rural areas and contributing to the growth of the Indian economy in the long term.

SPIN 9: Economic growth of pre-Covid times, as and when restored through fuller unlocking of the economy, will heavily lean on the reforms undertaken today to enhance its potential tomorrow.

After digesting these spins, some bitter truths in the said Report:

TRUTH 1: Prior to Covid-19, IIP declined by a record 55.5% in April 2020. The record contraction in April was more than three times as compared to a (-)18.3% growth in March, with several firms reporting nil production. Post Covid de-growth was uniform across all use-based categories, demonstrating the severity of the lockdown induced supply shock.

TRUTH 2: Eight core industries also registered sharply negative—(-)38.1%—growth in April 2020 as compared to 5.2% in April 2019 (Figure 9). All eight industries experienced a broad-based decline with the sharpest contractions in cement [(-) 86%] and steel [(-) 83.9%]. Contraction in eight core industries, however, moderated in May to (-)23.4%, with fertilizers production increasing by 7.5% in May2020 over May 2019.

TRUTH 3: Contraction in industrial output in April 2020 can be attributed the most to basic metals, petroleum products, chemicals, motor vehicles and machinery production (Table 2). In the manufacturing sector, twelve sub-sectors contributed to approximately 40% of contraction in industrial output. These are motor vehicles, furniture, machinery, electrical equipment, computers & electronics, fabricated metal products, wood, paper, leather, textiles, readymade garments, and beverages and tobacco. Sectors like motor vehicles, machinery and fabricated metal products are seen to be consistently negative contributors to industrial growth, both in pre and post Covid months.

TRUTH 4: Falling production of capital goods and infrastructure & construction goods (20% contribution to de-growth) also indicated a slump in investment demand.

TRUTH 5: Purchasing Managers Index (PMI) Manufacturing for April 2020 also recorded its sharpest deterioration to 27.4, spread across all components. PMI services also plunged to an all-time low of 5.4.

TRUTH 6: The production of consumer durables fell by a sharp 95.7% (y-o-y) in April 2020, after declining by 36.5% in March. According to RBI’s Consumer Confidence survey, consumer sentiment sank in May 2020, with the current situation index (CSI) touching a historic low of 63.7 and the one year ahead future expectations index (FEI) also recording a sharp fall of 17.3 units to reach 97.9.

TRUTH 7: With the forecast of a normal monsoon at 102% of Long period Average (LPA), agriculture is set to cushion the shock of the Covid pandemic on the Indian economy in 2020-21.

TRUTH 8: After recording an abysmal y-o-y fall of 60.2% in April 2020, India’s merchandise exports contracted by a lower 36.5% in May. Garment industry exports have suffered in both pre and post Covid-19 scenarios, exports of electronic goods have consistently deteriorated since February, possibly reflecting an additional trade impact of the earlier China coronavirus outbreak!

TRUTH 9 [para 35]: India’s real GDP growth rate has been declining since 2015-16 from 8.0% per year and declined 4.2% in 2019-20 as per the provisional estimates released by the National Statistical Office [the last quarter of 2019-20 i.e., January-March 2020 it was 3.1%] compared to 6.1% recorded in previous year which is lower than the 2017-18 growth rate of 7.0% [which is also lower than the 2016-17 growth rate of 7.4% which is lower than the 2015-16 growth rate in GDP of 8.0%]! Nominal GDP for the year is estimated at Rs 203.4 lakh crore, lower as compared to the Budget Estimates. This may be attributed to lower growth in Q4 of 2019-20 due to the global spread of Covid-19 since January 2020.

TRUTH 10 [para 36]: Real GDP growth rate in Q4 of 2019-20 was at 3.1%, a 2.6 percentage point drop from growth rate in 2018-19. Overall inflation as measured by the GDP deflator for 2019-20 works out at 2.9%, lower than 4.6% in 2018-19. Growth of real Gross Value Added (GVA) at basic prices was at 3.9% in 2019-20, as compared to 6.0% in 2018-19. Real GVA growth has declined in almost all sectors except agriculture & allied; mining & quarrying; and public administration, defence and other services in2019-20.

So where are the green shoots?

According to the Macroeconomic Report, Green Shoots [GS] of economic revival have emerged in May and June in four areas [Part VII] as below.

GS 1: Electricity consumption saw lower contraction in growth rates from (-)24% in April to (-)15.2% in May to (-)11.3% in June (till 28thJune). In June, electricity consumption has continuously improved with year on year contraction declining from (-)15.6% in the first half of June to (-)7% in the second half of June (as on 28thJune).

GS 2: Total assessable value of E-Way bills picked up by a massive 130% in May 2020, though lower than previous year and pre-lock-down levels. Value of E-Way bills generated between 1stand 28th June stood at Rs. 11.4 lakh crore.

GS 3: Year-on-year contraction in consumption growth of petroleum products was much smaller at (-)23.2% in May as against (-)45.7% in April. Something to celebrate as green shoots?

GS 4: Railway freight traffic improved by 26% in May (8.26 crore tonnes) over April (6.54 crore tonnes), though still lower than previous year levels.

Conclusion: The economy will require real astuteness, intuition and deep knowledge of macro economics to prevent a crash of the Industrial and Service sectors and cause a monumental misery for the Indian people.

The projected main parameters levels are frightening: GDP by March 2021 would have declined at least minus 5%; exports will fall in absolute numbers but imports will collapse and be just a quarter of what in was in FY20; educated labour and migrant labourers will face huge wage cuts and unemployment at the same time. I hate to be right but my track record of being right tells me that I will be right again if we do not radically re-structure our economic policymaking.

The tale of woes is endless. Unless we revamp our economic policy clearly and explicitly in terms of Objectives, Priorities, Strategy, and Mobilisation of Resources, there is no hope of reaching the GDP target of $5 trillion even by 2030.


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.