Shivaji Sarkar
It’s a fall or new beginning. The nation is pondering over the minus 23.9 per cent GDP crash. The figures are stark but life goes on. Does the GDP really matter? The lockdown has plunged India into a never-before crisis. The GDP slump now is likely to worsen to full-year economic contraction of 7 per cent – or simply negative seven per cent; massive for a country of 130 crores that wants to take a super leap.
Also Read
This is the result of routinely jettisoning financial stability for myopic adjustments in government expenditures, says Viral V Acharya, former RBI deputy governor. Now, the growth is prescribed on government spending by the RBI. Good. Nobody has answered where the government would bring in the precious money. The gold pawning by the Chandrashekhar government in 1990 caused a similar concern. Then the growth clocked one per cent. Again, the figures have meant not much for the nation. Post-1992 Budget, some companies did exceedingly well at the stock market. It led to the exposure of the billion-dollar Harshad Mehta scam. Banks and financial institutions were denuded. The corrective steps were taken, SEBI was formed but the banks continue to take the hit.
The RBI is eloquent. It says even in a year of crisis that began in August 2019, bank frauds jumped to 159 per cent involving `1.48 lakh crore for public sector banks and Rs 34211 crore for private ones. During the last 30 years, the GDP swung up and down but the common man not only in India, and even in the US and Europe post-2008 sub-prime crisis, lost several billion. The insurances and mutual funds emerged as more dishonest. Nations churn out big concerns; hopes and jingoism across the world keep people busy.
The US economy shrinks by -31.7 per cent, the British by -20.4 per cent and the fall guy China by -6.2 per cent. Pakistan, with scant containment, is clocking at least 1.03 per cent growth. India, many might say, is in league with the big nations. Maybe it is in a better position with free food grain doles being given to 80 crore people. That is indeed a silver lining. It is also true that since these 80 crore are not part of the market as they do not generate demand. The job losses, salary cuts or its non-payment, starvation, and rising number of suicides to four a minute have led to a grim situation. But, the fall in industrial output to 38.1 per cent, services to 20.6 per cent, and manufacturing to 39.3 per cent may not theoretically have hit them.
India has notionally spent Rs 150,471 crore for free rice and wheat. The overflowing stocks in FCI silos were paid long back and do not entail a financial burden. Actual hit to the exchequer as of now is Rs 1,930 crore for transportation and another Rs 5,000 crore for pulses. The immediate cost is Rs 6,930 crore. But as the stocks are depleting, carrying out the operation beyond November or till the West Bengal polls would burden critical finances.
Gross value added (GVA), which is the actual production value, minus taxes, contracts by 22.8 per cent. Even the public administration, defence and other service sub-sectors record a 10.3 per cent fall in government spending. Gross fixed capital formation, in short investment, contracts 47.1 per cent. However, government consumption expenses have grown by 16 per cent, much due to inflation. Even nominal GDP has contracted by 22.6 per cent. It means the base of tax collection, as the GST controversy depicts, will shrink.
The GDP itself is not a big number but its ramifications are. It is a symptom. The disease is severe – not the Covid-19 but financial failures. As a first, the RBI has to assert itself and instead of suppressing interest rates on savings, it has to increase it to a minimum of 9 per cent for bank deposits, else the banks would collapse.
Life will go on but to become a global leader we need a minimum 8 per cent continuous growth for $ 5 trillion economy. The central bank has to delineate the path. Disease or not, the nation has to take a vow that it would not jeopardise normal functioning ever again.
–INFA
