he unemployment rate that was 5.48% in June 2018 has once again spiked to 11.86%. The Labour Force Participation Rate has fallen from 42.87% in June 2018 to 40.40% in March 2021. The ultimate test is: do people have a decent life, even if they are poor? And do they have enough food and healthcare? Loss of jobs, loss of incomes and a falling per-capita income cannot enhance welfare or a sense of well-being.
Former Union finance ministerNumbers do not lie, especially if they are published by a reputed institution like the National Statistical Office (NSO). Some may choose to read the numbers selectively. And some may draw the wrong conclusions. But, in the final analysis, the reality on the ground will prove the numbers. There is an art in reading numbers.
The NSO press release of May 31 on estimates of annual national income for 2020-21 has to be read as a sequel to the earlier press releases. Thus read, the following sequences are relevant to understand the current state of the economy: *Quarterly GDP growth rates at constant prices of the last 12 quarters (2018-19, 2019-20, 2020-21) are 7.1%, 6.2%, 5.6%, 5.7%, 5.4%, 4.6%, 3.3%, 3.0%, –24.4%, –7.4%, 0.5% and 1.6%.
Conclusion No. 1: The growth rate of the economy has been on a decline since Q1 2018-19, and 2020-21 ended with negative growth of (–)7.3%. The decline appears to have been ‘arrested’ in Q3 and Q4 of 2020-21, but the last two numbers have come with caveats. Further, the ‘arrest’ of the decline could be illusory, because it is upon low bases in 2019-20 (3.3% and 3.0%).
*The next sequence of numbers is private consumption as a proportion of GDP at constant prices. They are 56.2, 58.5, 60.9, 59.4, 56.8, 56.7, 60.2, 54.9, 55.4, 54.4, 58.3 and 55.4.
Conclusion No. 2: Private consumption has been the main pillar of GDP for many years. In an economic slowdown or a recession, if the proportion of consumption is stagnant — not rising — it means that the people are consuming less.
*The last set of numbers is the per-capita income in the four years — from 2017-18 to 2020-21. They are Rs 1,00,268; Rs 1,05,525; Rs 1,08,645; and Rs 99,694.
Conclusion No. 3: Most Indians have become poorer. They are poorer today than they were three years ago (2017-18).
Given these numbers, no one can say that the economic situation is a happy one, or that the prospects are bright.
Yet, last week, the finance minister stoutly defended her government’s record and justified the actions and inactions of her government. She clearly hinted that she expected a recovery to start in the second quarter of 2021-22. I am sure she is supported by some. But arrayed against her are the International Monetary Fund, OECD, think tanks and many distinguished economists.
True Lies and Stats
There is a lot of data and information outside the NSO’s estimates for 2020-21. In a slowing economy, where the proportion of consumption is stagnant and incomes are falling, there will be loss of jobs and high unemployment.
Centre for Monitoring Indian Economy (CMIE) data showed that nearly 50 lakh jobs (net) were lost by March 2020. Recent data has pointed to a loss of 2.2 crore jobs in April and May 2021.
The unemployment rate that was 5.48% in June 2018 has once again spiked to 11.86%. The Labour Force Participation Rate has fallen from 42.87% in June 2018 to 40.40% in March 2021.
The ultimate test is: do people have a decent life, even if they are poor? And do they have enough food and healthcare? Loss of jobs, loss of incomes and a falling per-capita income cannot enhance welfare or a sense of well-being.
According to a May 2021 study, ‘State of Working India 2021’ (bit.ly/3ianaUd) by Azim Premji University, a humongous 23 crore people have gone below the poverty line, and average household borrowing has increased.
We are not here only to find fault. We are here to find ways and means to overcome the calamity and get the economy moving. Looking objectively at various ideas and suggestions, it seems that there is a broad consensus among economists, excluding the government’s, on the following:
*A strong fiscal stimulus and fiscal expansion.
*Cash transfers to the poor.
*Liberal distribution of free rations.
*Universal free vaccination.
*Substantial help to MSMEs, including capital grants, interest-free loans, moratoria, debt forgiveness, etc.
GoI baulks at every suggestion. There are no credible alternative proposals from the government except slogans like ‘Aatmanirbhar’ and ‘Sabka Saath Sabka Vikas’. The people are not buying them any longer, as was witnessed in Kerala, Tamil Nadu and West Bengal.
The way out of the deep hole we find ourselves in is to learn from the experience of other countries, listen to renowned economists and take bold decisions. The so-called ‘stimulus package’ announced last year was like feeding a fistful of corn to a hungry elephant. GoI must augment expenditure by using its cash surplus parked with RBI, borrowing more and, if necessary, monetising part of the deficit by printing money. The sovereign power to create money must be exercised during a national calamity.
Cash, Vax Only Cures
Along with spending, GoI must transfer cash to the poor. Together, these two measures will simulate demand and get over the ‘demand shock’ identified by RBI. MSMEs, which account for the bulk of employment, need help to reopen and ramp up production while maintaining their old levels of employment. Finally, GoI must reveal a detailed plan on how it intends to procure the vaccines that are needed to vaccinate all, and from which sources.
There is no cure yet for Covid-19. The only defence is vaccination. Until the virus is defeated, or its spread substantially contained, or 70% of the people are vaccinated, GoI has a duty to manage a Covid-affected economy and mitigate the hardships and suffering of the middle classes and the poor by adopting all the measures outlined above. So far, in the last 14 months, GoI has failed the people of this country.
The author has written this article by invitation
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)