New Delhi: There has been nothing to show for India’s economy or economic management in the last eight quarters or two full years, said ThePrint’s Editor-in-Chief Shekhar Gupta in episode 560 of ‘Cut The Clutter’.
Finance Minister Nirmala Sitharaman called the drastic impact of the Covid-19 pandemic on the economy as an ‘act of God’. However, Gupta noted that while the Indian economy’s sharpest quarterly contraction in the April-June period, by a record 23.9 per cent, could be considered an ‘act of God’, it was also part of a larger pattern.
He talked about an “interesting term” coined by former chief economic advisor Arvind Subramanian — the ‘twin balance sheet problem’.
“This was the problem of Indian borrowers who were not able to service their debt and Indian banks, whose balance sheets was short in the process, because their borrowers were not paying back,” said Gupta.
Drawing on this, he talked about the ‘twin graphic problem’ — the fact that economic growth is going down while coronavirus numbers are going up.
“It may be an act of God over this one quarter when India’s growth rate has collapsed by negative 23.9 per cent, probably the first time such a negative growth rate has been registered since 1947. In fact, it may be the first year since then that India will register negative net GDP growth,” Gupta said.
However, he noted that there has been a “consistent fall” in India’s economic growth in the past several quarters.
“If you start seven quarters behind this latest quarter — that is April, May, June of this financial year then you can see that from 7.1 to 6.6 to 5.8, 5.0, 5.1, 4.1 and 3.1, it’s been downhill consistently,” Gupta explained.
‘India was already at low before pandemic’
India broke its own economic momentum with demonetisation, Gupta said, adding that no gains came to the Indian economy with the move, and in fact it left the economy struggling.
“What was happily floating in 7.5 per cent, had already come down to 3.1 per cent. That was lower than the average India had,” Gupta said.
He said the Indian economy was already at that low growth rate even before the pandemic hit the county, and then the lockdowns started in March. He noted that India’s decline of 23.9 per cent is also comparatively much higher than it would have been in the case of European countries or the US.
“India has gone from sizeable positive growth to a very sizeable native negative growth,” Gupta said.
The International Monetary Fund had also said India will register a growth of negative 4.5 per cent this year.
Gods cannot be blamed for everything
Gupta then discussed Business Standard Chairman T.N. Ninan’s latest column in which he predicted that India’s economic revival will be K-shaped. Gupta explained this means “winners will keep winning and losers will keep losing”.
“Some corporates in India, for example, or those who have the resources or who can raise the resources, they will gain from it and the losers will get further buried deeper and the picture will look bad,” Gupta said, referring to Ninan’s article.
Ninan also debated the possibility that India’s growth potential could have dropped to 5 per cent from 6 per cent, this year.
“This will mean taking India back to the 80s or 90s, that’s where India was going between 5 per cent and 6 per cent. So you’ve gone even behind your pre-reform period, that is very bad for India, a low-base economy,” Gupta said.
Ninan analysed the data in another way as well. In 2022-23, he calculated, the average Indian’s real income adjusted for inflation will be exactly the same as that in 2019-20.
“So while it might look like your income has grown a little bit over three years, frankly, the value of the money we’re earning will remain the same, which means, as he says, this will be three lost years for India’s economy and for India’s wage earners, India’s entrepreneurs, and India in general,” Gupta said.
He concluded that Gods cannot be blamed for anything apart from this quarter.
“We had already done plenty to damage our economy. And for us now, to start the repair work, we have to honestly introspect on what we did wrong and how we got into such a bad place, from 8.2 per cent quarterly growth to 3.1 per cent quarterly growth to begin with, that is until the virus came,” he added.
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