Will India's Economic Recovery Be Quick? Modi Says So, But This Can't Happen in a Vacuum

There is a need to separate rhetoric from reality. Even without the health crisis, there has been broad-based damage to the economy over the last year.

Prime Minister Narendra Modi has taken two full months to explicitly acknowledge the suffering of India’s working class, especially migrant workers and millions of self-employed.

In his letter to the nation at the end of lockdown 4.0, he said “our labourers, migrant workers, artisans and craftsmen in small-scale industry, hawkers and such fellow countrymen have undergone tremendous suffering. However, we have to take care to ensure the inconveniences we are facing do not turn into disasters”.

At least the PM concedes that if things are not handled properly at this critical juncture India could face multiple “disasters”. Modi also invoked the resilience of 130 crore Indians – mostly the working class, which has suffered untold damage – to help revive the Indian economy faster than the rest of the world.

Of course, there is rich irony in his invoking the resilience of the working class which constitutes the majority of Indians. After all, the harshest lockdown anywhere in the world saw this class almost totally abandoned by the Indian state even as poor migrant workers trudged back to their villages in the largest concentrated reverse migration from cities seen  in 70 years.

With the number of unemployed (120 million) trebling since February and possibly another 150 million hoping to resume their employment, over half of India’s total workforce is probably sitting at home without regular income.

Truth be told, Modi’s slogan of “Atmanirbhar Bharat“(Self-reliant India) has played out in the most perverse manner, especially for the 90% of India’s population living on less than $2 a day per capita. The Indian State just could not map their presence as active economic participants and this was so eloquently admitted by the finance minister who said the government just did not have data on migrant workers. So, the bulk of the toiling population has had to fend for itself both economically and in terms of providing healthcare during the COVID-19 crisis.

This class never had the luxury of expressing self-reliance from balconies and therefore was pretty much left to develop “herd immunity” in congested spaces, whether in crowded private trucks or in Shramik trains. None other than the Advocate General of the Gujarat government told the state’s high court that large scale testing might lead to panic and fear as 70% of population could be infected with COVID-19. What greater proof of seeking herd immunity by default?

So, the Indian State is pretending to follow strict protocols of economic lockdown, social distancing, testing, tracking, tracing and treatment but in reality what is happening is possible “herd immunity” by default.

On the economic front too, the Indian State is pretty much deluding itself with the much touted fiscal and monetary package of Rs 20 lakh crore or 10% of GDP. Of this, almost all reputed research analysts put the actual stimulus in terms of direct additional funding in the immediate future at about 1% of GDP or Rs 2 lakh crore. The government actually gave more direct stimulus than this in 2019 in the form of PM Kisan cash handouts (Rs 1 lakh crore) and corporate tax cut (Rs 1.45 lakh crore)!

Shops reopen in Navi Mumbai’s Panvel on May 24. Photo: PTI

Without putting money in the hands of India’s poorest – and with little prospect of future incomes – it is unclear how Modi is claiming that India’s economy will recover faster than that of other nations. Most serious businessmen who have their ear to the ground say India will not come back to optimal economic activity until next year.

Some quick surveys that have been conducted on the MSME sector, a special target of the government’s stimulus package, suggest the majority may not be interested in borrowing from banks based on Centre’s guaranteed bank loan package for Rs 3 lakh crore. Another survey shows that a large number of MSMEs may cut down on the number of workers employed in order to reduce costs to survive.

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Prime Minister Modi’s letter to the nation unfortunately coincided with the release of GDP growth figures for the Jan-March quarter, showing an all-time low of 3.1 %. This quarter was impacted by only 9 days of lockdown. The real story, which PM must publicly acknowledge, is that India’s economy was among the worst performing in the period prior to the COVID-19 lockdown as shown in the negative manufacturing growth in the second, third and fourth quarter of 2019-20.

Compared to India’s consistent economic decline, China grew at 6% in 2019. And after a quarter of de-growth in Jan-March due to lockdown, China is now showing signs of the fastest recovery post the lockdown. Economic activity has returned to normal in most parts of China, while India still struggles with its man-made crises of paralysing the bulk of its migrant workforce which is sitting in their village homes. It won’t be a surprise if China is the only large economy in the world to record a positive GDP growth in the second half of 2020. Remember after the 2008 global financial crisis, China and India had led the world recovery while Western economies took a few years to come back to pre-crisis GDP levels.

Also read: As the First Year of Modi 2.0 Ends, It’s Clear that Democracy Has Been Quarantined

The PM’s claim about the “resilience” of India’s 130 crore population which would help revive the economy faster than the others cannot happen in a vacuum. There is so much damage done to the economy that it has to be studied more closely before a plan of action is put in place. Modi must first acknowledge the broad-based damage to India’s political economy after demonetisation. The objective of demonetisation and GST was drastic formalisation of the economy. Actually, the opposite could be happening and the reverse migration of millions of workers and continuing de-growth of the MSME sector may accentuate this trend.

In 2019, a report on multi dimensional poverty released by the UN said 271 million people were raised above the poverty line in India from 2006 to 2016. This period also saw over 35 million workers leave agriculture employment to migrate to urban economic activity, mainly construction. In the last four years we may have given up a lot of those gains as key sectors like private construction, which absorbed a lot of the labour from agriculture, have nearly collapsed.

This shows up in the huge increase in demand for MGNREGA work. The post-COVID lockdown period may see these trends aggravating further. To add to our problems, the consistent decline in India’s growth in the past two years has created an acute public finance crisis which is crippling the government’s ability to productively spend its way out of the current crises. In the absence of substantial additional government spending in the next six months it is impossible for India to recover faster than the other world economies, which the PM seems so sanguine about. There is a need to separate rhetoric from reality.