How dire is the economic situation in India? The Reserve Bank of India on Thursday decided not to offer a forecast of Gross Domestic Product growth, saying only that it expects the number to be negative for Financial Year 2020-2021.
One ratings agency has already said that it expects the economy to contract by 9.5% for the year. A Reuters poll of economists found that most expect a contraction of 20% in the June quarter. Most indicators, from industrial output to tax collections to corporate results to employment figures, suggest that though there were some positive numbers right at the end of the national lockdown to prevent the spread of Covid-19, that recovery has petered out. This is primarily due to India’s rising virus numbers and local lockdowns in place across the country.
Even as India’s top political leadership have spent the last week focused on a religious ceremony to start work on a controversial temple, the country is poised to hit 2 million Covid-19 cases – having already become the nation with the most daily deaths and new cases several times over the last week. As a result, the prognosis for India’s economy over the rest of this year remains tremendously bleak.
As has been said over and over, though the lockdowns and the virus have had a massive effect on the economy, the slide actually began well before the world had even heard about Covid-19. Yet this fact has never been acknowledged by the government, which insisted all along that everything was well.
“Why are we not able to take the necessary expenditures and transfers that perhaps need to be made to households in the midst of Covid? [It] is because we have not had an open debate about the fiscal situation of the country,” said former RBI Deputy Governor Viral Acharya who, like a number of others in the country’s economic and central banking teams, preferred to quit the job rather than work with this government that does nt like listening to criticism.
“A number gets announced as the real deficit and everyone is happy... everyone in the system says oh how can we question the real official statistics of the government,” Acharya said, in a recent interview with the Indian Express. “But when they are not right, they are not right. I want to fundamentally disagree with the thesis that those who agree have been able to pave a better outcome for the country.”
This is why the Indian government needs yet again to have a much more honest conversation with the country about its economic priorities and what has gone wrong.
Consider this: the Parliamentary Standing Committee was supposed to meet in July for the first time since the beginning of the Covid-19 pandemic. It took concerted Opposition pressure to have the discussion pivot from “financing the innovation ecosystem” to the dreadful state of the Indian economy.
Indeed, it was only because of this that Finance Secretary Ajay Bhushan Pandey admitted that the Centre does not have the money to pay the compensation dues that it promised states when their taxation powers were taken away for the Goods and Services Tax reform years ago.
A GST Council meeting was supposed to be convened in July so the states could discuss exactly this. This did not happen. Instead, the Centre simply leaked the news that it does not believe it is legally required to live up to its commitments to the states, even though they are on the frontlines of the economic crisis.
Accurate information should not have to be coaxed out of the government, by the public or the Opposition. If India is to emerge from what may well be the worst economic crisis the republic has ever seen, it will not be solved by controlling the headlines. The government needs to be far more honest about what has gone wrong – not just since the pandemic but before it as well. It must be willing to listen to and learn from criticism about its massive economic mismanagement, if there is to be hope for the country’s future.
There have been hints of another stimulus package later in the year, which would be an acknowledgment that the much-vaunted Atmanirbhar Bharat announcements did not amount to much. The government should take the opportunity to acknowledge and analyse its own deeply confusing, often destructive decision-making over the last six years. It must start a national conversation that – instead of stoking cultural and religious wars – focuses on putting the economy back on track in time for India to reap the gains of the final decades of its demographic dividend.