According to the official data released on August 31, the Indian economy has shrunk 23.9 percent in the second quarter ending June 30 (April-June). This is the biggest decline in the growth rate of one of the largest economies in the world, the sharpest contraction in nearly 40 years.
The Indian economic crisis has deepened as recovery will take longer than was earlier expected. Financial services – the biggest component of India’s dominant services sector has shrunk 5.3 percent. Trade, hotels, transport and communication saw a 47 percent contraction. Manufacturing shrank 39.3 percent, while construction took a 50.3 percent hit. Mining output struggled at 23.3 percent, and electricity and gas dipped by 7 percent. Agriculture is the only sector which posted growth of 3.4 percent.
According to India’s retail association, sales of non-essential items – such as clothes, electronics, furniture – fell by 80 percent in May. The sales of essential goods such as groceries and medicines have dipped by 40 percent.
Private consumption has been the main driver of India’s growth, contributing about 60 percent to GDP, and its fall is dragging economic growth further down. The declining incomes are decreasing the demand and consumption.
The estimates for GDP growth in 2020 already painted a bleak picture. The World Bank had projected a 3.2 percent contraction, while the International Monetary Fund pegged it at 4.5 percent and the Asian Development Bank at 4 percent. Some economists are predicting contraction up to 10 percent in FY 2020-21. It will be the first full year contraction since 1980. The long period of high economic growth rate has come to an abrupt end.
The current surge in coronavirus cases will make the matters worst. A record number of 83,833 cases was reported on Sep 2, the highest single-day jump in Covid-19 infections in the country since the beginning of the pandemic. The total number of infections now stands at 3.85 million. In a span of 24 hours, 1,043 deaths were registered, taking the total number of fatalities to 67,376.
The Modi government is facing multiple crises at the moment. The public health crisis as Covid-19 infections are getting out of control on the one hand and there is a deepening economic crisis on the other. The Modi government has so far failed on both fronts.
The Indian people are facing hardships and suffering miseries as the result of both these crises. India’s working class is the real victim of the failure of the Modi government on both the economic and coronavirus fronts. The people are suffering because consumer spending, private investments, industrial production and exports have collapsed. Unemployment and poverty are rising. Real incomes and living conditions are also falling.
Wage incomes were already declining even when the economy was growing at a fast pace. Real income started to fall under the Modi government before the economic crisis hit India.
A study titled How Are Indian Households coping Under the Covid-19 Lockdown? 8 Key Findings was carried out by experts at the University of Pennsylvania, the University of Chicago and the Mumbai-based Center for Monitoring the Indian Economy (CMIE).
This study has analyzed the economic impacts of the lockdown in India. The study has shown that incomes have fallen, and poverty and unemployment have risen. Poor and working class people need assistance from the government to survive.
Nearly 84 percent of Indian households have been seeing a decrease in their income since the lockdown began. Nearly a third of all households will not be able to survive beyond a week without additional assistance. The unemployment rate in the country had crossed 27 percent in early May, up nearly four-fold from levels in January-February.
Even before the pandemic struck, Asia’s third-largest economy was in the midst of a slowdown as a crisis in the shadow bank sector hurt new loans and took a toll on consumption, which accounts for some 60 percent of India’s GDP. The lockdown to contain the pandemic brought activity to a virtual halt as businesses shut down and millions of workers fled the cities for their rural homes.
The gloomy outlook puts pressure on the Modi government to deliver more stimulus packages, but there’s limited room to act. The first stimulus package failed to stop the economic decline and pick up recovery. The government is facing a budget deficit of more than 7 percent of GDP this fiscal year, more than double its original target.
Many Indian economists believe that the Indian economy is headed towards a serious crisis of the kind that Indians have never seen since 1979. Earlier, economists were talking about a possible recession in the economy. Now they are predicting something worse than a recession. They are talking about a possible depression.
India has never faced a sustained long-term downturn in economic activity since its independence in 1947. But there is now every possibility that India is looking at a ‘depression’ for the first time in its history, a possibility flagged by several economists.
Veteran Indian economist Arun Kumar has predicted that “India would be the first country in modern history to face a depression. It would take at least three to four years to emerge out of it.”
Another economist Pronab Sen, former chief statistician of India, in his detailed analysis of economic situation showed that India’s economy will contract not just this year but also in 2021-22.
The study says India’s absolute GDP is likely to struggle to even come back to the 2019-20 level by 2023-24, which is the last year of the Modi government’s current term.
Pronab Sen also shares Arun Kumar’s thoughts, and estimates that “as things stand, and the government retains the 2020-21 expenditure budget for 2021-22 as well, it is likely that 2021-22 will witness a GDP growth rate of -8.8 percent. This is a frightening thought since it means that the country could experience a full-blown depression – the first in our history as an independent nation.”
But official economists think otherwise. For them, the worst is over and recovery will start soon. However, they seem overoptimistic or shortsighted. This is not an ordinary crisis. The current crisis has exposed the weaknesses of the neoliberal economic model, which has failed. And the people of India are paying a heavy price for this failure.
Despite having one of the highest economic growth rates for nearly one and a half decades, India failed to reduce poverty and inequality. In fact India becomes one of the most unequal countries in the world.
The latest Oxfam report has revealed that the 63 richest Indian billionaires have more wealth than the total national budget of India. The total national budget was Rs2,784,200 crore ($391.53 billion) in 2019.
According to an Oxfam report, India’s richest one percent hold more than four-times the wealth held by 953 million people who make up for the bottom 70 percent of the country’s population while the total wealth of all Indian billionaires is more than the full-year budget.
The neoliberal economic model and free market economic policies have helped the rich amass huge piles of wealth. The richest one percent in India now owns more assets and means of productions than ever before.
*The writer is a freelance journalist, writer & activist.
September 5, 2020
