Minus 23.9 per cent. The figures are out. The reality is stark. The economy is shrinking, and there doesn’t seem to be a coherent plan of action to bring us out of the economic vandalism wrought by a combination of demonetisation, botched GST implementation, and the Covid lockdown. A terse announcement from the National Statistical Office said, “GDP at Constant (2011-12) Prices in Q1 of 2020-21 is estimated at ` 26.90 lakh crore, as against '35.35 lakh crore in Q1 of 2019-20, showing a contraction of 23.9 per cent as compared to 5.2 per cent growth in Q1 2019-20”.
While the economy shrank by almost a quarter due to the Covid lockdown, the seeds of economic disaster were sown much earlier. The first was the overnight demonetisation of the Rs 500 and Rs 1,000 notes in the name of the ‘war on corruption and terror’. While millions and millions of people, especially lower-income groups, and economically disadvantaged groups were devastated by the sudden action, it seemed to have little impact on either corruption, counterfeit notes, or cross-border terror. But the impact of withdrawing almost 90 per cent of the currency devastated small businesses, MSMEs, and the largely informal economy.
No sooner than there were green shoots of recovery being seen, came the botched implementation of the GST. Designed by people who probably never ran a business in their lives, the implementation of GST almost doubled the cost of compliance for smaller businesses. With four non-zero GST tax slabs, India keeps company with other chaotic political systems like Italy and Pakistan. Most nations have a maximum of one or two slabs.
Even before the lockdown, the economy was in a downward spiral. In fact, Covid has given the government a fig leaf to cover up its disastrous handling of the economy. Now, it can blame all its economic woes on an unseen virus that is still on the rampage. While the lockdown was the right idea, there were massive issues in its implementation. Starting with the sudden lockdown, accompanied by the refusal to undertake substantial cash transfers to mitigate the impact of the lockdown, the government has done precious little to save the people from the impact of the shutdown. The little that has been done has been in kind – provision of foodgrain, some cash transfers – but there seems to be little coherent action to mitigate the economic wreckage wrought upon households and livelihoods. And, now that we're emerging out of the lockdown, there seems to be little or no thought given to how the Government will get the economy back on the rails.
What ails the Government is the lack of a master plan for the economy. The sectors that will be developed, the training institutes that will train people for these sectors, the places these will be located in, and the infrastructure that needs to be planned for, to enable all this. With the abolishing of the planning commission, it seems like they have done away with overall planning needed. Expecting the invisible hand of the market to provide direction and vision is living in delusion.
There was a time before the 1990s, when people believed that this was their lot in life. They were fated to be in poverty, as their parents before them and their children after them. There was a sense of quiet fatalism and acceptance. In the 30 years since liberalisation, there have been many changes in the lives of ordinary Indians, and nothing is more remarkable than the embrace of optimism and hope for a better tomorrow. The walls of regulation and economic control crumbled, the winds of economic liberalisation changed the way in which India worked, lived, and dreamed. People from humble backgrounds began having aspirations for their children. Service jobs, gig economies, and a rapidly expanding middle class created a whole new class of people who could escape from poverty and partake in the fruits of liberalisation.
Today, those dreams lie shattered. And, there seems to be no light at the end of the dark tunnel. Stories of mangalsutras being sold, and provident funds being dipped into, abound. Much more than that is the lack of clarity on when things will change.
The Government needs to think big, and it needs to have an over-arching plan for the economy. It needs to cut red tape and offer tax holidays. It needs to consider a basic income transfer for at least the most economically vulnerable in the economy. It needs to develop clusters of industries in smaller towns and larger poverty-stricken states – and use the machinery of the state to get infrastructure up and running to enable factories to start, and employ people. And, the starting point of all this is for the government and its supporters to stop behaving like ostriches, get their collective heads out of the sand, and ask for help. Because the mess that has been created is too large for the Government to solve alone. It needs concerted efforts by all to move a 140-crore strong economy back on the rails, and push it to a better tomorrow.