The situation seems pretty bleak. There is little to cheer for the long-suffering citizen. Even as the country wages a haphazard war against the malevolent coronavirus, the economy has further slipped into a slowdown. Worse, chances of recovery anytime soon seem remote. The latest numbers released on Friday provide little cause for optimism. At a mere 3.7 percent in the fourth quarter of 2019-20, it was the lowest growth in seventeen years. Overall growth in 2019-20 at 4.2 percent was lowest in eleven years. For the record, in the Union Budget in July last year the growth target for 2019-20 was 8.5 percent. Talk of projection and actual achievement! Later the Government revised down the target, projecting it at five percent for the year. China and India were widely expected to defy the global slowdown trend and register a relatively high rate during the year. However, India fell far behind, at 4.2 percent to China’s full year growth of 6.1 percent. Clearly, we have a long way to go before we can match China even as it too suffers from a slowdown. Growth in the last quarter of 2019-20 partially suffered due to the coronavirus pandemic and the lockdown resulting from it. Several key indices like production of coal and cement, sale of commercial vehicles, the cargo handled at airports, etc., showed negative growth. In the last quarter, the contraction was as much as 75 percent. Aside from agriculture, which grew at 5.9 percent in the fourth quarter against 3.6 in the third, all major indices were down. Construction contracted by 2.2 percent; overall in the financial year the growth in the sector was 1.3 percent as against 6.1 percent in the previous year. Manufacturing, which along with services employs the maximum number of people outside of agriculture, decelerated in the last three quarters, falling by 1.4 percent in the last quarter of 2019-20. Official data also revealed slippage in government revenue, with fiscal deficit widening to 4.6 percent of nominal GDP. The figure was in breach of the Fiscal Responsibility and Budget Management Act. Finance Minister Nirmala Sitharaman had revised the fiscal deficit target to 3.8 percent from the earlier 3.3 percent, using the exceptional clause in the FRBM law. Growth in revenue in the current year is set to be far lower. The lockdown will mar the outcome in the first half of the year. And even if the economy restarts fully by mid-year, for it to get on stream and grow at a decent clip will take considerable time, especially in an overall bleak global situation and poor domestic demand.
The government has not helped matters by shying away from financial incentive to industries and individuals. Without spurring demand, the restart of the economy can by itself not generate demand. Incomes have shrunk all around. Middle-class, too, is conserving whatever little savings it has due to the continuing economic uncertainty. Business sentiment is poor. Given the disheartening situation, it was extraordinary that some in the official circles proposed an increase in the GST rates to make up for the loss of revenue in the lockdown and due to the extraordinary expenditure necessitated by the fight against the coronavirus. People do not have incomes to pay even the existing levies. Raising the GST rates further would have been foolhardy. Instead, the government ought to have considered giving teeth to its so-called Rs. 20-lakh economic salvage package. Its refusal to put cash in the hands of the people is incomprehensible. Most economies have taken the bold step of actually providing financial aid to its businesses and citizens. Here we promise them structural reforms of labour, finance, land and farm sectors, but little else. With a little over 1 percent of GDP as part of the stimulus package, as against the claim of over 10 percent, the economic package cannot reverse the slowdown. It might be here to stay. It is hard to appreciate the thinking of the government. Even now it may not be too late for the government to step up to the plate and actually offer financial relief of at least 5 percent of the GDP. Otherwise, growth is set to be negative.
