After seven long months, the news cycle has at last turned positive. The daily tally on Covid-19 infections has started declining, with a sharper fall in the number of active cases. The daily death toll too has shown a dip. This change of trend on the pandemic has meant that the drastic, overnight shutdown that set off massive economic disruption and much human suffering is getting ever more limited in scope. More people are up and about. Economic activity is recovering in segments, some in comparison with the previous month or quarter and a few even in comparison with a year earlier. The stock market is riding a buoyancy and liquidity wave. The Sensex is still below its previous high point, but not by much.
This does not mean the macro story has suddenly changed, as underlined by the Reserve Bank’s bleak projections for growth this year. So it is worth recalling Churchill’s words after the British victory at El Alamein, more than three years into World War II: “This is not the end, it is not even the beginning of the end. But it is perhaps the end of the beginning.” Seven months into the pandemic, it may not be even that for many individuals and businesses.
Consider that the economy will not stop shrinking till the low-base effect kicks in. Recovery to pre-Covid levels will take all the way to 2022, if not further. Many sectors remain deeply troubled, like the financial system and travel-related businesses. The full extent of business failures will not be known for a while. And yet, corporate results for the July-September quarter will almost certainly register improvement over the previous quarter, and deliver positive headlines to lift the mood.
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The human brain is wired to remember pain, though the body gets instant relief when pain stops. Even as businesses recover and jobs come back, scars will remain in the memory: The shock of suddenly losing incomes and jobs, the long and desperate trudge home, the downward adjustments in expectations of the future, and the switch from working in big, prosperous cities to physical labour at rural MGNREGA sites. Consumers will save more when savings already outpace investment (hence the current account surplus), and banks will be more risk-averse. On the other hand, many are getting back to old livelihoods and some companies are offering incentives to get back their old workers.
How creditable do the government’s actions look at this stage? Its economists have put up a persuasive defence of the record till now, but the end results are much worse than in broadly comparable countries like Pakistan and Bangladesh — on both the pandemic and the economy. The shutdown did not factor in migrant labour, and the failure to provide consumption support for millions rendered jobless (to be paid for by monetising the expenditure) is hard to defend.
To its credit, though, the government has been busy on longer-term issues. It has put together the elements of its self-reliance package, with production incentives and protective tariff walls. While this approach runs counter to accepted theory and multi-country experience about what works best, there is always some scope for import substitution. Hence, amidst the investment slowdown, there is the trickle of good-news announcements about factories being started by companies moving out of China and starting electronic assembly here. Samsung was a particularly telling example of a company that lost faith in India, pulled down shutters and moved to Vietnam, from where (to add insult to injury) it began exporting to India. Now it is coming back.
The new scripts for agricultural marketing and conditions of work spell opportunity. Policies have also been changed for mining and defence manufacture, while the rules for the digital economy are being drafted even as the big boys from home and abroad gird for battle. This is substantive policy and legislative action, and points to a second attempt by the Modi government to get it right on the economy, after the misadventures of the first round. There will be uncertainty about outcomes, given that success depends on interlocking process changes more than on one-time announcements, but one must hope for the best.
By Special Arrangement with Business Standard.
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I have seen India from 2004 to 2014 and from 2014. The most important point for growth is missing now, enthusiasm. And the one point that was absent before but is all prevalent now is fear. India will never add $125 billion per year to its GDP.
Enthusiasm is missing amongs corrupts otherwise people are quite up beat.
Right…..Enthusiastic migrants, Enthusiastic economy and GDP, very Enthusiastic fuel rates, Enthusiastic investors, Enthusiastic unemployment rates, Enthusiastic communal situation, Enthusiastic Rape Accused, Enthusiastic covid situation, Enthusiastic businessmen, Enthusiastic students, Enthusiastic farmers, Enthusiastic TRP Godi media……Enthusiastic YOU!
Now all we need is a windmill for oxygen and water……Ache din….Sab changa si!
A common man knows by gut feeling that it will not be before end 2021, that economy will pick up and starts showing uptick. In the meanwhile, it will be on track to come back to normal activity. Of course, economists and economic commentators are in a hurry and would like to sustain their vicious attack on Modi on this count. Modi is of course quite slow in undertaking structural reforms but is wisely holding on to throwing money down the drain on the pretext of fiscal stimulus.
Covid is here to stay; its virulence will of course come down but its economic effects will linger on for a long time until we have an effective vaccine and/or some miracle drugs (like the one administered to Trump) . The helicopter money let loose by Western countries will find its way into India by mid next year and we can expect a big boom in real estate and stock market. If that helps the economy, one is not sure.
But the poor in India are well taken care of by Modi and incessant caustic narrative of no growth, poor economy, no jobs etc is not going to sway their votes against Modi.
Will you please visit your comments after 1 year and post a correction or even better an apology.
Given his ideological biases, this mildly pro government article must have been tough for Shri Ninan to write. But at least he has seen the writing on the wall, which his other fellow travellers are refusing to see.
I share the cautious optimism of the learned author. Let us hope that Indian economy does well to beat the recessionary Covid crisis.
Your comment is laudable for decency and positivity, Pramod Patil. You have given an apt compliment to Mr. TN Ninan. Wish the expression of views on the net and on social media could be sans any anger and abusive content,
Sadly decency has become uncommon these days with twitter wars. The middle ground should be a little critical of govt but instead we have either fighting jets and all hail modi going or we have a destroyed country with no benefits whatsoever. I commend The Print for its consistent non biased views in this propaganda noise. Its best that media goes behind paywalls to get unbiased views or we get vicious things like Republic or Wire