'Coronavirus Lockdown has Already Done More Damage to Economy than Demonetisation'

Economy will shrink over next 3 months, I fear social unrest if proper measures not swiftly taken, Prof. Jayati Ghosh tells The Wire.

In an interview that paints a stark and dramatic picture of the damage the coronavirus health scare will do to the economy – and is the first wake up call in this regard – Prof Jayati Ghosh of Jawaharlal Nehru University says more damage has already after been done to the economy in two days of lockdown than by demonetisation since it happened in November 2016. She says growth in March is already negative and the economy will shrink over the next three months.

In a comprehensive interview to Karan Thapar for The Wire, recorded a few hours before Prime Minister Narendra Modi is due to address the nation for the second time since the onset of the Covid-19 pandemic, Prof. Ghosh says growth for the last quarter of the year ending March 31, 2020 is likely to be negative. For the year as a whole it will be at least 2% below the Q3 figure of 4.7%, which puts full year growth at 2.5%.  She says it is impossible to say what growth will be for the year ending March 2021, because that entirely depends on what steps the government takes to deal with the effects of the lockdown and how effective they are.

Prof Ghosh said she was most concerned about vulnerable sections like daily wage workers and migrant labour trapped by the lockdown in large cities. She said they are already facing hunger and have no or very little savings to support themselves. On two separate occasions she said she feared social unrest and violence if the government did not immediately act to help. However, she added that the Central government seemed to be oblivious of this problem although some state governments, particularly Kerala and Delhi, have acted.

In her interview to The Wire, Prof Ghosh discussed in detail the damage to  medium and small scale enterprises (MSMEs) and specific sectors like hospitality, tourism, aviation, railways, construction, agriculture and retail.  She said unemployment would leap. As she put it, “you aint seen nothing like it yet”. She added that the 6.1 % unemployment figure from 2017-18, the highest in 45 years, would look like good news in comparison to what we can now expect.

Prof Ghosh also spoke about what ameliorative steps the government must take and she addressed this sector by sector: MSMEs, big businesses,  salaried  classes, farmers and agriculture and the urban and rural vulnerable poor. She said the government should adopt the attitude of Rishi Sunak, the British chancellor of the exchequer, and spend whatever it takes. As she said, “the sky is the limit”, and let the fiscal deficit rise to 6 or 7%. “The fiscal deficit does not matter in the present circumstances.”

She was deeply critical of the Central government’s response though she was appreciative of several state governments. If Narendra Modi does not act soon and effectively, “we’re in deep shit.”

The above is a paraphrased summary of Prof Ghosh’s interview. Please see the full interview posted above for details.