The news of India’s contracting GDP competed for public attention with fresh border incursions by the Chinese army, the passing away of former President Pranab Mukherjee and the continuing obsession with Bollywood actor Sushant Singh Rajput’s suicide. One TV anchor even chased away a panelist who wanted to speak about the economy.
Instead of asking whether Sushant Singh Rajput’s mental health was known to his family or figuring out whether Rhea Chakraborty smokes weed or not, Indians should have spent the week asking tough questions on the nation’s economic health. Sure, P. Chidambaram and S. Gurumurthy commented on the GDP numbers, but through their politically partisan lens.
Prayer is what many were left with to cope with this invisible ‘hand of God’ – they morphed the Go Corona Go chant to Grow GDP Grow. As the world grappled with the lives versus livelihood question for months and learned to live with the coronavirus, it is now the economic pandemic that plagues us. India didn’t manage to flatten the curve, with five large states — Maharashtra, Andhra Pradesh, Karnataka, Uttar Pradesh and Tamil Nadu — making up the nation’s 62 per cent of active Covid-19 cases. But it definitely flattened the economy.
It’s the economy, stupid.
The Indian economy experienced contraction for the fifth time in its post-independence history, shrinking by 23.9 per cent of the GDP in the April-June quarter. While many just blamed the pandemic, some did point out that Indian economy was in slowdown for eight quarters before the coronavirus lockdown hit us.
For this reason, the Indian economy is ThePrint’s Newsmaker of the Week.
Also read: ‘Indian economy is rebounding’ — BJP defends Modi govt in social media campaign
The unique Indian response
In the early summer, when the pandemic was a little more than a couple of months old, Prime Minister Narendra Modi, in his characteristic 8 pm address to the nation, announced a Rs 20 lakh crore package to deal with the economic fallout of the coronavirus. As Modi was making the announcement, in almost real time, economists and analysts were questioning the accuracy of those numbers.
In the strict public finance sense, the Indian economy never saw those Rs 20 lakh crore. Though, nearly eight months into the pandemic, the country’s economy did reportedly shrink by Rs 20 lakh crore.
India’s lockdown was one of the most stringent in the world, and it’s far from the only country to have taken such an unprecedented economic hit. For the same April-June quarter, the US GDP shrunk by 9.1 per cent and the UK’s by 20 per cent.
What makes India unique, though, is the reaction from the Bharatiya Janata Party (BJP) and the public at large. While the BJP and its functionaries continue to cite misleading and often wrong data to argue that the pandemic has failed to reign in India’s economic engine, the country’s media and the populace are keeping themselves busy by chasing drug dealers following the death of Sushant Singh Rajput. If that wasn’t enough, the focus shifted to how the Indian military had finally taught its Chinese counterpart a lesson at the Line of Actual Control (LAC).
In stark contrast to such public and governmental amnesia, when the news of the UK’s economic contraction broke, its Chancellor (finance minister) Rishi Sunak came out with a statement saying, “Today’s figures confirm that hard times are here.”
Also read: SBI report says rural economy is losing steam, flags rising unemployment and fall in wages
How bad is it really?
On 31 August, when India’s ministry of statistics announced that the GDP growth had fallen by 23.9 per cent in the April-June quarter – or that India’s economic output had been effectively reduced by Rs 20 lakh crore – it put a number on the seemingly abstract blowout of India’s economy since the pandemic struck. For the same period, private consumption fell by 26.7 per cent – and most economists are clueless about when will people start consuming again.
The aggregate contraction of Rs 20 lakh crore looks all the more worrying when one looks at its breakdown. “We estimate the government bears 50% of the loss, wage earners 25%, informal firms 15% and corporations the remaining 10%,” says a note by Credit Suisse, a financial research firm.
This means that India’s lower income wage earners are going to especially feel the pinch – who have already seen their wages vanish due to lockdowns or job loss. If this trajectory continues, India risks undoing much of the gains it had made in lifting people out of poverty over the past three decades.
In India, if the pandemic’s worst victim is the daily wage earner, the only entity with the tools to help them, the central government, has rarely been this helpless. The current GST compensation fiasco has shed light on the Modi government’s inability to increase spending at a time when it seems like the only option to revive growth. And a Rs 20 lakh crore blowout during the last quarter means the government has its hands tied more than ever before.
It is ironic that since coming to power in 2014, the Modi government’s only strategy to revive growth has been to increase its spending – and now, when the economy is yearning for a fiscal expansion, it really has no space to do so. Both private investment and consumption continue to decline rapidly, and it is hard to imagine any growth revival without their reversal.
Also read: 4 questions Indian economy faces after the record Q1 GDP slump
But who cares?
From one of the fastest growing economies in the world, India has now dropped to the 35th spot among the 42 major economies tracked by The Economist. One would expect that such steep fall would capture all of India’s public and media attention.
But over the past week, this was far from the case. While the BJP functionaries and RBI board member, S. Gurumurthy misrepresented the US’ GDP numbers to hail India’s economic resilience during the pandemic, TV news was squarely focused on solving the Sushant Singh Rajput’s ‘murder’ mystery.
If it weren’t for his presidency, Pranab Mukherjee would still have been remembered for his disastrous 2012 retrospective tax decision – the precursor of India’s economic slowdown.
While the scale of India’s economic troubles in the pandemic era seem unprecedented, the country has struggled to effectively return to its growth trajectory since 2012. More recently, most political scientists struggle to explain why despite a flailing economy, Modi continues to remain popular. According to India Today’s Mood of the Nation survey, 48 per cent of participants rated his performance as ‘good’ and 30 per cent as ‘outstanding’.
The most convincing explanation for this phenomenon has been provided by Neelanjan Sircar’s idea of “politics of vishwas” (trust) – according to which, a large number of Indians support Modi because they believe in his leadership, despite any evidence to the contrary. As India’s economy shrinks and the number of Covid-19 infections surge, one could argue, vishwas is all that is really left.
Views are personal.