Covid-19: What you need to know today

If there is a silver lining, it’s in RBI’s expectation that the fourth quarter of this financial year, January-March 2021, will see positive growth. Then, especially in these times, Q4 is a lifetime away.

R Sukumar, HT, New Delhi, 10 October 2020: The Reserve Bank of India (RBI) on Friday revised its GDP growth estimate for 2020-21 to -9.5%, down from the August estimate of -4.5% given in its annual report, indicating the pain the economy is likely to suffer this financial year on account of the coronavirus disease.

RBI tends to be conservative with its estimates, so it is very likely that the actual extent of the decline is in double digits. That’s never happened before — the previous sharpest fall in growth was -5.2% in 1979-80, at a time when India’s economy was very different. Those were the restrictive days of the licence-permit Raj, as it is known, and the size of the Indian economy was around $187 billion. India ended 2019-20 as a $2.5 trillion economy. That means the extent of decline in the economy this year will, in absolute terms, be more than the size of the Indian economy in 1980.

The Reserve Bank of India wasn’t the only one to revise its estimate; the World Bank did so on Wednesday, and projected that India’s economy would fall by -9.6% in 2020-21; its June estimate was -3.2%. As the table accompanying this piece shows, the general consensus would appear to be veering towards a GDP decline in the double digits.

If there is a silver lining, it’s in RBI’s expectation that the fourth quarter of this financial year, January-March 2021, will see positive growth. Then, especially in these times, Q4 is a lifetime away.

It would be easy to blame everything on the coronavirus disease. Sure, the degree of the decline the Indian economy is going to see this year is entirely on account of the coronavirus disease (and the lockdown and restrictions imposed to slow its spread). But as HT’s Roshan Kishore pointed out in an incisive three-part series in June (scan QR code below), the Indian economy was already in a bad place before the pandemic hit. Kishore argued that the Indian economy was “likely facing a demand-driven, perhaps even structural slowdown before the pandemic” and that the government perhaps “misjudged it for a supply-side problem”.

So, where does the economy go from here? On Friday, RBI governor Shaktikanta Das was sanguine about the country’s economic prospects and said that as long as there isn’t a second wave of the disease — there will be, but that’s material for another column — the economy could return to its pre-pandemic trajectory.

This columnist isn’t convinced. The key to spurring India’s economic revival in the short term lies in boosting demand. It wouldn’t do to misinterpret the current spike (a sequential one) in demand as something that will sustain — some of it is so-called pent-up demand, people buying things that the lockdown prevented them from; some of it is necessitated by circumstances (small cars for instance, as people eschew unsafe public transport); and some of it is linked to the festive season. This is beyond RBI’s remit as well as reach. The Monetary Policy Committee can play around with interest rates, but that is not going to help the cause of demand in the current circumstances.

I specifically referred to the short term because the government has pushed through a handful of long-pending second-generation reforms that, clubbed with some measures announced in the past (such as the reduction in corporate tax), will make Indian industry more competitive and India itself an attractive destination for businesses, even those engaged in manufacturing — but the impact of these will be seen only in a few years.

What India needs is a generous demand-oriented, cash-intensive fiscal stimulus — something that puts money in the hands of people. Money is tight for the government right now, but it can find the fiscal space for such an intervention by simply printing money, or even monetising the deficit. India’s first relief package simply didn’t do enough of this. This time, the country’s policymakers would do well to listen to what Rod Tidwell (the character played by Cuba Gooding Jr) repeatedly says in the movie Jerry Maguire.