Our economy was struggling long before the pandemic. The pandemic has highlighted the vulnerability and exposed the fragility. The lockdown has only amplified the economic distress.
For the economy facing policymakers and the policy drivers, the COVID- 19 was as much a spoiler as a face saver. Myopic approach and indifferent policymaking have depreciated the economic ecosystem.
Signal and the noise
Our erudite readers must have seen it coming.
The consumption number, a key signal of economic health was weakening. Similarly imports, exports, and industrial proxies like electricity & diesel, consumption, railways freight earnings, credit offtake and industrial production showed up as dodgy investment numbers, contracting demand and fewer jobs.
Real GDP growth was shrinking too. Dipping GST collection confirmed the ominous signs.
Slowdown was written all over, the pandemic only accentuated it.
While our response to the pandemic was timely, effective, robust, and indeed saved lives, the follow up, especially measures to address livelihood was neither holistic nor sustainable. Later, the ‘stop-start-stop’ approach diminished the already fledging confidence. It disrupted the supply chain, broke the economic cycle, impeded the momentum, and impaired the economy.
Highlighted, exposed, amplified
The contours and the tone of the much touted but mis-targeted, un-implementable stimulus package has only subtracted value, and highlighted the flaw and capacity in policymaking.
While the focus should have been on creating demand and nourishing the economy we offered ‘half-hearted’ support. ‘Easy’ loans were announced to ‘coax’ investment and increase supply when demand had to be revived by ‘persuading’ consumer spending. Not only were we holding the wrong end of the stick, we even brandished it in the ‘other’ direction.
Businesses don’t invest in a slowing economy and transferring money into the pockets of the consumers only can increase demand. Our economy is consumption led; demography is the fulcrum for growth. Demand creation is low ‘hanging’ (propensity to consume is high). Stimulus focussed on driving demand is a potent tool and a platform for a quick revival. And a long term multiplier.
Correct. But not right
Green shoot is interpreted and showcased as sign of recovery. However, we must not be misled and rejoice. The economy has bounced largely because of its structure and its constituents, and partly because the consumption ‘rebound’ from the lockdown.
Similarly, we are reading too much on the ‘better than expected’ cropping activities, signalling rural recovery. A comprehensive analysis reveals otherwise.
Rural is no longer agriculture alone, (only a fourth) and no longer a pivot; It has several and fundamental ‘other’ indicators. Fertilizer, implement, input sale and crop output data reveal less, hide more.
Sadly, a deep dive implies the initial uptick is now plateauing, even fading. Jobs, remittance, electricity consumption data and several others that including ‘sachets’, auto, credit clearly indicate that the rate of increase has decelerated.
Marriages, festivities, other consumption catalysts, and basic indicators are numb. The broader signal too is disheartening. The credit providers ‘see beyond’ the moratorium and are worried.
Worse is ahead, not behind
‘Raw’ COVID 19 victim figures reveal a frightening scenario. The top 50 districts account for over 80% of the cases. Interpreting and extrapolating the logic indicates the rural sector has yet to experience the severity of the pandemic; and its economy has suffered less.
The urban schema is different, yet no better. A Crux research across the most severely affected industries articulates that almost 60% of the largest corporates are vulnerable and will need ‘duress’ financing within the next quarter or face closure. The study highlights that they will reduce jobs, freeze capex, and postpone product rollout. The lockdown has impacted their health, hurt capacities, and flattened their competitiveness.
Lockdown will haunt most. A few will go chronically ill. Most small will suffer more, and bereft of support some may die altogether.
India’s economy, particularly the urban, runs on the over 5 crore ‘invisible’ unsung, migrant workers. They ‘lift, clean, construct, drive’ and build the economy. They also nourish the rural economy with remittance amounting to about 1 lakh crores (a third of what they earn) and feed about 4 crore households, supplementing another 1 crore.
Citizens locked-in; economy locked-out
Today is now.
The government has the fiscal space and luxury. It must design an innovative and holistic package, and implement effectively. A Crux insight estimates if only 10% of the ‘stimulus package is well-targeted it will increase consumption and the demand thereof by 25 percent. Similarly, a 10% of the package targeted at the MSMEs will add another 20 lakh jobs to the existing 10 crore and lubricate the pipeline for liquidity and growth.
While the lockdown may be easy to tide over, it is the uncertainty of the lockdown that has some very serious implications. Not a day goes by when a locality, a city or district is not locked / unlocked. While the citizens are locked-in the business gets locked-out.
The policy makers must also centre their policies and stimulus to the significant other and integral to the rural ecosystem i.e. farmers. The economy reaps the investment.
Badly designed policies meander and eventually fail. Hopes die too. The cost of a prolonged growth contraction is poor consumer appetite, receding demand and diminishing investment, triggering the vicious cycle of low demand, lower investment, and recession. The social fabric is damaged too.
It takes more effort (stimulus) to pull out of a recession.
Lost, and without a playbook
Amid the extraordinary crisis, our policymakers are lost. And without a playbook. Designing ‘business focussed’ policies has never been our strength. Policy making in the downturn requires specialised skill, deep insight, involved systems thinking, cross-disciplinary knowledge and a broad understanding of the business milieu. They are more easily exposed.
Implementation has always been our weakness. Badly designed policies make it worse. Political decision-makers and senior civil servants often have misconceptions about their own abilities and capacity.
Today economy and democracy are coupled and cannot be left to generalists who do not understand it adequately. India needs a revamped cadre of ‘Indian economic service’, with ‘service and impact’ as the defining words.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.
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