India’s economy in 2020 : Quick Revamp | UPSC
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
THE CALENDAR YEAR 2020 AND INDIAN ECONOMY
- 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.
- In Denmark, it would take just 2 generations to do so.
- 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.
- 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.
- 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
- 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.
- The centre announced its initial set of measures (called PM Garib Kalyan Yojana) to limit the damage.
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?
- 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.
- 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.
- 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.
- By December, it was clear that India had entered a technical recession.
- From the perspective of the RBI, persistently high inflation continually undermined its ability to boost growth.
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.
- A possible free trade agreement with the United Kingdom is a case in point.
SOURCES: DownToEarth | India’s economy in 2020 : Quick Revamp | UPSC