India’s economy in 2020 : Quick Revamp | UPSC

India’s economy in 2020 : Quick Revamp | UPSC

      HEADLINES:

India started the calendar year by recording the slowest GDP growth rate in six years .

      WHY IN NEWS:

The calendar year ended it by entering a technical recession. Here’s how it all unfolded.

SYLLABUS COVERED: GS 3: Economy

      ISSUE: 

The calendar year 2020 started on a rather weak note as India’s GDP growth rate hit a six-year low in 2019 and then progressively decelerated further.

THE CALENDAR YEAR 2020 AND INDIAN ECONOMY

JANUARY 2020

  • Since the Union Budget is now presented on February 1st, much of January’s focus was on understanding the Budget-making exercise.
  • Providing a context was this piece on why the poor in India remain poor.

According to the World Economic Forum’s Global Social Mobility report, in India, it would take 7 generations for a member of a poor family to achieve average income
 

  • In Denmark, it would take just 2 generations to do so.

FEBRUARY 2020

  • A key concern leading up to the Budget for 2020-21 was the falling credibility of Budget numbers.
  • With Covid-19 playing havoc with the economy even before the start of the new financial year, this problem is likely to sustain.
  • Another key concern in the Budget — and this, too, is likely to be a concern in the forthcoming Budget of 2021-22 — was the adherence to fiscal rectitude.
  • But the ugly truth about India’s adherence to the FRBM Act is that — thanks to Indian policymakers ignoring the key metric of revenue deficit — fiscal consolidation now actually hurts India’s economic growth.

As it turned out, the Budget for 2020-21 was not anywhere close to a big bang budget that many had hoped for

  • It was clear that the New Delhi did not have the resources to provide a fillip to the economy.
  • What was even more worrisome was that state-level finances were also getting increasingly stressed.

MARCH 2020

  • It is noteworthy that Indian states, taken together, spend one-and-half times more than what the centre spends through its budget.
  • Taken together, it meant that at a time when India’s growth rate was at a six-year low — and decelerating — governments, both at Centre and state levels, found themselves rather short of money

It is at this juncture that the Covid-19 pandemic hit the Indian economy

  • As early as March 22, the day of Janta Curfew, we put together this sectoral analysis that explained how the Indian economy was far more vulnerable now than what it was when the Global Financial Crisis hit in 2008-09.

India’s economy in 2020 : Quick Revamp | UPSC

APRIL

The Reserve Bank of India too pitched in to counter “The Great Lockdown” that saw crude oil prices turn negative for the first time in history

As the adverse effects of the Covid-induced disruptions became clear, the most important questions were :

  •  How the outbreak was disrupting both supply of, and demand for, bank loans?
  •  Why were Medium, Small, Micro Enterprises worst hit by Covid-19 lockdown?
  • Should the government simply resort to printing more money to alleviate economic suffering?
  • And what the hurriedly made changes to labour laws in several states implied?

MAY

  • By the start of May it was clear that without immediate additional help from the government, the Indian economy could be looking at widespread financial ruin.

Eventually, on May 12, Prime Minister Narendra Modi announced the Atma-Nirbhar Bharat Abhiyan package, with special focus on the MSME sector
 

  • But there were many reasons why this package was criticised even as GDP growth continued to falter and Moody’s downgraded India’s rating.
  • A particular area of concern during this phase was the call to ban trade with China, thanks to the growing border conflict between the two countries.
  • We explained why a blanket trade ban with China will be counter-productive for India and why, more broadly speaking, the policy move towards atma-nirbharta or self-reliance is neither a new one nor likely to succeed.

SEPTEMBER

  • Then in early September, India’s first official estimates showed that the domestic economy had contracted by almost 24% in the April-May-June quarter — making India one of the worst-hit major economies in the world.
  • It was now clear that after growing at an average annual rate of around 7% since the start of economic liberalisation in 1992, India’s economy was likely to contract by over 7% in 2020-21.

DECEMBER

Moreover, the economic stress was showing up in rising joblessness, increasing poverty and falling health and wellbeing of citizens at large

  • From the perspective of the RBI, persistently high inflation continually undermined its ability to boost growth.

      IASbhai WINDUP: 

WHAT LIES AHEAD IN 2021?

  • One, quick resolution of the farmer unrest.
  • Data shows that farming in India is rather unremunerative and, as such, this sector has been crying for reforms.
  • The state must understand that persistent protests on the street — the CAA-NRC issue — are best avoided when the larger idea is to extricate the economy from the clutches of a recession.
  • Annual incrementalism will be counter-productive because economic agents — are already plagued by all kinds of uncertainties.
  • A good starting point would be for the government to correctly assess and honestly declare the true pace of India’s economy.
  • Dealing with the fall out of extended regulatory forbearance be it in the shape of not recognising non-performing assets in the banking system or suspending the functioning of the Insolvency and Bankruptcy Code.
  • Quickly making the vaccine available to the general public because that is the surest way for the economy to recover.
  • Over the past 3-4 years, India, too, has been guilty of turning away from international trade — for instance, deciding not to join the RCEP.

Last but not the least, staying aggressive about participating in the global economic recovery

  • A possible free trade agreement with the United Kingdom is a case in point.
     SOURCES:  DownToEarth  | India’s economy in 2020 : Quick Revamp | UPSC

 

DISCOVER MORE : GENERAL STUDIES-III

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