Dr Ashwani Mahajan
Economists are busy these days calculating the loss of Gross Domestic Products (GDP) during Corona period. India’s Central Statistical Organisation (CSO) has calculated a contraction of GDP (at constant prices) by 15.7 percent between July and September, 2020 (on annual basis). Earlier the agency had estimated a contraction of GDP by 23.9 percent in the first quarter of the current fiscal year (that is, April to June 2020). Past Chief Statistician of Government of India, Pronab Sen has said that the GDP of India could contract nearly 10 percent in the current fiscal year (2020-21), and according to him macroeconomic condition is very uncertain. Reserve Bank of India (RBI) however, has expected this contraction of GDP to be 7.5 percent in 2020-21.
It does not require any rocket science to understand the reason for this contraction in GDP. We understand that GDP of a country is money value of all final goods and services produced within the geographical boundaries of that country in a given period of time, normally a year. Since economic activities including manufacturing, construction and services of various kinds have been badly hit in this year due to lockdowns and reduced movement of humans due to pandemic, loss in GDP was inevitable. Only sector which has not got affected was agriculture. In the last two quarters agriculture has shown a positive growth of 3.4 percent in manufacturing has shown a decline by 39.3 percent and 0.6 percent. Trade, hotels, transportation, communication has shown a contraction of 47 percent and 15.6 percent respectively.
In the third quarter, the economic activities have started picking up, and we find reversal in manufacturing in many commodities. Demand has started picking up, while many bottlenecks are also getting removed. An indicator of consumer demand is passenger vehicle sales, where we find an increase by 4.7 percent in November 2020, compared to November last year. Demand for loans has also picked up by 5.5 percent in November 2020 compared to November last year. We find Purchasing Managers’ Index (PMI) has been above 50 for the past four months for both services and manufacturing sectors; and October manufacturing PMI was recorded at 58.9, which is fastest growth in 13 years. Though, it has eased to 56.3 in November 2020, we can conclude that Indian economy has started showing green shoots after nearly four months of severe economic crisis. Whereas, on the one hand there were public health issues arising out of pandemic; and on the other hand there was decline in economic activity and therefore, loss of employment.
Government finances were also in a very bad shape. On the one hand revenue has been declining due to depressed economic activities; on the other hand, there has been a huge pressure on the government to spend more on welfare of marginalised sections of the society. Till November, government has been providing free ration to nearly 80 crore people, who have been badly affected due to decline in economic activities. On the other hand to give boost to the economy Government has come out with wide ranging booster packages for different sectors. They include production linked incentive schemes for active pharmaceutical ingredients (API) and electronic and telecom sectors. The Government has also announced several schemes to promote gainful employment both directly as well as indirectly. The Government has also offered schemes for real estate sectors and import substitution in various other sectors. All that has put huge pressure on government finances, but at the same time it has given big boost to the economy, plagued by pandemic.
Green shoots in the economy
There is near unanimity among economic analysts that economy is heading towards a fast revival, post pandemic. However, there are differing views about the shape of recovery. Whereas, official view is that the economy is heading towards V-shaped recovery, while some others are expecting U shaped (economy stagnating for a while and then recovering); or W shaped (going up first and then after taking a dip, rise again) recovery. However, there is near unanimity that whatever be the shape of the recovery, economy definitely is going to recover.
One reason, which may cause faster than expected recovery, is the pent up demand. That is, demand which has been missing due to decline in economic activities may come up with subduing of pandemic.
Second, reason for faster recovery, is the efforts on the part of the Government to encourage domestic production. It’s notable that a bailout package of nearly 20 lakh crores has been rolled out by the Central Government to bring the economy out of the pandemic related economic losses and to give boost to Aatmanirbhar Bharat.
Thirdly, new policy of boosting self reliance has also given boost to domestic production by discouraging imports, especially from China.
Fourthly, even internationally we find that recovery has been faster than expected. Indian economy is also expected to experience faster economic recovery and reduction in pandemic related unemployment.
Declaring pandemic year as zero year
Given the fact that the world has witnessed a pandemic after more than a century and the situation is not something which is routine; it wouldn’t be prudent to look at GDP contraction, in the same way we look at GDP growth. Better way is to treat this pandemic year as zero year; and calculate GDP growth from the year 2019-20, skipping the year 2020-21.
Sometimes, we do come across a period which we want to forget as a black period. Year 2020 is also such a year. Let’s move forward with a spirit and resolution of self reliance. Leaving behind 2020, let’s take a big leap forward in 2021, with new lessons learnt from pandemic. Let’s usher in a new era of self reliant villages, with job creation at village level in dairy, poultry, horticulture, floriculture, bamboo farming, cottage industry, food processing, high value crops and more and value addition at village level. A new eco system; where our villagers are not constrained to migrate to cities.
In manufacturing, let’s not be dependent on China or any other country. Making world class goods for domestic and international markets, as Prime Minister says with ‘zero defect and zero (environmental) effect’. After getting disillusioned from China, whole world is looking towards India as an alternative. Let’s turn this crisis into an opportunity.
(The author is Associate Professor, Department of Economics, P.G.D.A.V. College (University of Delhi)
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